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Canadian National Railway Company (NYSE:CNI)

Q4 2009 Earnings Conference Call

January 26, 2010 04:30 p.m. ET

Executives

Robert Noorigan - VP of IR

Claude Mongeau - President and CEO

Keith Creel - EVP, Operations

Jean-Jacques Ruest - SVP, Marketing

Luc Jobin - CFO

Analysts

Tom Wadewitz - JPMorgan

Walter Spracklin - RBC Capital Markets

David Newman - National Bank Financial

Matt Troy - Citigroup

Cherilyn Radbourne - Scotia Capital

Bill Greene - Morgan Stanley

Ken Hoexter - Merrill Lynch

Edward Wolfe - Wolfe Research

Jason Seidl - Dahlman Rose

Randy Cousins - BMO

Presentation

Operator

Please stand-by your meeting is ready to begin. Good afternoon ladies and gentlemen welcome to the CN fourth quarter and year-end 2009 financial result conference call. I would now like to turn the meeting over to Mr. Robert Noorigan, Vice President Investor Relation.

Ladies and gentlemen, Mr. Noorigan.

Robert Noorigan

Hello, thank you for joining us today for CN's fourth quarter and year-end 2009 results. I’d like to remind you again of the comments that have already been made regarding forward-looking statements. And I would also like to remind you that today we are going to have four speakers and I believe that we at least 24 analyst that are following us. So after our presentation we’ll take questions from those of you who are listening on the call but in order to be fair and if you can ladies and gentlemen could you please limit the number of questions that you are asking to two so that we can accommodate everybody that's there.

With that and to move things along it's my distinct pleasure to introduce Claude Mongeau, CN's Chief Executive Officer and President of CN. Thank you Claude.

Claude Mongeau

Thank you Bob. Thank you and good afternoon everybody. We have an entirely new lineup today for this call other than buybacks may be we should call Mr. Bob because he's the only one who has been there for three presidents so far. We have Keith Creel, our newly [minted] Chief Operating Officer. Keith has been partnering with Hunter and running our operation for a couple of years now but it is this first call with analysts. Keith will report to you on our Q4 rail performance which was seller and in spite of weather challenges and labor disruption in December you will see that we are making inroads on a continual basis to improve our key a metrics.

Our new chief marketing officer Jean-Jacques Ruest is the star rookie today. He is fresh off the bench and he is full of energy. He also has a very positive story to tell with our volume finally turning the corner in Q4 and his outlook for solid growth and sustained pricing in 2010. Luc Jobin, our CFO I guess he is the veteran today, its his second call and Luc will give us a full account of our Q4 results and also talk about the guidance for 2010. And then finally yours truly, you’ve heard my voice before over the last 10 years actually but I am wearing new shoes today, I have big shoes to fill but I am excited about the opportunity to lead CNI, the great organization and great team and I am ready for the challenge.

Someone asked me recently and may be he just wanted to put me at [heave] but he said Claude how do you step in for a legend like Hunter Harrison. And I said to him, well it is tough but you try to keep your feet on the ground, and you focus on protecting the legacy and you build from there. And that’s exactly what we are going to do. We have Sean Finn who today is here to keep us on this but he is also a great member of our team. He has the leadership team of CM and we are ready for the challenge.

Let me just say a few words in terms of the highlights, we did have a strong fourth quarter finish. Solid EPS growth if I look at it adjusted at $0.90. This is good performance in spite of the headwinds we stayed. We turned the corner on volume as I said earlier and our revenues is down but its down only because of fuel surcharge and because of the FX impact. Our volumes actually were essentially flat on a carload basis year-over-year. And we have strong free cash flow with a very good finish to the year with better than $790 million to Mr. Luc will tell you a little bit about some of the details and what helped us finish the year strongly like this but it is that kind of performance earnings, free cash flow, and the confidence we have that we are turning the corner in the economy that gave our board of directors the confidence to increase our dividends to 7%, you recalled that the promise I made the answer and so we are delivering on it. And also to announce a share buyback program of 15 million shares which we will execute as we deliver our performance and as the economy recovers over the next 12 months.

So again a solid finish and a confident team taking the helm going forward. And with this I will turn it to Keith.

Keith Creel

Okay, thanks Claude. Nearly a minute I guess that’s a good way of saying it sometimes that was the years of working out. So truly weathered. Certainly I look forward to the challenge I mean I am excited to be part of this operating team as well as this executive leadership team you put together. And I think and I know I am certainly given the legacy that Hunter's left us and has trained us and taught us over the years. He served us well, he's always told me as the leader the true legacy is not have the railway runs when you are there etcetera when you are not there. And as you have said we've got our leg to protect, look forward and tend to beat that.

So let me start by highlighting some of the operational highlights of fourth quarter. I will start by saying that proud of the [vendor] statements, these results that I am going to talk about were produced, stating some extremely significant headwinds that dealt with most specifically the last six weeks of the quarter. So these results are encouraging I will say that but they underestimate and they don’t truly reflect the true performance of this team and this operating models. When I say that let me quickly highlight a three issues that we faced.

We started off towards the end of November first part of December phase with a significant and fortunate strike disruption whether engineers here on the Canadian side of the operations which last on the 28 of November till the 2 of December. We engaged early in this process, we spend considerable effort, time and energy planning for this training, our officers who we deployed to go out and effectively run this [railway] about 70% of our business during that transition time and during their time we're very successful we did it safely. But needless to say when you take away 1400 engineers and you are doing the work with 250 trained officers as efficient as we are, we are not as efficient as those 1400 and it did have an impact to some of the fluid and the velocity numbers.

We came out of that effectively the day after those engineers came back to work we had about 24 hours run the railway full force and then we were faced with a very significant and challenging derailment that occurred on the second heaviest quarter we have in our system which is west of the Winnipeg [kind of the river stuff]

Pretty significant derailment, when I say significant about 30 cars, 22 of which for [DCs] and if any of you have ever worked at derailment on the mainline that's involving DC. It’s a complicated world that you have to manage. We ended up having 16 of those being LPGs we had our mainline out for five days which is unheard of and on which railway typically an average would be somewhere a significant average would be qualified as 24 hours, very significant 36 to 5 day sustain is a big challenge for the team. We ended up having to blow up about 11 of those cars so we can just imagine that trying to put that in context how tough that challenge was but we came out of that as well. Trying to finish the year out very strongly and load the hold. And the fifth day when we got to open the mainline we had a deep freeze that stood in for about 10 days straight that effectively covered western Canada and across (inaudible) Toronto and down to Chicago like a blanket. In fact we have one night and (inaudible) at the airport, it was actually made a world record being the coldest city on the face of the planet hitting about 51 degrees negative Fahrenheit, that’s ambient temperature, that’s not windshield that’s the true temperature outside. So, you can just imagine the challenge that had on this operating model as well in the face of coming up as, the work stoppage lingered around whenever we this cold.

