Q1 2022 Canadian Pacific Railway Ltd Earnings Call
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Good afternoon, My name is Leo and I'll be your conference operator today.
At this time I would like to welcome everyone to Canadian Pacific's first quarter 2022 conference calls the.
The slides accompanying today's call are available at Investor <unk>.
C P.
Our Dot C E.
All lines have been placed on mute to prevent any <unk> remarks, there will be a question and answer session.
Question simply press the Star then the number.
If you would like to withdraw your question.
Jen Please press the pound key.
I would now like to introduce.
Megan Alderson Vice President.
Yes.
Thank you Leo and good afternoon, everyone and thank you for joining us today before we begin I want to remind you that this presentation contains forward looking information and actual results may differ materially.
The risks uncertainties and other factors that could influence actual results are described on slide two in the press release and in our MD&A filed with Canadian and U S regulators.
Presentation also contains non-GAAP measures, which are outlined on slide three.
With me here are president and Chief Exec.
Executive Officer, Nadeem, <unk> Executive Vice President and Chief Financial Officer, and John Brooks, Executive Vice President and Chief Marketing Officer.
Also attending our call today on behalf of Tcs are CEO , Pat inspire and CFO , Mike Upchurch will be happy to answer any questions regarding tcs.
At CP investors are aware <unk> is now beneficially owned by CP through a voting trust pending.
Troll approval by the STB during the stress period.
Prior to the STB approving cp's controlled control Tcs.
<unk> Acs operate independently and Tcs as business is managed by its own officers and has overseen by its own board of director.
During this tough period.
Truly tcs's management as it is in the best position to answer investor questions regarding their performance and results I would highlight the Casey's has also posted an information package to their website.
And should you have any questions about their performance that arent addressed on today's call Ashley.
Ashley and Daniel on Tcs as IR team would be please to answer your questions.
My remarks today will be followed by Q&A and in the interest of time, we'd appreciate if you could limit your questions to one it's now my pleasure to introduce president and CEO , Mr. Keith Creel welcome everyone joining us on our first.
Quarter earnings call.
Listen I'd be remiss not to start thinking.
The 12th out the strong CP family that endured quite a challenging quarter. That's been one one for the ages in fact all of the.
The.
And controllable challenges that we had relative.
To the weather, which was a huge challenge and obviously this COVID-19 Omar Spike This company spiked up we moved up to about 500 employees that had to face.
The omicron challenged during the quarter, which obviously.
Adverse impact to our networks that work stoppage, but in spite of all of those chips.
Challenges, the tenacity and the grid.
Of this team the commitment that we have to each other to provide service for our customers first and serve all of our stakeholders.
It was done.
Yeah.
Tapped out never short I have an opportunity to step into that and to meet and exceed those challenges now. So let me talk about the results of the quarter delivered first quarter revenues of $1 8 billion, an operating ratio of the <unk>.
69.8 core EPS of <unk> 67.
On the train accident front, we are encouraged that we reduced our reportable train accident frequency by another 25% in the quarter on the safety front when it comes to personal injuries. We did have a bit of slippage there at 13% versus last year, which is always a reminder to myself the team the company that safety net.
It's not a destination. It's a journey, we can never lose sight of the importance of making sure that every member of our family go home safely every day. So it was a tough quarter I'm not here to make any excuses. This team is not going to today, we knew that it would be challenging in the first half certainly more out in Q1, despite those challenges our outlook on the year remains largely unchanged.
<unk>, we continue to see very strong and supportive macro environment, we still expect to deliver double digit RPM growth in the back half and ultimately grow our teams on the year. So.
Point that we made earlier that this was going to be here a tale of two halves is playing out as expected on.
On the <unk> transaction the merger front the preparation of the planning to ensure we execute our integration between these two great companies from day. One continues we are excited to announce that during the quarter that we see.
Successfully launched our first interline service from Lazar of Cardenas to Chicago in early March.
Seven day transit time from the time the ship.
