Q4 2021 CSX Corp Earnings Call

January 20, 2022

Good afternoon. My name is Emma and I will be your conference operator today. At this time I would like to welcome everyone to the Q4 2021 CSX Corporation earnings Conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question again press the star one. Thank you. Matthew Korn, you may begin your conference.

Thank you, good afternoon, everyone and welcome.

Joining me on today's call are Jim Foote, President and Chief Executive Officer, Kevin Boone, Executive Vice President Sales and marketing.

Jamie Boychuk, Executive Vice President of operations, and Sean Pelkey, acting Chief Financial Officer.

In our presentation, you will find our forward-looking disclosure on slide two followed by our non-GAAP disclosure on slide three.

And with that, it's my pleasure to introduce our President and Chief Executive Officer, Jim Foote.

Thank you, Matthew, and thank you to everyone for joining us for today's call. First I'm pleased to welcome Matthew to CSX and believe his investment research background, including coverage of many of our customers will make him a great contributor to our team.

And I wish Bill success in his new role as head of finance and Treasury.

As we exited 2021 every CSX employee deserves recognition for their dedication to our customers in what has been another unbelievable year operating through the ongoing impacts of the pandemic and supply chain disruptions.

As these challenges continue into the start of the new year, we continue to take the necessary steps to move more freight for our customers. We are putting the resources in place to deliver a high-quality service product.

And I'm working hard every day to make rail a more meaningful part of our customers' transportation solutions.

Throughout this period, we have remained true to our core principles, operate safely, reliably and efficiently and are committed to providing customers with additional capacity to help overcome the current challenges.

These actions combined with expected easing of supply chain disruptions positioned CSX for growth.

Turning to our presentation, let's start with slide four which highlights our key financial results.

We moved nearly 1.6 million carloads in the fourth quarter and generated over $3.4 billion in revenue.

Operating income increased by 12% to $1.37 billion.

The operating ratio increased 310 basis points to 61%, which includes approximately 250 basis points from the impact from quality carriers, and 50 basis points from higher fuel prices.

And earnings per share increased 27% to 42 cents a share.

I'll now turn it over to Kevin, Jamie and Sean for details.

Yeah.

Thank you, Jim. Turning to slide five. Fourth quarter revenue increased 21% year over year with growth across all major lines of business.

Merchandise revenue increased 4% on 3% lower volume as the impact of ongoing automotive semiconductor shortages was more than offset by revenue growth across all other merchandize markets.

Industrial and construction-related end markets continue to demonstrate the strongest growth.

Even though declines in energy-related markets remain a headwind for our chemical business. It's important to highlight that our core chemical plastics and waste markets continue to show solid year over year growth.

Intermodal revenue increased 16% on flat volumes as international growth driven by strong underlying demand and continued growth in rail volumes from East coast ports was offset by domestic declines due to ongoing driver and equipment shortages.

Coal revenue increased 39% on 2% lower volume.

Increases in export coal shipments driven by the impact of rising benchmark prices was partially offset by the effect of declines in domestic volumes.

Largely related to producer outages.

Other revenue increased primarily due to higher intermodal storage and equipment usage driven by supply chain disruptions, resulting from truck driver shortages chassis availability and the lack of warehouse capacity.

As we exited the fourth quarter, we clearly saw the effects of omicron with December volumes impacted by labor and supply chain disruptions.

These challenges have continued into the new year, where we're seeing customers face labor shortages in their operations.

As we look across merchandise intermodal and coal markets. Demand signals remains strong.

Man signals remains strong.

Our supply chain challenges normalize we would expect volumes to align more with demand.

Finally, I would like to highlight the positive results, we have achieved by working with customers on new business development projects.

Over the last few months, we have seen three significant announcements of new production facilities to be located on the CSX Railroad.

Including two electric vehicle plants, and a new steel mill.

These projects are a team effort and showed the ability of our sales and marketing team in partnership with operations to creatively come up with solutions that meet the requirements of our customers.

Importantly, these projects represent significant long term value to CSX.

Now, let's discuss the progress CSX is baking when it comes to our commitment to sustainability as summarized on slide six.

Rail is the most efficient form of land-based transportation CSX is the most fuel-efficient class one railroad.

US class one railroad.

By using CSX rail in 2021, our customers avoided 11 million metric tons of carbon dioxide emissions.

Which is equivalent to taking 2.3 million passenger vehicles off the road.

An amount greater than all of the hybrid and electric vehicles operating in the US today.

We are proud of the recognition we have received for these efforts to date.

By organizations such as CDP, Dow Jones and Forbes.

Dow Jones and Forbes.

But we're certainly not done.

CSX continues to invest in existing technologies to drive further improvement and we continue to evaluate emerging technologies. So we are prepared to realize those benefits when available.

We're excited to see our customers' increased focus on improving their carbon footprint.

Customer engagement on ESG has accelerated and we have seen them double their usage of CSX provided tools that help them calculate emissions savings from switching to rail.

You will also see later this quarter, we will be recognizing customers for their efforts and prioritizing carbon emission savings by converting traditional truck volume to rail.

I will now pass it on to Jamie to discuss our operations.

Alright. Thank you, Kevin and good afternoon. As Jim referenced we are working very hard to provide customers the capacity here to help overcome the persistent supply chain challenges.

One of the areas we've discussed and are ongoing any hiring initiatives.

This effort is beginning to pay dividends as more employees finished training and begin moving freight.

We're also encouraged to see ongoing hiring momentum to start the year as we continue to consistently fill weekly training classes, while maintaining a strong pipeline of candidates. In total, we roughly doubled the average number of active trainees in the quarter.

Also, the number of employees qualifying and moving to active status increased almost 50% sequentially in the fourth quarter to approximately 150.

And we expect this number to double to over 300 employees in the first quarter.

Recently, the benefit of these additional employees have been offset by the rapid rise in COVID cases across the network.

Average daily cases have increased by several hundred employees since early November and are approaching prior peak levels.

That said, there is no doubt that the hiring actions taken to date have allowed us to better manage the current situation.

We've also supplemented this hiring by bringing additional assets online to help offset network imbalance caused by pockets of concentrated case counts.

We will maintain these tactical asset increases as needed to protect service. But we'll look to improve asset utilization and drive increased operating efficiency as employees return to work and our ongoing higher initiatives provide the necessary resources to move incremental volumes and deliver the expected high.

Quality service to our customers.

Additionally, until Hollaway capacity improves at intermodal terminals, we will continue making the necessary investments to keep terminals fluid by providing the overflow space and supplemental labor required to move long dwelling boxes out of our terminals.

We're also continuing to take a long term approach to network and infrastructure planning and have identified several strategic exciting extension opportunities that will provide additional long term capacity by helping to alleviate congestion while also supporting growth for years to come.