So any one of these would be a challenge for any operating team but if the company effective of three of those, some might have thought it was instrumental but we were able to overcome it effectively executing this operating model that has been tried and true for this company. We have attentive focus on the precision operating model. We are able to effectively close out the year recovering much of what we lost the first half of December and had a very strong 10 days closing out 2009.

So let's talk about some of the metrics that we produced train load up 8%, 7805 as you see on the chart there. Effectively this says the story of balance between your service, your velocity, your asset, expense, and your train mile expense. A key enabler here, performance enabler for us was this long, long meet fleet plan that we put into effect last year on NOD that paid off in stage four and as we deployed our distributed power, we're actually able to run those trains longer coupled with the strategic investments we made along startings on the NOD to drive a lot of the synergies on the train load side.

DP plan, we continue to roll that out which is paying dividends for us in the fourth quarter as well as in 2010 allowing us to run longer, heavier trains in the winter effectively trying to run a more normalized operation in winter like conditions. So that’s another key investment that’s been strategic in producing some of these train load gains.

Car (inaudible) per yard switching hour up 21%, once again that’s simple focus, intense blocking and tackling the managed inventories. You manage your yard efficiencies, the switching strategy utilizing the investments we made with Harrison Yard, Symington, MacMillan and all those as key sort of satellite centers where we concentrate a lot of our blocking or switching and allows us to drive out some of those outline terminals and save synergies and increase throughput, velocity in cars. Which of course that drive the terminal drive results and as I said, 5% works for the quarter, but if you think about the impact of those three items that I talked about, that deterioration for the quarter was focused in those last six weeks of the year, more specifically three very concentrated weeks, effective with the strike through until the last ten days of the year.

Locomotive productivity at 7%, once again increased train load. We're matching our horsepower with available tonnage. We're focused on locomotive dwells; we developed once again some best in class I think measurement systems that allows some visibility for operating guys effectively tracking our locomotive status continually updated so we know where our locomotives are, the ones that are being utilized and the ones that are not being utilized across the systems. And also, we implemented and deployed a locomotive management system which is in platforms in SAP which is working extremely well of us.

Car velocity on 1% for the quarter. Once again that’s adversely impacted to a point about those operating challenges I talked about. But in comparison, 16% for the year. So certainly outstanding performance from the car velocity as well. Train velocity similar story, story of speed, story of moving the train, 5% for the quarter, 12% for the year. That’s more of the total quality approach we talked about with our QAT teams and it faces blocking and tackling locomotive reliability car failures.

In the train issues, drilling and the signals problems, line of accuracy this is all just blocking and tackling, roll your sleeves up and get at the noise that prevents you from running official rail road stuff. So, its not rocket science, it's just from execution.

Now moving to the operational overview. As we know, right now we're navigating and I think, and I say this with confidence, very successfully this important leadership transition here at CN. Lot of people on the outside and a lot of people inside internally, they are looking at us, they want to know what's going to change, what's going to stay the same and its called articulated just a moment ago. We've got a legacy to protect this company and there is one thing that will not change, that's the focus on execution excellence of this company that we've been know by, that we produce results by based on the foundation of precision rail road. This operating model has been the foundation of our success, I myself have been fortunate enough to pass 13 years, and with kind of the stockholder's model working with center and I guarantee you, the operating team that we at this company, its moving in our DNA. So that will not change as we go forward. We'll continue to measure, we'll continue to execute, we'll continue to improve and tweak on our execution, learn from our mistakes and develop and improve our weaknesses.

Some of the concrete initiatives I'll highlight quickly. Field productivity very exciting for this company. We made some pretty significant improvement in our field productivity measures last year for about 4%. We're tracking and targeting additional improvements this year. Some of the key things will have us get there above and beyond what we did in 2009. Got some very exciting technology that we are all testing now on the field from GE Trip Optimizer.

Equipping locomotives, we've got locomotives currently retrofitted now and as we go forward through 2010 and bring all locomotives fourth quarter of '10 and in to 2011 on a go-forward basis. After fully anticipating the specs, dozen locomotives will be equipped for this trip plan optimizer which effectively at a target about a 5% fuel improvement.

Train speed continues focused. We'll continue to work on our fringe points of anecdotally. Some of those encouraging metrics I talked about in that first quarter performance were breaking records that we set in the past on train speed, train speeds effectively hit every operating metric we have. It allows us to turn those assets, run more tonnage for your locomotives for your cars and that good progress made last year has continued into 2010 and fully anticipate us to continue to gain momentum there.

Mechanical productivity, some exciting initiatives there works in our consolidation as we’ve grown the footprint of this company through acquisitions. We're going to take the time in 2010 to create the right footprint in our shop utilization where we have our mechanical folks and we are doing our work.

(Inaudible) that’s another exciting piece for us. We have committed that well. On the safety standpoint I can tell you that that things are going extremely well specific to the (inaudible). Year-over-year if I look at the numbers this morning, its about 30% improvement from our FRA, main track where all FRA actions which is very significant progress, its very encouraging. Big year for us on the infrastructure side, converting some of the connections that we’ve got again converted to fully implement and utilize that railway, so that’s all looking very favorable for us as well.

And finally on the safety side overall for this system, once again we at this railroad build our operating model on a foundation of safe railway. Safety is a key performance enabler. If we don’t run safe railway, we're not going to run a fluid railway, we are not going to have an ability to run a precision operating model.

2009 produced some pretty significant gains, about a 30% year-over-year improvement on main track derailment. That’s not enough, still we are not satisfied. We finished the year out without checking among class one's with our FRA extra ratios. It's our challenge, my challenge that this operating theme and our objectives have finished 2010, top of class in that regard. We'll do that through our continued basic plant renewal, RFD our rail flaw detection will continue to increase, track geometry, those metrics and based all of the foundation of the safety culture of this company.

So with that I have probably gone a little bit over my allotted time, but as I know and I trust you can tell I am very passionate about this business, this company, this team, this equipment, our plans and most importantly the people that are going to make this thing happen if they have in the past, and we are producing safe going forward. I will turn it over now to JJ.

Jean-Jacques Ruest

Excellent Keith, thank you. And before I start the revenue review there's three special people I would like to thank here today. Claude for putting his confidence in me, Hunter Harrison for teaching me the intricacy of rail operation and especially namely the seven months of my fluids underground or Railroad MBA from coast-to-coast and Jim Foote who I work with and work with pride since 1997. So Jim and Hunter if you are listening in, I salute you both.