His support docs to the time, the first container was DRAM from Chicago and hit the payments seven days, a pretty compelling product to test the market. It was a demonstration of the significant opportunity obviously to bring an alternative to the congested west coast ports for our customers and for our marketplace. This is a product that works when its congested. This is a product that works with them.
Congested, it's an undeniable compelling product that these two companies will be able to bring to the marketplace.
Pkc's Rep.
It represents extremely meaningful opportunity to take trucks off of our highways to leverage.
The rail side versus truck and that contributed obviously to a low carbon future for.
For North America, Canada, and Mexico.
Also.
I'm going to tell you even more excited about the potential there.
That this unlocks for the North American supply chain, which is becoming increasingly increasingly more important the additional outlets for north American resources that in fact are increasing in demand.
We've got three very resource rich nations.
Creating a network to connect to ports 11 of those sports that we will uniquely serve and ultimately get our products to tidewater to like minded countries around the world.
To say, we're excited I would suggest is an understatement as we look forward to the opportunities ahead of us our customers are looking forward to.
To us as well for the prospect of this great single line service for Mexico through to Canada, and I'll tell you, we're excited and looking forward to the path forward.
And on that point.
Many of you are following the STB process closely obviously, we all know the procedural procedural schedule has been paused right. Now is we've been asked to clarify some of the data, which we have done we're certainly optimistic things will be restarted soon.
I say that and I'll remind folks as well there's room in the overall schedule for the board to take the time it needs to consider all the facts and the data we do not see this materially delaying the combination we still anticipate a ruling by the latest early 2023, so with that let me hand, it over to John to bring some color to the markets and then <unk>.
Dean will close up before we open for questions elaborating on the numbers alright.
Alright, Thank you Keith and good afternoon, everyone. So as Keith mentioned, the first quarter certainly had its challenges it was tough in the quarter to really build any momentum and rhythm. Despite what I would consider a very strong demand environment.
But howard the CP team and our sales folks and the operating folks are experienced I can tell you. We stayed focused on the task at hand, selling to the value of our franchise.
And as now we come out of the work stoppage that happened at the end of March we are seeing definite momentum building as we move through April .
So looking specifically at Q1 revenues were down 6% in the quarter driven by the 14% decline in our Tms grain contributed about 7% of the decline in our Tms with the strike contributing about another 3%.
Fuel and FX combined to be 6% tailwind in the pricing environment continues to be strong and I am very pleased with the sales and marketing teams discipline in the marketplace and creating that value for our product overall, our cents per our TM was up 9% in the quarter.
Now I'll take a closer look at our first quarter revenue performance I'll speak to the results on a currency adjusted basis.
Grain volumes were down 26% in the quarter, where revenues were down 20%.
Percent, where continue out in Canada, which resulted in a 40% smaller crop.
That will continue to be a headwind before we get to the back half of the year and hopefully a normal more normal crop this fall.
The challenging Canadian crop was again, partially offset by continued strength in our U S grain franchise, which posted a second consecutive record quarter in.
In Q1, we moved 14000 carloads of U S grain into Canada compared to fewer than 600, the same period last year.
I am very proud with the nimble actions of the marketing and sales team to create this market and the operating team to deliver and execute it as we provided to help.
With the Canadian farmers and feeding their cattle.
While still in the early days of the outlook for the new crop. This fall we are cautiously optimistic that we will be returning to a more normal crop size by the time, we get to harvest on.
On the potash front volumes right.
Revenues were up 3% did.
The decrease in volume.
Flex the impact of our work stoppage.
And we believe all those volumes are recoverable through the year.
Strong global AG product demand combined with the disruption in part.
Production in Belarus, and Russia have driven.
Potash prices and demand to record highs.
Ccp's partnership with Canpotex, and K, plus S positions us well to deliver record volumes of Canadian potash to the world double digit full year growth in potash.
Okay.
And to close out the bulk business coal revenues were down 15% while volumes were down 24%.
As we move through Q2, we will begin lapping the round.
Putting shift in tax business and I expect upside in coal after the year.
