Canadian National Railway Company - Shareholder/Analyst Call

Feb. 9.12 | About: Canadian National (CNI)

Canadian National Railway Company (NYSE:CNI)

February 08, 2012 5:00 pm ET


Robert Noorigian - Vice President of Investor Relations

Claude Mongeau - Chief Executive Officer, President, Director, Chairman of Donations & Sponsorships Committee and Member of Strategic Planning Committee


Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

William J. Greene - Morgan Stanley, Research Division

Scott H. Group - Wolfe Trahan & Co.

Ken Hoexter - BofA Merrill Lynch, Research Division

Unknown Analyst

David Vernon - Sanford C. Bernstein & Co., LLC., Research Division

Walter Spracklin - RBC Capital Markets, LLC, Research Division

Cherilyn Radbourne - TD Securities Equity Research

Robert Noorigian

Thanks, John, and let me welcome all of you in the room and also welcome the people on the Internet and on the web who may be listening to this at the same time. Thank you for joining us for our Investor Day today.

And I'll start off with the usual today and tomorrow's remarks may contain forward-looking statements within the meaning of applicable securities laws in both Canada and the United States. There are a number of risks and uncertainties that could cause actual results to differ materially from what we present today and tomorrow. These are detailed in the first slide, as well as in the MD&A and reports that we file from time to time with the SEC and applicable Canadian regulators. Certain applicable assumptions are also set out in the first slide. Also, today, the presentations may refer to non-GAAP financial measures for purposes of comparability. You may find the reconciliation of those non-GAAP measures at CN's website. And also, Paul actually has hard copies of this, if you'd like those.

For those of you who are listening on the web today, the presentations you see today, as well as tomorrow, have some short clips that are very informative about CN. And if you are watching on the web, you're going to have to actively click on that video to be able to watch it. Okay? And I hope it all works very well. I hope you all found it very informative, this journey that we have with our supply chain enablers. We did -- I think they did an excellent job. And not only that, we're doing everything on time. And especially for supply chain enablers, I'd like to introduce my President, Chief Executive Officer and also my boss, and also I'm going to call him the Chief Supply Chain Enabler at CN, Mr. Claude Mongeau.

Claude Mongeau

Thank you, Bob. You can relax. We certainly don't want you to be swept by CN Police at DM [ph], and I certainly intend to have many forward-looking statements with my colleagues. Otherwise, why would you be here?

Let me thank everybody, all of you that are coming here today, are traveling, taking busy time out of your other agenda and taking -- making the effort to join us on this 2-day event. And I appreciate that. There's a lot of competition out there, particularly these days in terms of exciting stuff happening. And we came prepared, and we hope you don't regret to be here with us today.

Two years ago, I think almost 2 years ago, 20 months ago, we were in Chicago. That was our first analyst meeting with the new management. And at the time, we laid out a game plan, and we also showcased a theme. If you recall, we have these multiple panels. We wanted to show you the bench strength below the leadership team, and we wanted to help you connect the dots of what it is we are trying to do.

Today and tomorrow, we're going to take a slightly different approach. We're going to raise [ph], you're going to meet or listen to presentation only from the leadership team, and we want it to go one level down in the organization, in some cases, all the way to front-line supervisor, a guy like Matt Hipwell, for instance, who’s on the ground in Vancouver, running this supply chain for containers. So you have the people on the ground, you just met them in the virtual tour. You have the management that is there obviously for dinner and for informal conversation. But you're going to have only presentations from the 4 of us who are leading this organization forward: myself, Keith, J.J. and Luc. And I think it's fitting because effectively, we're not going to change the game plan. Two years ago, we laid it out.

Some of you understood exactly what we were trying to do. Others were asking themselves exactly what do they mean by supply chain collaboration, what do they mean in terms of a more customer-centric organization. And I understand that you would have those kinds of questions because we are trying to lead the way in the industry. And it's not like many railroads have tried what we've tried -- what we are currently trying to do.