Okay, let’s turn to the revenue results, the fourth quarter result of 2009. The revenue decreased 14% or 8% on a exchange adjusted basis and I would like to pear the layer of revenue on an exchange adjusted basis. First the volume, we have seen improvement in our car loan volumes since the second quarter of 2009.

The fourth quarter of 2009 where it’s compared to 2008 was a flat quarter. But it was a different kind of flat meaning that in fourth quarter of 2008 we were downward spiral and as we got to Christmas things were looking pretty bleak. In the fourth quarter of 2009, we were on a steady mile but steady improvement and things were looking pretty good and its going to be especially after all the labor disruption that Keith referred to in the calls now, very nice opinions that we have.

Fuel surcharge, brought down the revenue about significant 7%, for the fuel surcharge coverage and program is working very well. And it's doing what it is supposed to do when it comes to fluctuation of price of oil. Same store price very important for performance was in the range of 4% for the quarter equal to our sales force for negotiating service for market price and our customers. One noble factor I would like to bring to your attention, as you would remember that the Canadian government actually adjusted down the Canadian grain cap last summer and we did take that price reduction probe as of part of October 1, 2009 in our pricing program and that'll be the case up to July 2010 at which time the grain cap revenue will start to go back the other way in the positive side the remaining is business mix and other revenue.

Lets go to the segmentation of our book of business. Merchandize over all remained stable which've seen improvement in petroleum based carload namely heavy fuel oil. We have been moving quite a few jet fuel tank cars around with same continued shares of market share gains in plastics namely polyethylene which is a economic sensitive product which is nice to see and coming back of that commodities which in those have offset lower operating rates in the industry of chemical brands during the fourth quarter. However, as some of you have seen the fourth quarter result for the chemical companies are showing that they are having better days in their own business environment. So that goes well.

The level of the steel production in North America has improved, it has now reached 65% operating level in the third week of January. And that’s where our [rental] business and carload in the fourth quarter. The fourth spark was challenged by the economic condition, lumber, panel and paper did suffer. However, our wood pulp business continued to show sequential volume improvement to both our North American and Chinese destination. Our bulk business is doing pretty good and I like what is the outlook of what I see entering into this year.

Coal volume was higher on the volume year-over-year basis. During the quarter the Chinese field mills have increased our Canadian met coal export by other three west coast coal terminal that we served. And as a reminder China was 44% of the world fuel market in 2009. Our coal mine in Canada running strong and a new ore bed coal mine opened last fall. This was offset by reduced same coal volume in the U.S., electricity production in the U.S. was reported down. Utility had high stock pile on hand and natural gas was abundant and affordable.

Other bright spots, the strong Canadian export program for grain, we also had a strong effect on carload growth that was offset partly by the slow U.S. corn export program in the fourth quarter. Recent improvement in the forest carload in our potash call through in the US and were partly recovered what has been the (inaudible) fertilizer for that year.

Intermodal volume, our story of Prince Rupert is alive and strong. The Port of Prince Rupert the volume is up and the product continue to prove itself in the marketplace. This was offset in part by the year-over-year big line in and out of the Port of Vancouver import and export. On the East Coast it's been good to see the container export growing out of our effects especially on the back of export out of our effect to the overseas country and that’s been driving the positive numbers. Domestic volume have remained stable. Intermodal, has seen improvement in the fourth quarter. We have seen the Asian import for the Vancouver as well as European import over our own facility and our effects gone up as well as we've seen also production level in 2008 versus 2008 in the North American assembly plans that we serve or physically serve.

We'll go to the next slide and look at our 2010 revenue outlook. What we see in general is a large recovery in our volume in our carload. However I like what I see looking the last three weeks and all of you looking at carload on a weekly basis. Merchandise will improve what I feel what I see

Merchandise will improve what I feel what I see. So there is an improved sentiment in the manufacturing sector. We see a turnaround in the auto production which is well forward to our automotive carloads, fuel carloads and chemical carloads. We foresee improvement in the housing starts which would bought well for number of carload panel, chemical in overseas. And we also have seen already improvement in fuel operating rate even though a small, but steady which goes well for our [renewal] productions.

All of that support our first mile and last mile initiatives which is also related to support our growth on a merchandise sector, the bulk side looks pretty good. And I like what I see for the first quarter, the Canadian volume for Canadian grain looks good and the Canadian wheat board has a record program for its season 2009, 2010 18.7 million tons. Mike Cory and his team, Senior VP of Operation in Western Canada has also put in place a new grain schedule service program for Canadian export grain which are improving both the customer satisfaction and our ability to gain some more volume.

In the U.S. in our draw territory which is Illinois, Iowa and Wisconsin the corn production is up 4% to 5% from last year. So that should be helpful. Again in the U.S. not a draw territory, the soya crop is 4% ahead of last year. Our thermal coal is expected to remain soft at the first half and may be all of 2010 because of stockpile level agility is already at a comfortable level. The Canadian coal which is all export, we will run at or near the limits of the capacity of the mine and actual we are doing very well in that front.

Potash which in case of CN is a North American story is improving and 2010 will definitely be a better year for our fertilizer business. Intermodal volumes will be trending up, the Prince Rupert story remained strong and robust and the proven product that we have in this market place for last two years is attracting the interest of the receiver, the people who buy the product meaning the retailer. We should show some sequential improvement in our report at Vancouver and we are looking to make use, good use of the new [birth] of Deltaport which was opened this month. Our door-to-door domestic retail program is taking hold with the manufacturing sector as well as taking hold the consumer retailer.

All in all, when you put all of this together, we're looking for high single digit volume growth in 2009 and sustained pricing discipline. Luc

Luc Jobin

Thanks very much JJ. Well as Claude earlier, we achieved some outstanding quarterly results all around and what was a very challenging environment in this last quarter. Financially, this translated into a reported EPS of a $0.23 which was up 2% versus 2008. There are two noteworthy items. One was the sale of our new market sum to the transit rail agency in Toronto Metro links which contributed $0.12 to the EPS on a reported basis. In addition to that, we had the benefit of a differed income tax recovery coming from the Ontario province adjusting our corporate tax rates going forward and that brought us $0.21 of favorable EPS. On an adjusted basis, our EPS came in at $0.90 which was 20% lower than 2008.

Now I need to point out as I did in our last conference call and that we knew going into the fourth quarter that we had a couple of major headwinds that we were facing and looking at the quarter 2008 fourth quarter, the fourth quarter of 2009, the two items were the foreign exchange which actually was the headwind of $0.7 for us. And as the Canadian dollar average around $0.83 in 2008 versus $0.95 in the last quarter of 2009. The other and even more significant item was the fuel lag. You may recall that in the fourth quarter of 2008, there was a very significant drop in the price of oil and the WTI actually shot down from a $118 all the way to $59 and that provided us back then with a favorable lag whereas this year obviously we were [conking] against that and the WTI was actually going up from $68 to $76 during the quarter.