Moving on to merchandise the energy chemicals, and plastics portfolio saw revenue decrease of 20% while volumes were down 17%.
The decline in the volume was a result of crude by rail and the challenging start to the year you.
You will notice a slight decline in <unk> per RPM, which was driven by the expiry of our crude contracts and the associated liquidated damages.
Moving forward I expect strengthening in ECP volumes, driven by new business with independent energy in Iowa.
The second half of the year and through our initiatives to continue to develop our distribution.
Renewables and biofuel.
Sure.
Forrest proud revenues were up 8% I'm proud to say it was our second consecutive record quarter in the forest product space and.
In MMC revenues were up 14% and volumes increased 1% driven by continued strong pricing and demand for frac sand as we are seeing higher drilling activity moving in line with higher <unk> prices.
Automotive revenues were down 16%, while volumes were down 21% on the quarter.
While the supply chain continues to see equipment cycle and chip shortage challenges, we're expecting improved performance in Q2 and through the back half of the year. The new GM business, We announced in Q4 is moving well and we are excited about a number of new opportunities that are emerging that will further support growth in.
The automotive sector across our network.
Now finally, moving on to the intermodal side of the business quarterly volumes were flat, while revenue was up 13% our second consecutive consecutive quarterly record.
As we announced on Monday, we are very pleased that <unk> Lloyd will be adding another weekly call at the port of St. John as they continue to leverage our east coast advantage.
This service will drive significant new volumes from northern Europe through the Port and will exclusively use <unk> service to access markets across Canada and the U S.
We're excited about this opportunity to continue to grow our intermodal product from Atlantic, Canada with our partners at DP World, The Port and <unk>.
This is exactly what we said.
And this is exactly what we.
<unk> said, we would do when we purchased the <unk>, we've taken that property.
Our route advantages, we've created a superior service product and we are using the capacity on our network from St John to grow with our customers.
The shift to the domestic side of the business. This was our sixth straight record quarter.
We're clicking on all cylinders not only from an operating perspective, but also working with our customers to restock the store shelves across Canada.
We are watching closely the changing demand in the truck market, we're watching the demand with our consumers and of course, the most recent COVID-19 related shutdowns in China.
Despite some of this uncertainty I expect our domestic intermodal demand levels to continue strong and our volumes will be further supported through our playbook initiatives.
So now let me close by saying the first quarter was certainly tough sledding, but we have built the momentum as we move through April and I'm, starting to see our revenue and volume reflect the demand environment.
As I sit here today, excluding Canadian grain volumes were up mid single digits quarter to date, and we have over $200 million annualized of new initiatives, starting up over the coming months.
We said at the start of the year as Keith said that it was going to be the tale of two halves and thats exactly what I expect to play out.
While the Canadian grain headwind will persist into Q3, we still expect to deliver double digit RPM growth the back half of the year and grow our Tms in 2022.
So let me close by saying the team is energized we are staying close to our customers and we are adapting to the environment. As we move ahead, so with that I'll pass it over to Adrian great. Thanks, John Good afternoon.
Going into the year, we did we knew Q1 would be a difficult given the weakness in Canadian grain, but the quarter prove even more challenging than we had anticipated. This is largely due to a combination of the ongoing.
Covid impacts to our crew availability the weakness in Canadian grain as I mentioned as well as the impact of severe winter operating conditions in January and February and of course finally, the labor disruption we had late in March.
That being said as we have moved in April we are encouraged by the strong demand that Jon highlighted and definitely a more fluid operating environment.
Okay.
Youll notice in our result metrics. These metrics have been added in an effort to provide transparency and give investors meaningful comparative figures to evaluate our underlying operating performance.
The additional metrics core adjusted EPS and core adjusted with Tcs purchase accounting.
Going forward, our key focus will be on.
Core EPS and core income post merger, we will publish core or which will remove any noise from the depreciation step up.
Now looking at Q1 overall, the adjusted operating ratio was 69, 8% clearly this isn't up to the CP standard.