As always, we will pursue these initiatives, while maintaining a balanced train plan and a continued focus on strong execution to maximize both reliability and service for our customers.

I want to thank the entire operating team for the hard work and long hours they put in to keep freight moving for our customers.

Despite the incremental headwinds this quarter, service metrics remained consistent with the prior quarter.

And we are taking the necessary steps to drive these metrics back towards pre-pandemic levels over the course of 2022.

Turning to slide eight.

Safety remains fundamental to everything we do at CSX. And we hold ourselves to the highest standard for our employees, customers and the communities in which we work and operate.

Our hard work to instil a culture of safety at CSX continues to drive positive results.

As shown by the reduction in our train accident head countless, train accident rate this year.

Heading into 2022, we continue to target further reductions to human factor incidents through a combination of increased awareness.

Best practice sharing collaboration across regions and expanding our successful drilling program.

We are also engaging with our new hires to instill our principles of safe operations and emphasize our commitment to make CSX the safest running railroad.

I will now hand it to Sean to review our financial results.

Thank you, Jamie, and good afternoon.

As you've heard, operating income grew double digits up $151 million with revenue up 21% on gains across all major markets.

Below the line interest and other expense was $60 million favorable reflecting the prior year debt repurchase expense.

Income taxes were up on higher pre-tax income, though we recognized $25 million in benefits this quarter, primarily related to state tax adjustments.

As a result EPS of 42 cents.

Was up 27% versus the prior year.

Now I'd like to take a minute to walk through operating expense in more detail on the next slide.

Total costs increased $451 million or 28% in the quarter.

The addition of quality carriers drove approximately $200 million of the increase.

Higher fuel prices were also a significant factor driving costs up about $115 million versus last year.

Non-locomotive fuel inflation remained consistent with prior quarters just above 3%.

So as we turn the page to 2022, we expect a number around 4%.

Drilling into a few specific line items. Labor and fringe increased $115 million or 20% in the quarter.

Quality was about $30 million.

Incentive compensation was a nearly $40 million headwind in the quarter.

Largely due to higher expected payouts versus last year and the impact of accelerated expense for certain employees.

As Jamie discussed. We continue to focus on hiring and retaining train and engine employees.

We continue to focus on hiring and retaining train and engine in place we.

We invested over $20 million in new programs targeting our [inaudible] workforce.

In line with these efforts, average head count increased by 230 or 1% sequentially.

Labor inflation remained in line with prior quarters, though is expected to be slightly higher in 2022.

Purchase services and other expense increased $198 million or 44% in the quarter.

As a reminder, this is where most of the quality expense shows up approximately $130 million.

Also, you may recall that we expected investments in supply chain fluidity to result in higher costs on this line.

And we saw about $45 million of increased expense as we work tirelessly to drive network and terminal fluidity in light of unprecedented challenges.

We expect these costs will persist until we see a normalization of labor and the broader supply chain.

The remaining increase reflected both the impact of inflation as well as a number of smaller items.

Depreciation was up 4% on a higher asset base.

Fuel costs were up on higher price and trucking fuel.

Rents were up slightly and we had about $20 million of higher real estate gains.

Going forward, you can expect a modest level of base real estate gains.

Similar to the 35 million we recognized in 2020.

As we shift our focus towards leveraging the real estate portfolio to support growth initiatives.

However, the Virginia transaction will continue to impact results in 2022.

With a $20 million gain in Q1.

And a $120 million gain expected in Q2.

We anticipate receiving the final $125 million of cash in Q4.

Now turning to cash flow on slide 11.

On a full-year basis, free cash flow before dividends increased 45% to $3.8 billion.

As a reminder, this includes $400 million from Virginia and over $500 million of total proceeds from property dispositions.

Cash and short term investments finished the year at $2.3 billion.

While this remains elevated, we nevertheless expect to continue to work the balance down this year the levels more in line with our historical liquidity needs.

After fully funding capital investments.

Shareholder returns exceeded $3.7 billion.

We will continue to be balanced and opportunistic in our buyback approach and we remain committed to returning excess cash to our shareholders. With that, let me turn it back to Jim for his closing remarks.

Yeah.

Great. Thanks, Sean.

Let's conclude with our outlook for the year on slide 13.

We remain optimistic about the opportunity to grow this year driven by a combination of strong underlying economic momentum and supply chain recovery.

Based on these expected tail winds, we are targeting GDP plus volume growth for the year.

Volumes should build sequentially throughout the year as supply chain bottlenecks fees. As a result, growth in the second half of the year is expected to be greater than in the first half.

This growth will be supported by the initiatives Jimmy reviewed to appropriately resource our network for the current demand environment and to ensure we can provide customers with a consistently strong service product.

We also expect pricing to benefit from a combination of market forces, including very strong demand for transportation services.

Full year capital expenditures are planned at approximately $2 billion.

Our top capital priority is and always has been maintaining and improving the safety and reliability of our network.

In 2022, we will replace an excess of 500 miles of rail as we continue to focus on our core infrastructure.

The cost of this capital work has been offset by significant improvements in the efficiency of our engineering programs.

While we expect to drive further efficiencies in 2022, our plan reflects the impact of increased inflation and a number of discrete strategic investment opportunities.

We'll continually evaluate future strategic opportunities as they come along but still have ample capacity across our network to absorb future volume growth.

And finally, after investing in the railroad and high return growth projects, we remain committed to returning excess capital to shareholders through a combination of dividends and share buybacks.

We are entering the year with strong demand across the economy, but shippers are facing ongoing challenges from a lack of capacity in labor materials and transportation.

Our focus remains on supporting our customers by providing effective rail solutions to overcome these persistent bottlenecks. As I said earlier, we are encouraged by the progress we are making and we expect our actions combined with an improving global supply chain.

We will provide a year of steadily improving growth.

Thank you and I'll turn it back to Matthew for questions.

Thanks, Jim. Now in the interest of time, I'd ask that everyone please limit yourselves to one question and with that operator, we will now take questions.

At this time, I would like to remind everyone in order to ask a question press star then the number one on your telephone keypad.

Your first question comes from Brandon [inaudible] with Barclays. Your line is now open.

Hey, good afternoon, everyone and congrats, Matt.

I guess you guys didn't provide any discussion on forward our profitability our margins and I get it, you know, you have the lapping of quality carriers.

Plus lower land sale gains. But I guess can you talk to the core efficiencies in the business and how you plan to leverage growth this year? Are there incremental opportunities for you guys to drive core profitability of the network tire?

Yes. Thanks, Brandon. This is Sean, so just to clear the record so you're going into full year 2022, we're going to have the full-year impact of quality. We are going to have lower real estate gains as I just outlined.