So that’s combined, those two elements actually amounted to about $0.25 of EPS headwinds which excluding those items actually are adjusted EPS for the fourth quarter of 2009 would have been up a couple of percentage points. Turning to expenses, we continued to see some very solid cost management in the fourth quarter. Our expenses came in at $1.2 billion which was down, which was actually 5% lower than our 2008 exchange adjusted comparison. Our labor expense was impacted by a much higher stock based compensation expense to the tune of about $50 million, as our stock was down significantly in the fourth quarter of 2008 to about $6 a share whereas in the fourth quarter of 2009 it was actually up over $4. So a net change of over $10. Excluding this item, our labor expense was actually lower in 2008 by about 3%. As we reduced our work force by about 7% in the fourth quarter excluding obviously the acquisitions.

Our T&E personnel was reduced in the fourth quarter by about 10% or actually over 10% and we were able to redeploy many of these people within the organization thanks to our contract insourcing initiatives.

On the fuel category standpoint, we had much lower cost by about 18% on an FX adjusted basis. A good chunk of that was due to volume and price to the tune of about $30 million. But I think one noteworthy item was the fact that our fuel productivity was up a full 7% during the fourth quarter. And that contributed around $20 million to our operating income performance. Very good performance obviously from Keith and his team on that front.

Casualty and other, our expenses came in some $20 million lower than last year and mostly due to lower legal claims and adjustment to our U.S. liabilities in this particular area. I must point out that these achievements are quite exceptional and Keith and his entire operations team did a very impressive job, very impressive performance as the cost management that we see in these results were achieved while, you know we were dealing with labor and network disruption. Keith and JJ were actually working hand-in-hand to maintain service level while this was going on. Our car loads were growing by 4% sequentially and at the same time we were delivering continued improvement in our productivity in the fourth quarter. As Keith pointed out, our train loads were up 8%, our yard productivity was up by a full 21% while train velocity was also up 5% very impressive indeed.

Turning over to our full year free cash flow. We had an excellent performance in 2009. We generated $790 million of free cash flow which was essentially flat to our performance in 2008. This obviously was helped by some $230 million of asset sales relating to the new market and western subs that we sold during the course of the year. We fulfilled our capital expenditure program which was nearly a $1.5 billion and the number that you'll see on the slide is actually the cash portion. And we also had some $75 million of capital leases.

One great performance was actually our DSO which came in at 21 days at the end of 2009 and that's compared to about 27 days at the end of 2008, clearly an outstanding performance in terms of managing our receivables. Our net debt positions stood at $6.1 billion at the end of the year which was a full $1.4 billion lower than last year. This performance was due to some obviously repayment of some debt maturity during the course of the year, very strong cash generation and a higher Canadian dollar at the close of the year. We have obviously as you can see from the slide excellent debt coverage ratios in fact much better than our targets. And so we start 2010 with a very strong balance sheet.

Turning to our 2010 financial outlook, couple of comments of context first. We continue to see a gradual economic recovery on folding. Several of our market sectors appear to have bottomed out and we have been witnessing some sequential growth over the last couple of quarters. As JJ also indicated, we continue to see some positive signs in 2010. JJ also pointed out that we are looking for high single digit growth. In our car loads in 2010 and a continuation of our solid pricing policy of around 4%. Now we are still facing a few headwinds one of which is the strength of the Canadian dollar.

Last year, you may recall the average Canadian dollar was around $0.88 but it did start as low as $0.80 in the beginning of the year in the first quarter of 2009. So something to keep an eye on. Also I need to bring your attention to the fact that we will be having some higher depreciation and casualty expenses in 2010 probably a number of around $100 million for those two items combined. In spite of that however, we are pleased to provide guidance for 2010. We are aiming for double digit EPS growth in 2010 from the adjusted EPS phase of 324 which was achieved in 2009.

Now also just keeping in mind the ethnic and the foreign exchange headwind that I described this guidance would be solid double digit growth if it wasn’t for that headwind. We are also targeting for free cash flow to be in the order of $700 million. Very solid, in fact its, if you exclude the asset sales that were, that occurred in 2009 this is a full 25% increase. So we are keeping to our strong shareholder value focus. As you can see from this outlook, we are confident in our business model and this team's ability to leverage the gradual economic recovery. Our 2010 capital investment program will be $1.5 billion, the dividend increase of 7%, the stock buyback program all are consistent with this view. And with that I will turn it back over to you Claude.

Claude Mongeau

Thank you Luc, thank you Keith and JJ. As you can see the theme is clicking I am very, very pleased with the way we were able to finish the fourth quarter of 2009. We have turned the corner in the last part of that quarter in terms of year-over-year growth and that’s continuing into January. We have had sequential growth, we have had sequential improvements in operating metric despite the sequential growth which bodes well to our ability to maintain velocity and fluidity into next year and accommodate to grow that low incremental cost. And we also have improved earnings as Luc could explain if you exclude some of the headwinds and you focus on our core operating rhythm. This positions us very, very well for 2010 if the economy stays on track we should be able to grow earnings and deliver solid free cash flow. And our focus is going to be on doing exactly that.

I feel pretty good about the team, we have a great franchise, I like the leadership team that I have just assembled. But more than anything I like the 22,000 rail roaders which are making this rail road click day in and day out. At the end of the day, it's not the logo which is a beautiful one, it's not the color of our locomotives, it’s the strength of this team and our ability to deliver results in good and bad times. We are going to be focusing as Keith mentioned on our operational excellence.

There is nothing that will change in that regard. Our focus, our foundation is on our ability to deliver. But we will also be focusing on new growth opportunities we are hopeful as I said that this economy will gain traction and with that in our initiatives to improve service but focus on first mile, last mile that JJ talked about our ability to monitor and act on the opportunity that are in front of us will give us opportunities in terms of volume growth.

And we will do this going forward with a view to align our sales with our customers and key stakeholders. We are determined to take our gain to the next level. I am very confident, we have challenge but we are geared up to seize on opportunity and with that I will open it for question and answer.

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines. [Operator Instructions] the first question is from Tom Wadewitz from JPMorgan.

Tom Wadewitz - JPMorgan

Wanted to get a sense of I think your view on volumes and pricing with respect to that I think JJ had mentioned a high single digit volumes and I am not sure if you explicitly mentioned a kind of a target base rate increase in 2010 but wanted to get a sense of what you expect for base pricing and given that pretty good volume growth that you are seeing is it possible that you do better on pricing than you would have done in 2009 and the markets little bit tighter?

Jean-Jacques Ruest

The market pricing that we forecast for 2010 is 4% range type price increase on the same store basis. And as I explained we have one head with the Canadian regulated grain which is going from October to August and after that we will see how that goes but we are running with a 4% range.