So today, we're going to lay out the same game plan effectively, except we have a lot of deeper color. You've seen some of it in those short videos and short explanations while you did the tour. And for those of you who are on the Internet, you will have a chance to watch the same tour, using what we call a virtual supply chain expo. And I encourage you to go there to get a feeling for things.

It's not easy in an hour to give you a sense of what we're trying to achieve. But if you listened carefully and you watched those videos, you see a number of things. You see smiling faces. You see customers who are actually willing to be filmed and to share their experiences. You see a range of people from CN, from front-line supervisors to customer service reps to executives that are working together, trying to make this journey real. And that's what we're trying to do. We're trying to keep the journey of CN going, and we're trying for it to go strong.

Now we're here in New Orleans. That's what we're going to do. We're going to give you a report card. We're going to help you connect the dots. I said to Bob, we have a lot of competition these days. These guys are going to be multitasking. They're going to be this huge read across factor with the CP saga. It's going to be tough to capture their attention. And so I said, Bob, you got to do something special to make sure they listen and they focus on what we have to say. And that's what Bob dreamt up, a 40-foot by 15 feet. So if you are losing focus, beware. We also have CN police.

We wanted to capture your attention because we think we have a good story to tell. We didn't want this meeting to become a giant water cooler. We would appreciate and I think you understand that we focus our questions on CN. That doesn't mean you can't have a few informal questions at cocktail. But there's a great story to be told, and we're here to tell it to you. So we hope you will focus on CN and not on other carriers at this point.

So let's go right into the journey. I think it's fitting to start with a little bit of a context. I told you that story 2 years ago, but it's worth telling again because that's what you buy when you buy CN. You buy a journey. We've been at this now, as a publicly traded company, for effectively a little bit more than 15 years. And we've gone at it in a fairly meticulous structured and well-executed manner. It all started with what I call the fundamental turnaround. Way back in '94, I joined CN at that time just before we became a publicly traded company. And there was a lot of fundamental turnaround, a fundamental fixing of the cost structure. I mean, we rationalized 50% of our network through abandonment and shortlines. We had outdated labor agreements to deal with. We had to install a culture of performance and accountability and a focus on the bottom line as -- I think you can forget that -- but as a Crown corporation, that's not exactly the core focus.

We did all of that. We built an outstanding team at the time under Paul Tellier, but we also, at the time, set out a bold vision. Paul decided that this organization would become the best North American railroad 16 years ago. And we've been on that journey ever since. And I think we are making outstanding progress, and we're not done.

The second phase is the Precision Railroading breakthrough in 1999, when we acquired the IC. During that phase, we took the momentum that was building for several years, and we achieved what I would characterize as fundamental innovation. We built an entirely different business model for the railroad industry: focused on balance, focused on scheduling, focused on the principles that Hunter and the management team from IC, which had the best practice, brought to CN.

Now we knew what we were buying. We were buying a railroad that would go straight from Chicago all the way to New Orleans and expanding our franchise in that manner to become a truly North American railroad. What we also knew, and perhaps since because we were not the typical railroaders, we knew we were buying a little railroad with a very unique way of going about things. And it really expanded when it joined forces with CN. Because we have the IC best practice, we had Hunter's drive and vision, but we also have the strength of CN, an outstanding management team on its own. Outstanding system infrastructure. A beautiful network to join up with. And it's all of that, that became the Precision Railroading breakthrough that you have witnessed over the last effectively 10 years.

The breakthrough was mostly on asset utilization, and it's rather unique. In the rail industry, asset utilization is something that can actually deliver good service. The fundamentals of gaining velocity helps you improve the service to your customers but also helps you reduce the asset intensity of what is otherwise a very high fixed cost, high-asset business. So it was a profound transformation, and it gave us tremendous results, which I will show you in a minute.