Drivers on the quarter, where the decline in volume, which.
This points of our year over year, the increase fueled 40 basis points and the street.
Breakout at estimated 120 basis points.
Taking a closer look at a few items on the expense side.
And benefits expense was up 2% or $8 million versus last year.
Primary driver of the increase was higher stock based comp in the quarter fueled.
Fuel expense increased $67 million or 33%, primarily as a result of higher fuel prices, which were up 46% was expense was up three sorry, it was up 5% or $3 million.
As a result of cost inflation largely in non locomotive fuel equipment.
Equipment rents were up 6% or $2 million as a result of winter weather and the work stoppage, creating a drag on.
On efficiency.
Depreciation expense was $210 million, an increase of $8 million as a result of a higher asset base.
Services was $290 million, an increase of $49 million or 20%.
The main driver of the increase was lapping the gain related to the Chicago Tollway transaction, which was $50 million in Q1 2021.
Moving below the line the equity pickup from <unk> was $251 million when adjusted for <unk> acquisition related costs and purchase accounting benefit recovery increased 66 million, reflecting higher discount rates compared to 2021.
Net interest expenses is up $50 million as a result of a higher debt load related to the Tcs acquisition in Q4 2021.
Income tax expense decreased $106 million or 55%, excluding tacs related related items. The effective tax rate was 24, 25% on the <unk>.
Rounding out the net running out the income statement core adjusted EPS was <unk> 67 in the quarter.
We continue.
With a dividend from Casey's repaid over $500 million.
Term debt and finance leases during Q1, we will continue to utilize our cash flow return our balance sheet to our targeted two five times leverage at which point, we will revisit our capital allocation strategy.
The quarter was certainly a challenge, but we expect to deliver a significantly stronger performance. Starting this April the network has recovered from the challenges we faced in the first few months as well as the strike as John mentioned, we continue to see path forward to volume and revenue growth for the year and I fully expect a much stronger margin performance with improvement.
And volumes and see a path to core EPS growth for the year with that let me turn it back over to Keith and that we'll go into Q&A.
Yeah. Thanks, Thanks, John in a game operator, let's open up the line to questions.
Thank you if you would like to ask a question simply press. The Star then the one number one on your telephone keypad.
Like to withdraw your question press the pound key as previously highlighted please limit your question to one.
We'll take our first question from Jon Chapell of Evercore ISI.
Is there any other metrics you can give around the network as it relates to whether it's velocity.
To kind of help us understand that the impact of the strike is completely over the mainline completely up post the watch out theres no other issues with whether it's related to weather or Avi crime that youre running where you want to run our lease you're on your way there.
In really good shape.
If we go back to January <unk>.
For the first six weeks of the year were extremely challenging with level three level four cold temperatures and essentially what that means is we run shorter trains to run safely which means your operating costs are going to go up it means your needs for assets cruise locomotives is going to increase and all of that happened at the same time that we had <unk> surging. So we came.
Out of that and I can tell you.
Coming out of February into March we were starting to gain a bit of rhythm then when the weather broke of the network when we had to face the strike.
Right.
And I say that you can look at our metrics and our number since then because we've bounced back quick and we've restored service for our customers. We're at CP like numbers now cars on line are down train length is up.
That are above what it was last year train weight at or above what it was last year. In fact, both those metrics are above our cost per GTS on a crew basis, which we measure.
Back to a favorable place versus last year. So everything is normalized at all says that the engine is running well and you should expect with demand ported onto this network. We have the resources, we have the assets and we have the team to execute and youre going to see more normalized and improving safety.
Hi, This is Mike.
Okay.
Okay.
Okay.
Versus I want to say I went back 40 weeks.
It was one of our best performing weeks, we had over that time period, and if you look at really our asset utilization of our fleet that we own that services, our center beams and our mill guns and those types of sort of CP owned assets.
That velocity pick up EMEA able to create more loads.
In those revenue areas is starting to shine through and as you guys know that's what we've done and Thats. How we are successful at at CP and turning those assets and working our customers to maximize to generate those revenues.