Tom Wadewitz - JPMorgan

Does the 4% include the headwind from Canadian grain or is it 4% but then its going to be last because of the Canadian grain.

Jean-Jacques Ruest

It includes the Canadian Grain.

Tom Wadewitz - JPMorgan

Okay and then on your I guess outlook for the double digit earning figures, what kind of headwinds do you expect in terms of incentive comp and some other things. I guess you mentioned a few of the expense side headwinds but what kind of headwind do you have in terms of incentive comp or pension coming back and you know is there some element of conservatism in the guidance that you are giving.

Luc Jobin

In terms of pension we foresee pretty well the same level as we did last year I mean again the scenario that is evolving and we are going to wait and see what the new rules are and you know where the discount rates are going to go but generally speaking it would be the same level. On stock-based compensation you know if it gets the metric when you got about $4 to $5 a share movement that translates roughly into about a penny or penny and a half in terms of EPS impact. So obviously there is some of that that is again the plan. And I think generally speaking I mean our plan is solid, it does look to the recovery and it does assume that obviously we will be maintaining our productivity and all of the great results that we have achieved on an operational dimension during the course of the year.

Claude Mongeau

Tom to be clear to as Luc said you know those are some of the key headwinds but the two big ones are the casualty claims which was the recovery in 2009 of $60 million and this $30 million of increase depreciation that we will phrase, right there you have a $100 million of headwinds but we have enough momentum on the top line and enough momentum on the productivity to offset that and grow earnings in line with the guidance we just gave.

Tom Wadewitz - JPMorgan

Okay, great well congratulations Claude on the first call as the new CEO and thank you for the time I appreciate it.

Claude Mongeau

Thank you, Tom.

Operator

(Operator Instructions). The following question is from Walter Spracklin from RBC Capital Markets. Please go ahead.

Walter Spracklin - RBC Capital Markets

Keith you did a great job of explaining those three issues and obviously they are very substantial but I am wondering if you might be able to give us a sense of, if you could quantify what those issues were in the quarter, and specifically around the strike if there is going to be any follow-on impact from perhaps any loss business either CP or to the trucks?

Keith Creel

Well, let me say this, as far as quantifying the number that’s pretty slippery slow. I am not concerned that there will be any losses seen here to the trucks. I think we did a phenomenal job, talked to some of our key customers. We surpassed their expectation. We surpassed our own expectations to be quite frank. But the preparation was the execution of these apertures what they were able to do it, I think its nine and I am not done without that at all. As far as the financial impacts got (inaudible) sort of bring that up and quantify that as much as he feels is appropriate. But the fact is that they and my mind given the potential that was there it was little.

Claude Mongeau

Yeah, after Keith's commencement I think the team did an outstanding job by containing the impact I think of approximately $10 million or so of it on our operating income was essentially what we see as the impact of strike which is very commendable given certain staff (inaudible).

Walter Spracklin - RBC Capital Markets

Great, great job.

Jean-Jacques Ruest

Yeah, as it relates to truck I mean what we have asked to talk was Smith just temporary, were just for a period of time and in fact, we did some recovery trucking our self to make sure that we were doing it. Good service.

Claude Mongeau

In actual fact we lost very, very little business in the end and we recovered both of this and at the end of the day, the $10 million has been (inaudible) five days is quite remarkable that we were to keep it down.

Luc Jobin

And I'll say this Walter as well, like any other unfortunate it works out what we had in this company or any company has. And when you have to go out and do these things yourself day in and day out. You identify opportunities so it may be from short term pain but from a long term standpoint certainly develop new and improved ways to be more efficient, more productive on a go forward basis.

Walter Spracklin - RBC Capital Markets

Those are some pretty big issues. Congratulations on dealing with those. The second question I have now is on the guidance of the double digits I guess, double digit is quite a large range when you think about it. Now you mentioned there are some headwinds that stop you from solid double digits so I am trying to get a sense that are we talking 10% to 15% growth? Is that where you want us to sort of get our heads around you for your earnings for 2010 or are we somewhere higher than that?

Claude Mongeau

I think Walter you have to listen to it, listen carefully. He said that he is aiming for double digits and I support that, that’s what we have to face is with the exchange that we face and with some of the headwinds that we talked about aiming for double digit, the EPS growth with the assumptions, we communicated is the right one. Now, if you exclude the FX headwinds then we will be solidly a double digit and that's consistent with the gradual recovery that see in front of us and our ability to accommodate that business that’s [at incremental].

Operator

Following question is from David Newman from National Bank Financial. Please go ahead.

David Newman - National Bank Financial

I just want a few, at current levels you are calling for a high single digit car loan growth and pricing of around 4%. So somewhere in the range of 10 to 12% on that loan. If you stay at current levels, what do you think the fuel surcharge mechanism could toll on the top line on top of that?

Claude Mongeau

I mean our fuel surcharge program is basically recover, you know whether you track our cost or revenue overtime they kind of match one another. I don’t really have, its basic numbers of to high-end known as dollar wise WTI and I think the key is the, the key to monitor is really the lag effect and from where we are at the moment, the fuel price has been hovering around $75. We see it in WTI terms in the range of $75 to $80. If that’s the case, then we'll have a very minimal headwind from the fuel lag standpoint but its kind of a [grab suit] to monitor because that lag goes up and down from quarter-to-quarter…

Keith Creel

Yeah, it's going over the track for sure, yeah.

Claude Mongeau

Equity. So but big picture, it's not a big factor if it stays within the band that we are assuming.

David Newman - National Bank Financial

Just remind me, how much of your fuel surcharge covers the On-Highway Diesel versus WTI. Are you pretty much covered there?

Claude Mongeau

It’s a little more on the Highway Diesel side than WTI. Yeah overtime we've migrated and shifted from WTI to Highway Diesel. So it's probably 60% Highway Diesel, 40% WTI, that type of range.

David Newman - National Bank Financial

And is there an ongoing effort to get that trued up?

Claude Mongeau

Yes, but I think we're probably in the range right now that we would like to be. That was a big effort last year and the year before. There’s a range that we have right now, it's probably in the range that we are comfortable with.

David Newman - National Bank Financial

Okay. And my last question, just on the utilization, Claude where do you think you are on the utilization level and I guess to the previous question, you know a couple of things is if the utilization starts to tighten up I mean can you get more than the 4% and similarly on the cost side, at what point do you have to start leering cost back on. You know I am not looking for specific numbers but just conceptually.

Claude Mongeau

We are ready to accommodate the business that’s in front of us. We obviously have a lot of locomotive power that’s available to us. We have a lot of car fleets available, you might have a few car types deal with as the business comes back but really in terms of our ability to accommodate growth, we have a lot of capacity and we're preparing ourselves to accommodate the business and hopefully gain some market share as our customers ramp up.