Together is about a 350 basis point impact so kind of on a like for like basis you're starting at a 59 OR.

Fundamentally, nothing has really changed about our story. Our expectation as we come out of the pandemic this year is for supply chains to normalize. As they do that, some of this some of the cost that we've added in order to better serve our customers will start to come down a little bit. But obviously, the incremental growth that we see.

Stronger in the second half than in the first half of the year should be at good incremental margins.

And so at the end of the day, I think the core story that you've seen over the last couple of years with us is the same next year or this year as it has been. The only unknown is what's the pace of the normalization how do we get, you know, how quickly do we get overcome.

What we're seeing right now out there in the environment.

Thank you.

Yeah.

Your next question comes from the line of Brian [ianudible] with JPMorgan. Your line is now open.

Alright, thanks, good evening.

Just wanted to ask Kevin maybe you can go through some of the puts and takes of the outlook for some of the key end markets. And as Sean just talked about some of the uncertainty around the supply chain, but yeah, where you feel like you have some maybe more opportunities that could come to bear and where do you see some of the challenges. And if you can layer in some of the impact of this new business development.

It sounds like there might be a little bit more longer-dated but is it too early to see some benefit from this.

Thanks, Brian.

Look, there's a lot of demand tailwind that we see there's pretty robust demand across pretty much every end market.

Currently, so we're optimistic there as Sean pointed out the supply chain challenges and I think the timing of those

Normalizing is probably the biggest question as we move into the second third and fourth quarter kind of when does that really.

Translate into some more better fluidity out there for us but starting with merchandise.

Some more better fluidity out there for us but.

Starting with merchandise.

Really it's a story of auto.

Many of the auto has really started in production really start to come back online.

In production really start to come back online.

When you look at current estimates is really for a back half story on the volume and certainly, autos drive more than just the current carloads in the auto side, such as the metals business plastics business for us as well.

Auto's going to be very very important certainly we all know the demand we've all been to the local dealership and they don't have any new cars. And if you want a new car you probably got to wait 12 months.

The demand is there. There's no question about it. Where we see right now.

The metals business is very strong. Plastics remains very very strong. Probably the only thing that we're really seeing weak and I touched on a little bit as energy market and that's all about spreads and spreads can.

Collapse and then gap out again, so we'll continue to watch those and will benefit if those.

You know get more positive in the future.

On the intermodal side, we've really benefited from the Intermountain national market and we see no slowdown at this point.

There's still a lot of ships waiting at the port to get in and we've been very successful in moving that freight and we continue to have the operations.

And you know I think we will continue to benefit from that.

The domestic size really where we've seen the disruption that's been largely due to the driver shortage, the equipment shortages that we're seeing on the

chassis side and to be honest, I think the chassis.

Problem seems to be probably being pushed out every month.

I know that the suppliers are having a hard time ramping up production, but that's probably going to be a second-half story in terms of the chassis as far as we see it right now. So but we do see they are for underlying demand there and think that's a good positive.

Story for us into the back half of the year.

And then finally, even moving to a coal. The demand is outstripping supply.

You see it in the export benchmark prices. They are incredibly strong right now. We're at all-time highs almost. Then when you look at the met and in thermal markets today.

And so we have some opportunity there. The mines have had struggled quite frankly. They're underinvested.

Underinvested.

They've had a hard time ramping backup production. Some have dealt with strikes. Some have dealt with other problems and but those things to normalize hopefully and we should see the benefit of that.

We've also seen recently a new mine come online and so that should help us as we get through the year.

But those I think the biggest question is how long do they export prices stay at these levels, but we would expect hopefully volume to pick up as we move through the year. Those are some of the moving parts through the markets.

Alright. Thanks, Kevin. If I can ask for just a quick comment on coal inventory levels. Do you think you can see some restocking given some of the dynamics you talked about with demand outstripping supply specifically on the domestic utility side?

Yes.

Coal levels, particularly in our southern utilities are very low. So there is a restocking not needing we're working really closely with our customers.

And you know I would expect.

Expect that to persist through this year and probably in the next.

Alright, thanks very much.

Your next question comes from the line of Tom Wadewitz with UBS. Your line is now open.

Yeah.

Yeah. Good afternoon, I wanted to ask you a bit about how closely we should tie

Your own capacity in your growth and conductors coming out of the training classes.

It seems like you have a nice pipeline and a nice ramp-up in that but how closely should we tie that volume growth to that ramp in your capacity?

Is that the right way to think about it or do you think that the factors outside your control?

And broader supply chain are kind of a bigger variable.

In terms of your volume growth.

Okay.

Tom. It's Jim.

Just generally it clearly CSX is no different than any other industry right now where we have been challenged finding people to come to work.

<unk> is no different than any other industry right now where we have been challenged.

Finding people to come to work.

And because we have been short on our train and engine service employees. Simple fact is we have not been able to move the amount of freight we could have and we've been staffed up at the appropriate levels.

That's why we've been talking for the last year at least about our attempts to drain.

Ramp up the hiring of operating employees.

Operating employees.

And as Jamie said.

We're starting now just now after 12 months of very very hard work to get back to a positive two growth number.

To.

Get back to a positive two grew.

In terms of the number of employees. And when we do that, we will be able to move more freight. Jimmy will add more detail.

Yes.

I think Jim pretty much nailed it. What, this is probably one of the most difficult environments we've ever seen.

When you think about all the stuff the rail industry has gone through over the past 10, 20 years. My 25 years of railroading. I can tell you when you come in one week and you've got 60 people off on COVID, a new variant comes through you got 350 off on COVID on your [team east] side, you really start to feel the effects.

And believe me, Kevin and I are talking all the time about the opportunities of moving as much product as we can for our customers.

And not only just the product that we currently have with our current customers, but the growth side of things and what else can we move out there.

To Jim's point, our hiring classes of over I would say probably the past two months have been extremely successful.

We're putting 150 plus [inaudible].

While new conductors I guess through our training center in Atlanta.

And we continue every single week to hold a new class.

And I'm proud to say that all the hard work our HR team has done.

Through Dhyana store fleet.

It's paying off. And honestly, when we start looking at where we're going to be in three or four months from now, we're going to be, it won't be a different look on railroad and these opportunities that Kevin is talking about is, can be opportunities that we're going after.

When we start looking at where we're going to be in three or four months from now we're going to be it wont be a different look on railroad and these opportunities that Kevin is talking about is a it can be opportunities that we're going after.

So are you optimistic about a quick improvement related to omicron or really just focus on second-quarter for that improvement in capacity?

Yeah, Tom it's Jim.