Got it I appreciate all that thanks, John Thank you Keith.
Thank you.
Your next.
<unk> <unk> of BMO.
Good evening and thank you for taking the question.
Keith you talked in the basketball.
Engaging with some of the other railroads.
In terms of.
Maybe addressing some of the <unk>.
Concern, we have highlighted in our filings and perhaps finding some.
Common ground to move with flip Mercury profit forward is there an update that you can share with us on those conversations.
Well I'll tell you, we're keeping an open mind on an open line.
Communication body.
There's a couple of.
Physicians the <unk> position, obviously, we've always said, we're we're arguments with reasonable folks with.
The reasonable arguments that's not unreasonable.
Any help with that position to be able to.
To come to any meeting of the minds will just have to agree to disagree we intend to grow that railroad was certainly.
Not going to divest that railroad and we think at the end of the day those facts matter.
Or to the customer I think though matter to the regulator, but obviously the regulator will have to rule on that when it comes to the E&S.
We've got we will assuming that the STB approves this deal and we believe they will we're going to inherit a can.
<unk> joint venture.
Yes entered into back in 2006, and we're going to honor that.
With that.
It was a commercial discussion a commercial relationship is established.
Were going on and what the contract says.
Patient to try to gain something that you did.
Okay. So.
Again, we think thats.
It's going to take and we're going to maintain that position when it comes to <unk> <unk>.
Some of their concerns happens to be around infrastructure, we believe that the infrastructure if used properly and.
In the Houston area, specifically is more than adequate.
For the level of business that we believe our synergies will bring that said should we exceed our synergies.
Should <unk>.
Investment need to be made.
The cooperation and partnership with.
NSF and Upa either mechanisms within.
Those agreements now Theres trackage rights agreements that allow for those investments to be had so again.
I think our position is reasonable and I don't see that changing when it comes to the other <unk> overall I think we're making some progress with CSA access I believe we're in a very reasonable place and we're continue to have very progressive discussions.
Your next.
<unk> comes from Chris Wetherbee of Citi. Please go ahead.
Hey, great. Thanks. Good afternoon, guys was hoping maybe you can you can you give us a little bit more clarity on what the strike was specifically in the quarter.
And then I know you mentioned about core earnings going up forgive me if I missed it how do we think about the operating ratio for the core CP business. This year.
And maybe how quickly can it start moving back towards parity on a year over year basis.
Sure. Thanks, Chris So I mean purchase accounting isn't going to impact vor. So we just have our adjusted or.
Not a core one.
I think we are.
Still going to have negative volumes in Q2 were still seeing the impact of the drove will probably run out of grain.
Partway through the quarter and go into seating in May and so that's going to be a challenge that being said I mean.
I do expect a sub 60 or in Q2 by all means.
As we head into the back half of the year and assuming a more normal Canadian grain crop.
And some of the significant opportunities that John highlighted.
Some of it.
Just a return to some of the market share gains that we've had.
And some of the self help.
We feel very good about this.
Back half of the year and the operating leverage that comes with additional volumes I think that's the key to.
How are we going to <unk>.
Improve the ore is bringing on the volume at a low incremental cost so I'd say that in the back half of the year you should expect to.
More kind of mid fifties or that you've kind of come to expect from us. So that's kind of the cadence that we see the or.
As far as our earnings.
Yes, I expect us to have.
Core EPS growth year over year.
So that's kind of.
How it lines up for 2022, so we dug a hole here in Q1, but I have a huge amount of confidence, especially given how the network is recovered in April .
How we're operating in and the volumes and revenues that are coming back to the network and the significant demand environment that we have so I'm pretty bullish for.
For the next eight months.
Got it thanks very much appreciate it.
Thanks, Chris.
Your next question comes from Walter <unk> of RBC capital markets. Please go ahead, yes, thanks, very much operating and good afternoon, everyone. I just wanted to come back to Lazaro Cardenas.