In terms of pricings, a lot of the pricing that JJ is targeting is already kind of baked in. Those are the agreements that we have been negotiating throughout the year. And we've kept a consistent approach to manage our pricing year-over-year in that 4% range, a little bit more in the recent years and more like 4% this year and that includes the impact of the grain, regulated grain escalation down this year.

So, we have that consistent approach, it’s been tried and true and that’s what we're going to continue to price our services with a view to getting the value that we offered to our customers.

David Newman - National Bank Financial

And your book of business, how much is covered by the 4% for 2010?

Jean-Jacques Ruest

Yeah, about 80% of our fuel pricing if you wish which is already done for the year. So there is a good part which is done already, obviously a very high percent for the first quarter and declining towards the fourth quarter. Typically our agreement either tariff like it would been six months or contract of one year, contract of two years. So they give you the (inaudible) as to how much half far out we're priced. We tend to go for shorter agreement, as it relates to what we did in the past. And right now we're about 80% done for this year.

David Newman - National Bank Financial

Excellent John and congratulations one and all.

Operator

Thank you. Following question is from Matt Troy from Citigroup. Please go ahead.

Matt Troy - Citigroup

Claude question for you as it relates to the U.S. regulatory environment. I was wondering if you could just give us a refresher in terms of how much of your business would be covered by changes in the U.S. regulatory environment. I thought it was, if memory served me correctly something closer to a third, certainly the minority. But if you could give us the directional bogie there, and then just give us a sense in terms of your reacting in terms of what you've seen, what's been proposed. Is it relatively benign? Do you need to see more? What are the areas sensitivity you have or interest then as that legislation progresses?

Claude Mongeau

Well Matt to your first question, our overall business in the U.S. that is domestic U.S. would be closer to 20% overall and a lot of that is really not impacted by the new regulations because we do have a network that is in many respect highly competitive, we have the Mississippi river, we're right there in the middle of mid-America so we don’t have some of the concentration of shippers that are so called captive on our U.S. franchise.

More broadly if you ask me about what we are seeing then I would react in the following way and I have the same view whether its Canada or U.S. we have been going through a tough time with this recent downturn and in tough times its expected that the customers and shippers are going to be looking for every angle they can find to improve their leverage and negotiation and some of it is fair again some of it though you have to sit back and ask yourself is it good public policy for the long term.

It's not so much the detail of the new regulation, it's more the risk of mindset and not going in the right direction. I have a firm view that’s the railroad industry in North America is on a solid footing, it is a highly capital intensive business. It is fully a 100% privately funded and there is just no other way about it. If a market base system that allows the railroad to earn a decent return is the key to what got us here, it is even more the key to what will we need going forward. Railroads are sustainably from an environmental stand point they are far superior to other mode. We have an ability to grow and serve our customers on both side of the border and that’s the investment that’s required to do so is dependent on our ability to earn a decent return and so I am hopeful that policy makers will focus on the big picture and if there are tweaks that are required to improve the safe guards in the U.S. for instance in terms of regulatory measures, that’s fine but let’s make sure that we don’t go overboard and start to cloud the picture and move away from the market base system that got us to where we are.

Matt Troy - Citigroup

Understand, thank you for that. My second last question is if I could perhaps ask Luc, if I think about your guidance, car loadings or volumes up high single digit pricing 4% that alone would get you to the target range of double digits. You articulated quite clearly some of the headwinds you face with the FX. I was wondering if you could help us, that car loading or that volume figure from the mix perspective my RTM's come in at half that level, RTM's come in at a comparable level. It seems it has always done a great job of articulating the difference between relying too heavily on carloads and focusing more on economic activity and RTMs, I was wondering if you could just help me reconcile your volume guidance to what RTMs might look like. Thank you.

Luc Jobin

Well I am not going to comment specifically on RTMs, but may be I can speak a little bit to some of the assumptions that underpin our guidance in terms of economic recovery, for instance one of the things that we are looking at is the North American progress in terms of industrial production, somewhere in the 3% to 4% range. We are looking at things that influence our business such as U.S. housing starts where we are looking at somewhere around 750,000 units in 2010, another metric we look at and we base our plans on, our U.S. motor vehicle sales and that we see roughly 11.5 million units. We are also thinking that the grain crop for the Canadian side will be pretty well in line with the last five year average and we look at you know the good carry over from 2009 into this year. So, I mean those are more specifically linked to the businesses and to the areas that drive our carloads and our RTMs.

So I mean for us at this point these are the underpinnings and I don’t really have more to say in terms of specifically RTMs versus car loan at this point.

Operator

Thank you. The following question is from Cherilyn Radbourne from Scotia Capital. Please go ahead.

Cherilyn Radbourne - Scotia Capital

I wondered if I could just ask a question on your deployment of distributed power. You could just give us a sense of where you ended the year in terms of the percentage of your fleet as BTU and where you hope to be by the end of 2010?

Luc Jobin

Okay, currently now about 25%, 26% end of the year [DP] equipped, we are moving 270 total locomotives by the end of 2010 we will be just over 400 and then on a go forward basis everything that we effectively transition out and bring in online as well as anything we are taking on with good feasible to convert locomotives. And we will continue to do that with an eye to work to word, I would say an operating model if we can get about 75% of our locomotives and landline locomotives equip DP we would not have a challenge matching up to make it a contest to affect to utilize that technology. To get that all done I think we are looking at the end of 2012.

Cherilyn Radbourne - Scotia Capital

Just on the EJ&E I guess the STD has announced that they are going to investigate some of the community concern. Just wondering to what extent a new sense in terms of your ability to operate that line and beyond that just what you think you can do with that property in 2010 what further integration progress can be named?

Keith Creel

Quite frankly I don’t need a newsprint so I think if anything its going to be something that will help as a audit effectively they are just checking to see if we're doing what we said we would do with the transaction which is fair again in my mind and certainly we have a vigilantes operating that railroad, we clearly understand that we are under a microscope and where people of our words will intend to fulfill every commitment that we made in effect was speeding on those commitments. So that’s not our concern we are getting work close with the communities that we have we are up to 21 effective voluntary mitigation agreements of the 3102 that’s a very substantial portion, very pleased there so not too concerned about that as we go forward what we are going to do in 2010 converting we have got effectively now.

The first big piece of interchanging the Chicago corridor converted we did effectively deliver all TSX traffic to the belt we are still delivering TSX traffic to the belts but not at CN's expense and TSX effectively delivering all of our interchanged two Kirk yard we were switching that traffic and effectively putting it into our system. So already developing some operating synergies and savings associated with that transaction as we continue the investments putting in these connections on, we certainly have some boundaries that what we can move around in line with our environmental assessment, we do not anticipate filing that at all. The business levels are nowhere close to we will get in concern with that, we will continue to march through our plan to shut down eventually or rationalize market and put the switching in the curve, so we are going to invest in dollars as we go forward building the surgical plan and encourage to handle that.