We're thinking about maybe getting an epidemiologist don't staff, so if you're ready to step up and tell us. This is it. This is going to be over two months and we're not going to see another one.

Epidemiologist don't staff, so if you're ready to step up and tell us. This is it this is going to be over two months and we're not going to see another one.

You can start tomorrow.

It sounds like second quarter.

Yeah.

Thank you, Jim.

You bet.

Okay.

Your next question comes from the line of Chris Wetherbee with Citigroup. Your line is now open.

Yeah. Hey, thanks, good afternoon, guys.

Maybe wanted to ask a question on pricing so Kevin maybe.

What do you think about renewals for 2022, maybe how what the opportunity set is there and maybe how those are progressing as we've gotten through the month of January here. And then on the coal side any help you can give us with how to think about yields and maybe just the first half of the year or over the course of 2022.

Newell's for 2022, maybe how what the opportunity set is there and maybe how those are progressing as we've gotten through the month of January here and then on the coal side any help you can give us with how to think about yields and maybe just the first half of the year or over the course of 2022.

I know the thermal exports are probably a full year renewals. So maybe you have some uplift there, but I think some of the bad stuff a little bit more closer to market. So if you could just help us with those points, that would be great.

Yeah. Sure, let me cover the pricing side first obviously, new we're going to get this question.

Sure Let me, let me cover the pricing side first obviously, new we're going to get this question.

The market is clearly there is tight.

From the supply chain from the transportation side, you've seen our primary competition truck rates are up significantly.

And we're having to react to that obviously and what we're doing.

But also working with customers on opportunities for them to convert more freight over to rail.

In this high inflation market, they're looking for ways that they can save on their transportation costs.

And rail is almost every time, the most economical solution for them and so those discussions.

Every time, the most economical solution for them and so those discussions.

I'm happy to say are really accelerating now and talking to Jamie everyday on what we can do.

So that's a really real positive for us. So I would say certainly the market is better than it was last year.

We're working with customers. They understand the cost pressures that are out there across the world, they're seeing it. They're asking their customers for the same. So you know we're seeing some positive momentum on that side. In terms of coal I mentioned it on my opening remarks.

Export coal prices you know the benchmarks are at highs what we've assumed.

And your guess is probably as good as mine is that will moderate through the year.

But what I can tell you is you know if the economy reaccelerates post omicron.

And China demand continues to be strong, then who knows it could last much longer. But what our assumption is going forward is that likely those prices will come down. So that will impact yields somewhat in the back half of the year, but offsetting that somewhat we would expect maybe some volume progress.

As the producers ramp up some of their production as one of the new coal mines that I mentioned comes online as perhaps one of the coal mines that we serve.

Ramp up some of their production as one of the new coal mines that I mentioned comes online as perhaps one of the coal mines that we serve.

Resolve their strike.

There is another major mine that we have right now that shut down completely so hopefully, some of those things come back online and help us on the volume side.

That's great and just quickly merchandize and intermodal. How much of the contracts come up for renewal.

At the beginning of the year.

Yes, we see about 50% to 60% renewed annually in about call it 75% of those in the first and fourth quarters of the year.

Great. Thank you very much.

Yep.

Yeah.

Your next question comes from the line of Ken [Hexter] with Bank of America. Your line is now open.

Great, good afternoon.

Jim, Union Pacific this morning talked about growing faster than industrial production about 4.8%.

So their level of carloads you pick GDP in your outlook. I just want to understand.

Kind of trying to parse your growth target, which includes services on GDP. So can you kind of talk about that overall target? Or maybe that's a Sean question and then you're now more than half a year and with quality. Are you seeing any of that can contribute contributions that you expect at this point from the acquisition? Thanks.

Yeah, I'll talk about that.

Ken, good good to talk to you.

Yes, I think we're I think we're comfortable with the quality so far. I mean it's playing out as we had expected.

The customer enthusiasm about this product that we have in the marketplace now is very good.

A lot of conversations ongoing about converting to a trans load type of operation versus truck direct.

Converting to a trans load type of operation versus truck.

Truck direct.

And we have even got the equipment yet here to utilize some of the ISO containers, which will help this conversion even more. So all in, yes. I mean they're a great team really smart people extremely enthusiastic and excited about this opportunity so far.

<unk>.

So far.

I think Shaun it's probably better to mediate between Lance's view of growth in mind.

Mediate between Lance's view of growth in mind.

I don't know about that but I can just kind of give you a little bit of color, which I think Kevin really sort of already went through in terms of each of the markets and the puts and takes there.

I think the first half of the year or first quarter at least on the auto side, we're going to continue to remain challenged.

And you can see it in our weekly numbers in terms of how that's trending. So the hope is that as we get into the second half of the year, that's part of kind of what drives the above GDP growth.

Kevin also talked about some of the growth initiatives and that the three he mentioned are aren't the only three. Obviously there's a lot going on within the sales and marketing team in terms of attracting new business to the railroad.

And then fundamentally our ability to capture the demand picture that's out there assuming that the recent momentum we've had on the hiring front continues. And the tools that we're using in terms of retaining the employees we have continued to be successful we grow the active teeny count we're going to be able to move more volume.

Great. Thanks, Tim. Thanks a lot.

Your next question comes from the line of Jon Chapell with Evercore. Your line is now open.

Thanks, Anna, good afternoon, everybody.

Jamie. We spent a lot of time on labor for obvious reasons, not just impacting you, it's impacting your customers as well. But if we can go all the way back to a few quarters ago before it really kind of rear its ugly head in supply chain got into a real bad congestion issue. I know you are out in the field kind of looking for other type of improvements you can make within the network. So as we think about right-sizing.

So a lot of time on labor for obvious reasons, not just impacting you it's impacting your customers as well, but if we can go all the way back to a few quarters ago before it really kind of rear its ugly head in supply chain got into a real bad congestion issue. I know you are out in the field kind of looking for other type of improvements you can make within the network. So as we think about right sizing.

The organization getting through some of the supply chain.

Congestion into normalized quote-unquote fluidity, you guys seem to have a head start here. So are there other opportunities for you within the network, whether it's just on trip plan performance or some of the cost levers in the back half of the year into '23 that you think that being a front runner here you have a real opportunity on a relative basis?

John, we are always analyzing the railroad so ongoing out there again next week.

To spend some time on the railroad and we will be analyzing again, what we're doing with their plan out there so of course as market conditions change.

And other factors that go on out there we analyze what we do.

Yeah, we just finished finding different opportunities to service our customers better, particularly in the Carolinas. We spent a lot of time out there just over this past quarter, but as I mentioned, we've put some assets out there in order to ensure that we can provide the service that our customers require right now. So there are some expenses that go along with that.