Keith Seven day is pretty compelling just curious as to whether there is a history. When there is labor disruption in la long Beach.
Back a few years ago I know the Canadian ports about a 13% lift in volume that was above normal due to some of that to shrink that kind of introduced.
She patterns in the past an opportunity here as you go.
Toward this July date for some of that volume to shift to your new service and and how.
How sticky would you see that.
Would you be able to hold onto some of that.
Some of that diversion.
If it does.
Come to pass.
Yes, that's a great absolutely, yes, I see.
Opportunity.
You get that service established and you make it reliable and you make it reliable to the processes that have to be on.
Turned out obviously.
<unk> processes border.
And then you follow that with investment.
So you set the processes in place.
In lockstep with investment we're investing in the railway and <unk>.
With our merger application process and you create an unlock reliable capacity.
That to me.
Stands the test of time.
It's never going to take all the business implement and create a very reliable supply chain for a steamship.
Customers that will be in a very reliable efficient fashion that.
And that again.
We will diversify their book of business and make them <unk>.
Dependent upon la long beach and in the ebbs and flows with the challenges that occur on the West Coast and I think it's there to stay once you establish it because it would be so compelling and hard to compete with.
I appreciate that color. Thanks, thanks very much.
Thank you.
Afterwards of UBS. Please go ahead.
Yes, good afternoon.
Offer some thoughts on where customers maybe.
You have the greatest opportunity for expansion when we think about.
The.
Geopolitical if you want to call it that rich, but a big step up in commodity prices.
This is across a number of different markets.
Which of those markets do you think that you serve customers, where do you think those customers could expand and maybe some thoughts on the timing for that just trying to think about that.
Potential volume opportunity.
Looking out a little ways. Thank you.
Yes, Tom so.
You Teed me up.
<unk> got now and so I <unk>.
And last week two.
During essentially from Houston to New Orleans up to Baton Rouge.
With exactly what you described in mind and I can tell you there is a.
Sure.
Think about as I said Bell, Russia, and Russia controlling 40% of the world's potash production.
Canada supplying right now 40% of the world's potash production think about CB Casey in the future in those export opportunities through the golf to serve as South America.
Versus sort of the east coast of Canada, or even the west coast are compelling.
Got it.
Not only story in terms of diversification, enabling potash for the future.
With Canpotex K plus S. Maybe BHP in the future.
But being able to do it on a single line haul services to to the Gulf of Mexico to service those markets.
It just that opportunity in itself jumps off the page, but I can tell you.
Diversification from a grain perspective.
The ability to backfill roughly 20 plus percent of the world's exports that come out of that Black Sea region.
And serviced by Ukraine, and Russia growing territory becomes again, just a compelling story for for our not only our Canadian franchise, but our U S franchise, and again I think diversification of port.
Exactly what Keith described and what <unk> brings to the table for our budget.
Business, I see tremendous opportunity and that means again.
Not only paying and other products are <unk> today.
Being able to get crude and.
And safe crude products to Tidewater I think all lineup has huge opportunities for this combined network in the future give you a little snapshot Tom.
We took a look at this.
The feed my interest is taking a look at the potash mines that are in Saskatchewan.
Obviously would originate this potash to get it to market a top water in the Texas Gulf versus the East Coast Canadian alternative one way, depending on what mine Youre talking about minimum 240 miles.
Up to 400 mile advantage.
That's a one way to do that on a round trip if your car hire owner the capacity that it has created with that single line service opportunity from origin to desktop turning those assets in a closed loop.
It certainly sounds that way is there anything on the crude by rail side should we think of that as opportunity as well or not so much.
Well at this point and John can add a little bit of color. Obviously, it's all about the delta in the spread and the spreads driven by how much production and how much pipeline takeaway right now production is not exceeded the pipeline takeaway capacity from.
The locations where.
For the crude comes from.
That said.
Production comes back online and the demand increases at some point, that's going to happen and I think that puts us in a very strong position for normal crude movements, but outside of normal crude we've created a niche market with the <unk>.