And this year specifically in 2010 we are working with those other farm line carriers in the Chicago market this year, interchange from inside the arc so to see that some of those connecting carriage on the outside which will drive some additional operating synergies and speed up a lot throughput through the Chicago corridor were not just (inaudible) but also for those of the foreign lines.

Cherilyn Radbourne - Scotia Capital

Very full answer, thanks, that’s all for me.

Operator

Thank you. The following question is from Bill Greene from Morgan Stanley. Please go ahead.

Bill Greene - Morgan Stanley

Claude I am wondering if you can outline for us a little bit some of the targets that the board has set for the management incentive comp this year?

Claude Mongeau

I'll get by in line with the guidance that we are providing you as you know we have five core metric you know first and foremost revenues then operating income, EPS, free cash flow and ROI and our target if we don’t deliver on this guidance we don’t get paid a big bonus then we have every intention hopefully to have a first good year and pay a bonus to management employees who have done the great work.

Bill Greene - Morgan Stanley

Claude I think I remember last year you had mentioned to me that you are going to need to find to get your cash flow targets for ’09 you are going to need to find some things to do on the non-operating side and you did, is that still the case this year because just the headline cash flow number as a target that you gave us would be below so do you have more assets to sell (inaudible) how will that work.

Claude Mongeau

Well, you know what the $700 million is an aggressive target if you take into account and as Luc gave you the details we did make basically $200 million worth of sales here at corridor during the year and we are always looking to monetize under utilized asset, but you cannot necessarily count on them ahead of time, we are definitive another parties to step up to the plate and so if we can deliver $700 million following a year where we had these line sales that would be strong performance.

Bill Greene - Morgan Stanley

Yeah, what is your view on acquisitions? We know what Hunter was saying and firstly your thoughts are?

Claude Mongeau

Well, Hunter and I were working together for last 10 years on acquisitions so whatever you heard from Hunter I share his view. I believe that our focus is on driving organic growth leveraging the franchise that we build. And we are always looking for tuck in these acquisitions that they become available but that’s not the way we plan on our earnings, we drive the business that we have and we are disciplined in monitoring the opportunities and if they come about the one thing you can count on is we know how to integrate them and get the value for our customers and for our shareholders. But we don’t put our sales on a clock.

Bill Greene - Morgan Stanley

All right, thanks for the time.

Claude Mongeau

Thank you.

Operator

Thank you. The following question is from Ken Hoexter from Merrill Lynch. Please go ahead.

Ken Hoexter - Merrill Lynch

Great, good afternoon. I just wanted to clarify a couple of things on the casualty side. But I want to make sure what you are saying is that there was a $60 million impact that you are fighting against in 2009 or are you saying that suggesting that the cost themselves is going to go up in 2010?

Claude Mongeau

Okay. As Luc explained during the year, we have had recovery on our investors and occupational disease they claim to the tune during the year of $60 million. Well, this is a fairly large recovery. Most of it in Q3 and some of it in Q4, and we are continuing to make good process. Our safety statistics are improving, we are planning to continue to reduce casualty claims but the probability of having another $60 million recovery is not there.

Ken Hoexter - Merrill Lynch

So should we look at that as being kind of a $90 million run rate for next year?

Luc Jobin

It's probably more in the neighborhood of a $100 million run rate really.

Ken Hoexter - Merrill Lynch

Ad then my last question just on the yield. I just want to understand the mix. You ran through a bunch of numbers there and if we got peer pricing of 4%, your fuel surcharge was down 7% the currency was 6%. The overall average revenue per car load was down 15% so that leaves a large negative impact from mix. Am I reading that right kind of in the mid teens, a negative impact per mix?

Keith Creel

Its mix and under revenue but we have a couple of other business for example. We're moving all-in-all (inaudible)and vessel in the light, it’s a combination of mix, combination of the other line of business that we have which are beyond their real activity, for observing a first final (inaudible).

Ken Hoexter - Merrill Lynch

So is this largely impacted by the things like short haul coal coming on line from the new contract and mix issues like that? Are there any large impact issues like that that you can highlight?

Keith Creel

I think to do with the coal itself. If you look at our book of business in our fourth quarter of 2008, we had a drastic move in some business going down like (inaudible) then iron ore, which went down too very quickly while some other segment held up and the book of business in the fourth quarter of 2009 was quite different because you had some industries not recovering and some of this is going down. So when you look in to book of business for these two quarter, because one was spiraling down and one was recovering. There is a lot of the so called non-same store business that you can't otherwise have that otherwise in a normal steady economy that did have more of it. So the mix is a bigger factor when you compare these two quarter because hardly you know the things were evolving really, really fast, just load the downside and the recovery and get away.

Claude Mongeau

The important point for you to remember Ken is that our pricing if we exclude train was around 4% during the fourth quarter.

Operator

Thank you. The following question is from Edward Wolfe from Wolfe Research. Please go ahead.

Edward Wolfe - Wolfe Research

You quantified the impact of the strike at $10 million. Can you talk about the operating impact from the derailment and from the weather that you talked about as well in the quarter?

Claude Mongeau

I don’t think they were as Keith had mentioned, I don’t think they were material in the end because we were able to recover in the last two weeks of the year. So I think $10 million for the strike, we did struggle with weather disruption and the derailment but we caught up at year end and so I think on a go-forward basis, we’re focused on our running the railway.

Edward Wolfe - Wolfe Research

Thanks Claude. JJ mentioned something that sounded fairly bullish about potash. Can you talk a little more about potash and if all that’s domestic or if there is some export that you are seeing improvement in and kind of what your expectations are for the ramp throughout the year.

Claude Mongeau

Thank you Ed, our potash business at CN is all within North America, its not overseas export business. We do some out of the New Brunswick mine but that’s (inaudible) but very short haul business and our potash business last year was very, very weak. So when you look at the comp, I mean the comp like the potash business last to last year has much (inaudible)in the fall was very weak and what we've seen since the beginning of the year, it’s a nice recovery for, through the United States. So compared with the comp, its hard to get any worse, we’ve seen the bottom and so far so good this year, this early, early, early month. I would add to JJ's comment that the way it is at the moment, the Canadian mine don’t seem to have a huge inroads into the Asian market China in particular. So it's possible that in 2010 we'll have more of this moving towards North America.

Edward Wolfe - Wolfe Research

If you look at volumes overall that are supposed to be up high single digits, is potash higher than that? Or inline with that or below that?