And we see a quarter or two from now as our hiring catches up to where we needed to be we'll be able to pull those assets back and or use those assets or are for continued growth as we move forward. So there is absolutely is always an opportunity on our railroad.

The job of the folks out there who are working really hard on the ground. Their job is to execute the network centers jobs to analyze and and I work between those folks to make sure we're making the right decisions and that will continue to do that so yeah. There is always opportunities, but I can tell you right now.

Our focus is on growth. Our focus is on service and our focus is to make sure we continue to balance those expenses along the way. So that's going to be where we continue to push in towards 2022.

Great. Thanks, Jamie.

Your next question comes from the line of [inaudible] with Deutsche Bank. Your line is now open.

<unk> <unk> with Deutsche Bank. Your line is now open.

Thanks. Hi, everyone. I just had a couple of quick questions and then one kind of maybe broad one for Jim, but first, Shawn.

I just had a couple of quick questions and then one kind of maybe broad one for Jim but first Shawn.

I wasn't sure about this when you answered it earlier. Are the margins of the business going to improve on a year over year basis against the $58.1 award that you did in 2021? And obviously, excluding Virginia, I understand the timing of the quality curious acquisition and all that but ex Virginia are the margins going to improve year over year?

Relative to the 58 spot one.

And.

And related to that, could you just talk about maybe what the expectations are accessorial revenues year over year? Because I think that will probably be a little bit of a headwind in '22.

Sorry, Jim one out of the box question a little bit. You've had great success, leading CSX and the whole team over the last many years under very difficult circumstances for sure.

What is the thought process around succession planning? Do you plan or are you willing to lead CSX for many many more years to come? Or do you think there is some scope for change internal-external? Could you just talk about that? Because it's a question that I get and we get a lot and I thought it would be interesting to get your thoughts on it as well. Thank you.

And Matt. This is Sean, I'll take the first two.

To begin with so on your operating ratio question.

You got the 58.1.

Full-year impact of quality. So what I was saying is that kind of takes you to a 59.

So I think your question is can we do better than that in 2022.

And we're not going to give up our guidance today, but that being said I think we've kind of walked through all of the factors that are going to drive growth.

Both in terms of our volumes our revenues as well as our operating income and what that means for OR.

We go into the year with a little bit of an elevated cost profile.

Probably in Q1, you're going to see costs that are largely similar to Q4.

Given that things have not gotten better from a supply chain and labour availability perspective. As we go through the year, we think that does improve. And if it does, then we also see volumes come along with it. And we think that sets us up very very well. There are other uncertainties what happens in the coal market with export coal pricing and other factors.

Like Kevin talked about.

And then the other piece of it that you hit on was the other revenue.

You know, I think largely other revenue is going to trend with the broader supply chain because the issues that we're facing that are causing containers to dwell.

On the intermodal side are the same factors that we're facing more broadly in the economy between driver availability.

The [inaudible] availability and so on. And so it's likely other revenues going to remain elevated here in the first quarter. And then I would say our baseline expectation is that it begins to normalize starting next quarter.

And then hopefully sort of back to normal by the second half of the year, which means we're probably moving more volumes. So those are the factors.

On the question of success and clearly, it's been a topic since I got here started in the beginning of 2018.

You may recall, there is there's been quite a significant change in the management makeup here over that four year period. And it has always been my goal has always been the goal of the board.

To make sure that we add in place a rock-solid diligent succession planning process.

Rock solid diligent success.

Succession planning.

Process.

And the procedure to follow for all of the executive management jobs.

<unk>.

And I think when you talk on the call today and you hear these great new voices that are so doing such an exceptional job, that's because of the diligence that went into making sure that we always have.

When you talk on the call today and your dog. These great new voices that are so doing at such an exceptional job that's because of the diligence that went into making sure that we always have.

It available pipeline of qualified talent and I can tell you from working with the board that's no different for my job.

Our job and the board's job is to make sure when Jim decides to go whenever that might be.

Hopefully that's when I decide. Not when they decide.

But whenever we're going to fill that job that we have qualified people both internally and externally.

Whenever whenever we're going to fill that job that we have a we have qualified people both internally and externally.

We can step right in. And being a significant shareholder I hope, even do a better job than I think I have done.

And being a significant shareholder I hope, even do a better job than I have.

Thank.

maybe other people disagree, but it's been an interesting ride.

Yes, I appreciate you entertaining that question. Thank you very much.

Thank you.

Your next question comes from the line of Ben Nolan with Stifel. Your line is now open.

Yes, I have two, probably quick ones, if I can squeeze I mean, the first is just when we're looking at the $2 billion of Capex, curious if you might be able to parse that out between.

<unk>, probably quick ones, if I can squeeze I mean, the first is just when we're looking at the $2 billion of Capex curious, if you might be able to parse that out between.

Or what portion of that might actually be growth-related. And the other one is you talked a little bit about coal outages and I know there was an issue at Curtis Bay. How should we think about coal in the first quarter specifically?

Yeah.

Hey, Ben. This is Shawn. I'll take your first question around the Capex and I would say.

Capex up about $200 million versus 2021. About half of that is related to growth investments.

Jamie talked a little bit about the sidings already which set us up very well for the long term. To grow into the capacity that he'll be creating.

Grow into the capacity that he'll be creating.

We're making some incremental investments on the technology side.

Some of our quality investments and the ISO tanks fall into that category and then some commercial facilities. So lots of good high return growth-oriented investments the balance of the increase in capital is really driven by sort of inflation in the core infrastructure spend as well as a slight increase in hardening.

The core infrastructure for safety and reliability.

Core infrastructure for safety and reliability.

I would just add on the Capex side that the siding extensions we're looking at mostly on our [inaudible] input onf our property, which was down in the southern.

Southwestern part of the railroad, where we had smaller sidings. It worked for us, but the growth coming out of some of that area through.

Alabama and other stuff that's going on. The need is there so that's where the majority of this Capex money is going to.

And we're excited to get it out in that area to support that growth that Kevin and his group are bringing.

With respect to Curtis Bay.

Yeah. We were down for a couple of weeks, but we're back up doing direct dumping.

We did redirect a few trains to a couple of different locations, but we are back in business.

Alright. Thanks.

Okay.

Your next question comes from the line of Justin Long with Stephens. Your line is now open.

Thanks, and good afternoon. I was wondering if you could talk about the impact you expect from quality in 2022 from both a revenue and operating expense perspective, as we try to model that out. And then circling back to some of the labor commentary. Can you help us think through what you're expecting for a change in headcount as we progress through this year?

A change in head count as we progress through this year.

Yes, Justin, it's John. I can take both of those so the quality impact is pretty straightforward.