<unk> came up to nameplate capacity, we're running it is doing what it said it will do we were there last week. We took allowed toured the facility down at.
At Port Arthur.
Net tangible it's scalable so it's just a little bit of.
A little bit of work to get the infrastructure in ground to double the footprint. So again I think thats, a very contemporary a niche market that we uniquely serve.
Great. Thank you for that.
Okay.
And it comes from Ken Hester.
Okay.
Great good afternoon.
Oh up on that last one is there anything left to <unk>. John I guess is there anything left to clean out of the ECP and terminal.
Key contracts that are going to expire.
For taking my question is is just now.
It seems like I guess <unk>.
<unk> is kind of under attack in terms of a lot of different ways of whether it's.
Trouble growing other other companies in the U S still having trouble growing once they've implemented is that just different ways of running it versus euro.
Pops have rebounded post strike.
Okay.
Fires, so operationally not at the same point.
What we see in the U S.
Do you need to hire more or anything that's left to get this back on track maybe just your bigger thoughts on on that.
Well I think at a high level can <unk> not <unk>.
So it's not a.
We named execute <unk> in the good times and the bad.
So you don't feel good.
Get it off the shelf and say this is what I'm going to call. It. It's all about identifying because if you don't provide service to the customer.
Okay.
Youre not accomplishing anything and you do it by determining.
What's the process should be you create the service plan.
On defined the service plan defines the assets you need weather.
I don't care I go back to my CN days I'll go back to my days you don't.
I'm going to be a <unk> railroad run 10000 foot trains if you don't invest in the infrastructure. It takes to execute it because it's all based on being able to turn the assets. If you can't move the trains that means get them over the line of ROE get him a new terminal.
Keep the assembly line moving it clogs up it backs up and the outcome is not going to be low cost, it's not going to be good service. So it's a formula that has to be managed it's not going to manage itself. It has to be done.
Done with a disciplined fashion and you have to ensure that you've got your assets in lockstep with what your demand is so you've got to understand what you are putting on your railroad.
Can't Oversubscribed. Your railroad you can ask the physical assets can only do so much you've got a plan and build the service design around what's your physical plant is capable of handling and it requires investment and it requires measuring and it requires a disciplined execute that that's how you do it.
But it's again to do it.
It's easier said than done you have to understand what youre doing and it doesn't happen overnight and I am not going to suggest that the other roads and theyre all at different forms of implementation can't figure this out because I'm, telling you <unk> done right is the best way to run any business, it's effectively using assets to produce a consistent.
Service that the customer values at a low cost. So you can sustain the service sustained investment and allow your customers to win in the marketplace and that Formula works in any in business you want to apply it to the airlines the train lines the shipping lines.
But again it goes back to the service and if you can't move the assets to create the capacity youre not going to succeed at.
So I am not I understand customer.
Disciplined execution and that's what we're going to.
Stay committed to we're not going to Oversubscribe, our network, we're not going to ask the network or the assets to do more than what they are equipped to be able to handle and if you do that and you balance that then youre going to come out with a great product for the customer and as a result of that it's going to naturally be low cost and it is going to be sustainable that allows you to continue.
To invest into growth.
Thanks, Keith and then just John thoughts on the ECP anything just left on there to cut out I. Appreciate those thoughts kit. That's obviously detailed informative compared to the difference of what we're seeing out there.
Ken I think we in terms of crude by rail within the ECP I think we've settled into sort of.
A pretty stable state in terms of those volumes.
All I'd say 40, 45000 is sort of my projection in terms of carloads.
In the crude space for the year.
So I think thats, a pretty similar run rate to what we.
We saw in Q1.
About half of that volume is a little over half actually is is the Dr. Yu and relative to the to the liquidated damages in that I think you should expect to sort of see that trend play out through the balance of this year as those contracts.
<unk> served US right. They were put in place for all the right reasons to protect our investment protect our capacity.
And so we will see a little bit of that headwind continue out through the balance of this year end and then I'll run its course will be I guess free and clear as we move into 2023.