Claude Mongeau

When you look around something like commodities that we have which were probably the most under the guns during the recession like potash and iron ore, obviously these will come out strong and those who held up the better like (inaudible)chemical segment held up a little better, you won’t see as much of a car load growth. There were two commodities the one that really went down and the one that are going to come back bigger for us.

Edward Wolfe - Wolfe Research

In the double digit EPS guidance, what’s your expectations for FX and for fuel that you are using in your own internal projections?

Luc Jobin

Yeah, in terms of FX we are looking at somewhere in the range of $0.95 to parity. As it relates to WTI, we are in the $75 to $80 range. I mean as Claude pointed out, I mean that’s kind of what we have in our assumptions.

Edward Wolfe - Wolfe Research

And Claude last one. May be it’s a coincidence, may be its not but in your first quarter in your new position to come out with a big dividend and a decent size share repurchase. Is that a tone that you want to set going forward or is it just it was the right time and its year end and then it would happened no matter what, how should we look at that?

Claude Mongeau

Let me say a couple of things. The first is we are very confident about our ability to continue to deliver results going forward. The fact that the economy is appears to be on a firm footing. I mean it's still fragile, we all don’t know exactly what’s happening in all sectors but it looks like we have a firm ground. Those are the two underpinnings and its that confidence that our board is counting on to support our recommendation and you know I have made a promise to give a dividend's answer and I was not about to not do that. So that’s where we are coming from.

Edward Wolfe - Wolfe Research

Shouldn’t look at this, as you're going to be more aggressive in those areas but more of that the timing was right and you're going to be as aggressive as you have historically been in those areas.

Claude Mongeau

Well I have been the CFO for the last 10 years and I follow a consistent approach to our use of cash and I am going to do everything to keep the lurk on that same constructs. So you should expect no change in this regard whether I am sitting at the top or I am sitting as a CFO.

Operator

Following question is from Jason Seidl with Dahlman Rose.

Jason Seidl - Dahlman Rose

First question, in regards to the headcount, you mentioned double digit or as a high single digit, car loading increased. So we're going to need much in the way of headcount increase to handle that or do you think you have enough now?

Keith Creel

No I can tell you that our attrition is that say we're about 2000 on a run-rate on a go forward basis for the next several years. Now specific to the running trade side, rough numbers, I have still got about 500-600 surplus employees and attrition. I can eat half of that and not hire an employee. So we've got a surplus still on employees. I am not concerned about that all and on the other pieces of the operating side, on the mechanical side, very aggressive plan as well with our productivity initiatives, with our improvements. We are not going to replace one for one that’s for sure.

Claude Mongeau

At the end of the day the one thing you don’t want to make is a mistake to hire too and a mistake to hire too late and so its really a balancing act, its about reading the markets, its about seeing what’s coming and that’s our challenge and we’ve done it well in the past and we will continue the focus on trying to balance you know that fine line, but the key is we want to be ready to accommodate the business. If there is a golden opportunity, as our customers are ramping up to cease on market share and keep it for the long-term and will well resource as Keith said and we'll be there to accommodate the business.

Jason Seidl - Dahlman Rose

Fantastic, it's my second final question. You talked about the positive outlook for your met coal franchise. Could you talk a little bit about your capacity to handle growth in that call for 2010?

Claude Mongeau

Capacity wise it looks pretty good because we do have a very young fleet on the coal, on the Canadian coal side. We have actually refurbished that fleet in the last three years, pretty much all of that fleet is aluminum (inaudible) and now we can order Keith's model and we run them, we run with DP power and one of the terminal at the West Coast is actually going to extend the length of its track for sometime late spring. It will be able to run longer and longer trains. So between longer train and your car, you know from that point of view, we're doing pretty good. Keith do you want to…

Keith Creel

Yeah, I'll just tackle the same thing. As the operating model itself from people and from locomotives is not an issue as well. So you put all those together and there is no issue with capacity. Hope that answers that up.

Claude Mongeau

Yeah and listen we're part of a supply chain so when we look at the Canadian coal customers and you know us they are using our service of the rail road and if they are using the service also the terminal we see this as a three way mandate, you know working with the stakeholders and terminal operators to shut some record you know to move wherever they can, they need to move that we can move it in the time lane and ride that way (inaudible).

Operator

Thank you. The next question is from Randy Cousins from BMO. Please go ahead.

Randy Cousins - BMO

Good afternoon. I guess one quick question with reference to time back to the call side equation. You guys took or you got 5 million tons I think from Teck Cominco. In the fourth quarter was that reflective of the actual 5 million ton run rate or is there still there some volume to come under that side of the equation?

Claude Mongeau

I will not comment on how much business we have with one of our specific customers but our fourth quarter run rate for closer combination of more of the I would call historical portfolio including the new business we have with Teck.

Randy Cousins - BMO

Okay and you even talked a lot about the opportunities that sort of grow market share. You got a couple of assets in place that may be were equally developed in 2009. Obviously, the length of share being one EJ&E. So, when you are talking about sort of pricing of digit volume growth, is it fair to say that may be one or two points of that growth is going to come from, you are taking market share either in truck to train conversion or other modal opportunities or just simply market share that you find out there because you've got a more competitive product. How should we think about sort of growth that’s or that’s seeing our market share type growth as opposed to sort of a bet on what housing starts are or not?

Keith Creel

Definitely, some of it comes from the North American economy coming back. Some of it depend also on the strength of the Asian economy. But in all cases where it's in all in the strong economy, weak economy we're always going after market share using our product to get some thought, some share away from the highway and from the other sourcing. So part of it is using our products and first mile, last mile initiative to be nimble and pick up some extra point. Part of it has to do with the economy.

Claude Mongeau

And Rand just to give you a sense typically, you know if you get half a point to a point of additional growth from a volume standpoint you know some year that you have an initiative that can extent you might be closer to a point, other years you might be half point, that’s the kind of stand you would focus on in terms of market share gain on a sustainable basis.

Randy Cousins - BMO

So really when we think about sort of the volume number, it really is going to come down to a bet as to what you think the degree of this recovery is. You guys have given all our framework but if it's positive you do better, if it's less you do worse. Is that the way to really think about it?

Claude Mongeau

That’s why you pay the big bucks Randy and we're here to run the railroad and we'll accommodate the business that’s in front of us.

Randy Cousins - BMO

Thank you very much.

Claude Mongeau

Thank you Randy. Okay I think that’s make it for our prior call today. I am very, very pleased. We feel good about this economy. We feel good about the operating momentum that we're building. The team is engaged and we will be looking forward to see you again on our call at the end of the first quarter we're reporting some good results. Thank you very much.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.

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Source: Canadian National Railway Company. Q4 2009 Earnings Call Transcript
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