What you saw in the second half of this year for both in terms of revenue and expense is probably a pretty good run rate going into the next year into 2022, we'll have kind of a half-year impact in Q1 and Q2.

And then as we get into the back half it should be pretty similar but the things that are going to drive any difference would really have to do with driver availability. The demand is very strong on the quality side, but that's how I would think about it so a little over $400 million of revenue in the second half of this year.

Any difference would really have to do with driver availability. The demand is very strong on the quality side, but that's how I would think about it so a little over $400 million of revenue in the second half of this year.

That's probably a good run rate around 200 million a quarter.

In terms of sequential labor headcount. So you saw an increase of 1% from the third quarter to the fourth quarter. I think that's probably a pretty good.

Estimate of what we might see over the next couple of quarters.

The good news is, as Jamie talked about.

The headcount we report to you includes both TD employees who are in training as well as those that are marked up and in revenue service. The mix between those that are in training and in-service will change a little bit over the course of the first half-year, which is great news, but the headcount should go up very modestly on a sequential basis over the first couple of quarters here.

In training as well as those that are marked up and in revenue service. The mix between those that are in training and in service will change a little bit over the course of the first half year, which is great news, but the head count should go up very modestly on a sequential basis over the first couple of quarters here.

Okay, helpful. Thank you.

Your next question comes from the line of Scott Group with Wolfe Research. Your line is open.

Hey. Thanks. Good afternoon, so Sean, we had some pretty big headwinds from comp per employee and purchase services in the quarter, I think including some accelerated cost. How should we think about those two pieces this year?

And then Kevin just circling back on coal for one second. Was your point about the met prices at highs, suggesting that there's another sequential uptick in [coal RPU in 1Q]?

Scott. So [copper] employee you're right. It was elevated here in the fourth quarter and that was one of the big factors there obviously was the incentive comp piece. So that should normalize as we get into 2022 I think if you look at it excluding that for the back half of this year, that's probably a good baseline to build off of.

Line of build off of.

We're going to have some higher labor inflation, which includes you know health costs as well as the payroll tax and railroad unemployment.

That will be partially offset by the incentive comp and then.

There are some favorable mix from the quality addition, in the first half of the year.

Hopefully as we get later into the year.

And the network is cycling better we also see a reduction in overtime and things like that.

They are probably as a result of inflation will be a modest increase versus the normalized comp per employee.

But but not significant. And then in terms of purchase services.

That's a line that has a lot of different moving pieces. What I can tell you is that you're probably going to see something similar in the first quarter to what you saw in the fourth quarter.

But a lot of the costs that we added recently has to do with opffsite storage and intermodal facilities, supplemental labor, adding some locomotives, things like that. And you know that ties directly to overall fluidity within but not only our network but the broader supply chain. So as that gets better.

The purchase services costs should come down commensurate with that.

Yeah, and then on the coal RPU, we would expect something probably flattish versus first quarter versus fourth quarter. Mix always matters. I would say the mix in terms of our domestic coal side.

Should we see some of the supply issues at the mine improve could help some of that southern coal longer haul, maybe later during the quarter that could help but largely flat is the way we see it today.

Longer haul.

Paul maybe later during the quarter that could help but largely flat is the way we see it today.

Okay, Sean if I can just clarify one thing so it sounds like the purchase services headwind is an offset to the [inaudible] stuff, so as the [accessorial] goes lower, the purchase services cost goes lower too. So don't think about the [inaudible] as

100% margin.

Yes, that's correct I think.

That's right. Now, we'd, probably accessorial may come down a little bit faster than purchase services, just as, just from a timing perspective, but they will trend together.

Okay. Thank you.

Your next question comes from the line of Boscombe majors with Susquehanna. Your line is now open.

Yes. Thanks for taking my question, Jim, you talked a little bit about having a lot of new faces in management over the last few years since you've been in the company.

Can you talk about potentially updating the investor community with an investor day or other type of event? I mean, it's approaching four years, you've acquired some non-rail businesses.

You've got new faces and we've been through the global pandemic. Just curious when do you think it might be time to kind of share. Your vision of where you think and you take CSX kind of midterm in and how we're going to get there. Thank you.

Yeah.

I think we have probably planned on doing another investor day at least a year ago, if not longer.

Probably planned on doing another investor day at least a year ago, if not longer.

But I don't personally have not felt that it's really that useful.

I don't.

I personally have not felt that it's really.

Via Teams or via Zoom.

Via teams or via zoom and <unk>.

And every time, we've kind of talked about, you know getting out to new York or doing something here or whatever it is.

You know getting out to new York or doing something here or whatever it is.

Something else comes along and kind of puts the kibosh on our plans..

Puts the kibosh on our plans.

No.

As soon as the calm water gets here and tells me when the pandemic is going to and then we will.

Schedule it up and get out.

And talk to all of you. We'd love to show this team off. They're fantastic.

Love to show this team off they're fantastic.

Yes, thanks for the color.

Your next question comes from the line of Jason Seidl with Cowen. Your line is now open.

Thank you, operator.

Afternoon, gentlemen. I wanted to talk a little bit about the performance in the quarter on the operational side. I think this was the first time.

Your trip plan compliance for Carload Division got above 70%. So wanted to find out what was going on there and what else needs to be done to sort of try to close that gap between carload and intermodal.

Yeah.

Yes. Thank you, Jason.

I'd say as you all are probably quarter to quarter. It is a slow climb.

We're working really hard on this service product. It really comes down to the availability of people.

Our COVID-19 numbers were down.

Into October November.

When we had maybe 30 or 40, maybe up to 60 [inaudible] employees and then towards the end of the year.

Up to where we are today well over 300, 350 folks off.

For us to really get this service product, where we're arriving on the hour.

As we continue to commit to. It really comes down to people.

And we've been saying this for probably over a year now as we've struggled to to even get that pipeline going now we've got a great pipeline.

We continue to fill those classrooms, and the folks in Atlanta are doing an absolute amazing job under Jim's Whitson Bergen and his team.

It's all about producing conductors and as this quarter continues, we should see that number come up but again.

I think Jim's mentioned a couple of times. It all comes down to what happens in the world with respect to COVID or whatever the next

Pandemic or item might be that affects our crewing of our trains. So that that for us is the.

The dial that really turns us up and down when we think about our service product.

So I guess, we'll just wait for Mr. [inaudible] to confirm the end of the building.

Okay.

But good job on the numbers and we will look for that more steady improvement as the year goes on. I appreciate the time.

Good job on the numbers and we will look for that more.

More steady improvement as the year goes on I appreciate the time.

Well you'll see that number.

We published our velocity as well.

Bush, our velocity and dwell.

Every week.

And.

That's a good proxy for understanding how fluid the railroad network is. Whether you are trying to look at it from a service standpoint and a customer perspective.

Fluid. The railroad network is whether you are trying to look at it from a service standpoint and a customer.

Spector.

Where are we in terms of trip plan compliance or how much extra cost we're having out there because we were running slow. And the reason we run slow.

And the reason we run slow.

It's not that the locomotives moving at a slower rate of speed. It means sitting someplace because it gets to a terminal where it's supposed to be recruit and there nobody, we don't have an employee to get on the train because he got sick.

And.

So is that velocity number increases as the dwell number goes down.

Increases as the dwell number goes down.

The result is that our customer performance metrics for our trip plan compliance numbers will just we will just improve over time.

Well. I've always appreciated the fact that you guys published this because trip plan compliance is what most shippers look at anyway. So much appreciate it on my end.

Great.

Yeah.

Your next question comes from the line of Jordan [inaudible] with Goldman Sachs. Your line is now open.

Hi afternoon just some wonder if I have some thoughts on round revenue per carload sort of from a total company perspective, obviously coming off.

Some wonder if I have some thoughts on round revenue per carload sort of from a total company perspective, obviously coming off.

Two strong quarters, we talked a little about the first quarter with coal, but as you think about moving through the year taking into account mix. How do you think about revenue per carload first half second half or however, you want to talk through it?

Talk through it.

Hey, this is Kevin. I'll take this one clearly yes, we had some strong performance.

Some of that obviously was due to the impact of fuel surcharge, we see that probably being a favorable impact.

On the first quarter and probably less so as you move into the back half of the year and just face tougher comparisons there.

There's a couple probably larger swing items, we've talked about it quite a bit already but the export coal side will be a large swing item into the second half of the year.

If prices in the benchmark prices remain high.

That will obviously be a good impact.

Being a good impact.

We've talked about how we reprice $50 to 60% of our business every year and so you'll start to see that impact.

Start to flow through probably more heavily in the back half of the year.

And then those are probably the major moving parts across the business and obviously mix always matters.

Those are probably the major moving parts across the business and obviously mix always matters.

Intermodal outgrowing your merchandize side of your business, that's always a negative mix.

So we would expect merchandize remained strong but intermodal has.

We would expect merchandize remained strong but intermodal has.

Proven over the last few years to be outgrowing merchandise, which is a good thing, but can have a negative impact on the overall RPU.

Okay. Thanks for the color.

Yes.

Yeah.

Your next question comes from the line of Walter [inaudible] with RBC capital markets. Your line is now open. Yes, thanks, very much Robert and good morning, or good afternoon, everyone. Just a question here on the environment that we're in right now and how different it is and whether that creates opportunities for you to re-envision some of the historical practices.

You do particularly around contracts.

With customers and contracts with employees so given.

Jimmy, you mentioned, you just can't get it.

As well you can't get people. I'm wondering if this sets the stage, possibly for a bigger push on automation, perhaps it's a little easier to get automation through.

If the work workforce is short people.

It's short people.

Secondly, same thing on the customer base, if you've got a customer base that appears to be extremely high demand for transportation services. Does it allow you to perhaps restructure

As it appears to be extremely high demand for transportation services does it allow you to perhaps <unk>.

aspects of the contract that you might not have been able to do in the past open the open up that door.

Whether it's on our duration to your favor longer shorter. I'm not sure, which one you would prefer but items like that on either of those two. I would love to hear any color that you might have.

Well on the customers we have, and for good or bad and yet maybe. The last two years has caused us to rethink everything.

And for good or bad and yet maybe.

The last two years has caused us to rethink everything.

Because things that we never thought were possible to happen have happened. So we look at that I think we look at the world differently.

<unk>.

Our relationships with our customers is.

As.

<unk>.

Uh huh.

This is big business the big business.

Are we have relatively long term not as long as some contracts, but a couple of a couple of three years duration with a customer who is making huge capital investments into is plans in order to produce and he has to have some level of a little lot longer-term reliability.

Relatively long term not as long as some.

Contracts, but a couple of a couple of three years.

Duration with a customer who is making huge capital investments into is playing.

Plants in order to produce and he has to have some level of a little lot longer term reliability.

On what is transportation costs are going to be for him to be able to plan how to run its business.

So trying to change that is difficult.

<unk>.

Sure.

Change that.

Is is.

It is difficult.

I think.

Again, our customers are reasonable people. So I think there are dialogues about what works. There's always works for both. It's a partnership arrangement and in terms of.

How we help our customer be successful in his markets.

Our customer be successful in his markets.

In some circumstances.

It may have accelerated our views to a certain degree in terms of you know there's been a modification there has been certainly been a change in the E-Commerce Arena about.

Accelerated our views to a certain degree in terms of you know theres been a modification there has been certainly been a change in the E Commerce Arena about.

Who buys and sells transportation in the marketplace.

And so we're dealing in certain circumstances more directly with the customers as opposed to third parties.

That we did in the past.

That's something that probably will evolve and continue to change.

In terms of working with how we interact and how we contract with people that want to work for us.

Contract with with people that want to work for us.

I think this is a big challenge and a huge opportunity for us to really upfront address.

What we think the worker who wants to work for the railroad is what's the profile of that individual, not six months from now and not a year from now, but five years and 10 years from now.

And how do we. Of all of this industry in an extremely. Again, in most circumstances, how would you do this differently and how can you just do this better.

Of all of this industry.

In an extremely.

Again.

Most circumstances, how would you do this differently and how can you just do this better.

We can't put kiosks in place to do the work of a conductor and engineer.

But there's certainly technology out there that would allow us to do things more effectively easier.

And probably with fewer employees, but we also work in an extremely heavily unionized environment that is also very heavily regulated.

With that times. Bent on telling us. How we should do things. We're always in the middle of it. Going through the process.

Bent on telling us.

How we should do things.

No.

In the middle of it.

Going through the process.

And but, yeah. It's opened our eyes and I think it's opened everybody's eyes in the transportation business about what we need to do to be more effective in handling these types of the issues in the future.

we need to do to be more effective in

handling these types of the issues in the future.

Have you found that the automation question has been easier to enter into with unions in the current environment compared to previously?

Question has been easier to Q2.

enter into with unions in the current environment compared to previously?

No. No, okay.

Okay, I appreciate the time, Jeff.

Yes.

Your next question comes from the line of David Vernon with Bernstein. Your line is now open.

Hey, guys good afternoon, and thanks for taking the time.

Two for me, Jamie, could you talk a little bit about where you expect headcount to be as we exit 2022 timeframe? And then Jim, I'd love to get your perspective, having had some time, presumably to review Norfolk's ask in the CP Casey transaction. Kind of what do you think about that and what you think about the implications of that would what you think the implications.

Of that ask would be for CSX in the long run.

Just touching. I think Sean talked a little bit about it but.

Sean talked a little bit about it but like.

We have 6% to 8% attrition per year. We have to remember that so not only do we have to hire to cover attrition, you've got higher to get that number where we need to be.

In our mines to be able to provide the service that's required and the growth that Kevin and his group are going after.

I'll leave it at this. We are actively hiring.

Leave it at this where we are actively hiring.

We have over 500 conductor trainees right now between Atlanta, and what's out in the field. And we're not stopping. We're going to continue to get folks out there, qualified as conductors. And we've got a round of qualifying for locomotive engineers here at some point within the next year or two so lets we want to make sure that we can provide that service and grow this company.

Out there qualified as conductors and and we've got a round of qualifying for locomotive engineers here at some point within the next year or two so let's we want to make sure that we can provide that service and grow this company.

As it relates to the other railroads filings in the [CPK KCS deal].

As it relates to the.

Other railroads filings in the <unk>.

<unk> Casey is steel.

I'm not surprised at all.

That the other railroads, some of the other railroads wave in with the requests to make sure that their franchises and their customers primarily are protected.

It in with the requests to make sure that their franchises and they're customers primarily are protected.

You know each each railroad has its own unique requests.

Requests.

And that process is just starting.

We're just getting involved in the [substantive] conversation around what the impacts.

The conversation around what the impacts.

Are of that transaction then you may have seen that.

That transaction then you may have seen that.

We took the position with [inaudible] that we didn't have enough information basically yet to formulate an opinion and so until we have gone on the record so to speak with what it is.

opinion and so until we have gone on the record so to speak with what it is.

What it is that we're going to ask for.

Sure.

And we're still kind of looking at what it is we're going to ask for and what are the other people ask for and what does that mean. That sort of thing.

It's really.

I'm not going to comment on any specific filing any other railroad has made yet.

The filing.

<unk>.

The other railroad.

Yes.

That's fair, but I guess, if I could just press a little bit.

Is the scope of that Norfolk asks surprisingly to you or are you or is that kind of as expected?

Again, I'm not going to characterize it. [inaudible]

No, like I said it's not appropriate to comment really one way or the other where I thought it was aggressive or not aggressive.

Not appropriate to comment really one way or the other where I thought it was aggressive or not aggressive or.

We're trying to figure out what what everybody is doing.

And that takes time, it's a long long long process here for us to gather information to look at everything and then we will formulate what we think is the right thing for CSX to do and then at that point in time, it will be in a

Better position to comment on what I think about what [everybody else asked for].

What I think about whatever your body else dashboard.

Alright, that's fair. Thanks a lot for the time, guys.

Okay.

Yeah.

Your next question comes from the line of Cherilyn Radbourne with TD Securities. Your line is now open.

Thanks very much, good afternoon.

We're starting to run a little long. So I'll just ask a quick one here in terms of coal and the producer outages that you experienced during the quarter and the new mine you have coming online. Just wondering if you can help us frame that a little better in terms of that kind of Genpact in the timing of when it could come back or are kind of online initially.

In case of a new mine.

Yes, I wish I had a crystal ball.

There is one particular mine that keeps on telling us that they're going to come back online and it seems to get pushed out every weekend.

So.

No, I don't have a lot of visibility to have probably more confidence that as we get into second third fourth quarter that we will see some.

Pick up there. The good news is they have a lot more cash to reinvest in their business.

Whether it's equipment and other things. So I would think we will see some benefits of that.

I mentioned one particular customer dealing with the strike. Those things have.

One particular customer dealing with the strike.

Those things.

And continue for quite a while.

But eventually those things get resolved as well.

The other one. The mine that I mentioned that coming online will be a slow ramp-up and we would expect more volumes in the second half.

And that's mainly into the export market. So we're positive there. We're supportive market, obviously and we're looking at and we're going to look for opportunities to move more and more coal as we get more crew availability.

Into the second half.

Thank you for the time.

Okay.

Your last question comes from the line of Ravi Shanker with Morgan Stanley. Your line is now open.

Thank you everyone, one big picture, Sean, and one follow up.

The big picture one is on domestic intermodal.

Just based on your conversations with your customers. Do you have a sense of what is going to take for shippers to move a significant amount of volumes off truck and fared on rai? Is it as simple as just clearing the congestion or are there more complex issues with speed and service and flexibility that kind of take longer to resolve?

And just as a follow up. Kevin, you kind of mentioned that the cadence of your

Contract renewals, we are seeing on the truck side.

That customers are trying to push for shorter contracts or more frequent price resets on the contract side. Are you seeing anything similar? Thank you.

On the contract side, nothing's really changed. We're obviously working with customers.

Great more, even cadence through the rail network and I work with Jamie all the time and we are we go out to customers and explain the challenges that they create and they can create more rate ability.

Of their volumes through our system. That's extremely helpful.

We're working with them a lot on that side.

So that's a big opportunity there. And then what was the first part of the question?

There and then what was the first part of the question.

Just intermodal and kind of what it takes to get [inaudible].

Yes.

Yeah on the intermodal side. I think having spoken to you recently, just one one of our many customers.

I think.

Having spoken to you recently.

One one of our many customers.

I think consumer behavior is actually going the other way. The expectation is not that they necessarily need something next day. So I would say the emphasis on speed is actually going the other way to some degree and we're seeing conversations around.

Maybe I don't need to move it over truck and get it there in 24 hours that that 48, 72 hour option is valuable.

It is obviously cost-effective where a lot of our customers are looking to offset it.

Very very high prices.

I would say on the domestic side, but really the challenge has been equipment.

It's not a lack of demand there. We get calls every day.

They want to they want to put more volume on us.

But if you can't get the volume out of the terminal, that's a problem. And that's what we've been dealing with but we think that will resolve itself.

It's obviously going to be easier to get truck drivers that you can get home at night that are doing the short-haul. And that really plays into our sweet spot. The long haul truck truckers aren't there and I don't think that the drivers are going to come back to that market, but we do think.

The shorter haul drivers are going to become more and more available, but it's not just the drivers is the [inaudible] season. We know there's a lot of orders out there and so that will resolve itself and then the container side. A lot of containers are being ordered right now. So we do think as.

<unk> season, we know Theres a lot of orders out there and so that will resolve itself and then the container side a lot of containers being ordered right now so we do think as.

As we get into the second half, we'll have a lot of tailwinds that will help us really accelerate growth.

Tailwind that will help us really accelerate growth.

Great. Thank you.

Okay.

This concludes today's conference. Thank you for attending. You may disconnect.

[music].

Okay.

[music].

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