But now, we are trying to become what I call a true supply chain enabler. We are the industry leader in financial metrics. We are the industry leaders in asset utilization. We are the industry leaders in raw service performance, velocity, reliability. But we can be much better by building on that strength to become a true supply chain enabler. We are a railroad. We are the backbone to the economy. We are a derived service business, a derived demand business. We are only as good as what our customers are able to produce and sell. And if we can find a way in the middle of it all to connect the power of the customers we serve with the market that they are trying to go after in a high fixed cost business, if we do this right, we can have the business model that I described you 2 years ago. We can outpace base economic conditions and grow a little faster than what the economy would give us normally, do that at very low incremental costs and generate solid earnings and free cash flow despite the fact that we are a clear industry leader, a sigma away from the rest of the industry in terms of core performance metrics.

That's the game plan. We are leading from where we are, not where we were. And we are leveraging the franchise that we have and the power of our business model to take it to the next level, to do something that's not been done in the rail industry and to do it for the benefit of our customers and our shareholders. That's the journey that we are on, and that's what I mean when I say that we are becoming a true supply chain enabler.

In business, it's all about results. And I think we have a lot to show in this regard. You look at the last 15 years and you focus first on volume growth, which is so important in a mature business, and you find that initially, a lot through acquisition and solid organic growth, but a lot through acquisition, we were able to outpace the economy.

We had a lull in terms of volume growth while we were making so much change with our business model but over the last 2 years, we've outpaced base market conditions. We are doing exactly what we told you we would. We are growing faster than the economy. And as you'll see in a minute, we're growing faster than our competitors.

Volume growth with a solid business model allows you to improve profitability. You have to have both. It's a balance of the 2 targets. And that, we have done in spades for 15 years, 16 years. 16% earnings growth. I told you 2 years ago, you can't do that forever, and that's just the law of large numbers. But you can do solid earnings growth and solid free cash flow from a larger base and deliver substantial shareholder value. And that's what we are in the process of doing, even from a base of strong market capitalization and strong stockholder returns over many years.

If I look at our performance, I was very, very pleased. Up until recently, some of you are doubting on certain days. We were not only creating a significant gap versus the market in terms of premiums or multiples, but we were doing -- and we were at the highest multiples we've ever had in our history versus the rest of our peers. That told me we were doing something right, that the model is working. And that model and that game plan has not changed. And I expect that over time, we will regain confidence, money will shake out, find its right place. And shareholders will understand the power of what we have to offer and that we are going to continue to create significant shareholder value going forward.

In the words of Jim Collins -- most of you have read that book, the famous Good to Great -- CN achieved over 15 years good-to-great status. Not easy for a railroad. We did it. I also note, and I read his book, that the mighty might fail or they might fall. So we're not resting on our laurels. We're not getting pumped on the past of what we did. We are focused on delivering results every day, because that's the only way you can sustain performance: by focusing every day on driving results with the right tools and the right approach.

So how do you do that? Well, you do that with a solid agenda. As I've said, it's the same that we -- maybe a few word changes, but it's basically the same that I described, that we described as a team to you, 2 years ago. Becoming a true supply chain enabler is about leveraging the position we have in the transportation of goods over the geography that we serve -- and it's a good geography, I'll show it to you in a minute -- and leveraging our ability to provide value to our customers in a way that will allow us to earn a solid return and invest in the business with a view to create shareholder value.

I told you 2 years ago that from where we are, it's not as much on the operating ratio as it is on growth and return on capital. The numbers are showing exactly that. We are able to grow earnings this year 15%, with a record operating ratio but one that is the same as it was last year. From where we are, that's what we have to do, and it starts with delivering superior growth. We have to outpace the base economic condition. It doesn't need to be by leaps and bounds. We are not Apple. But if we can do it 0.5 point to 1 point depending on the year, every year consistently, and we can get solid pricing in line with the value we create, we will accommodate that business at low incremental cost. We will use volume to gain productivity, and we can deliver solid returns.

Delivering superior growth is not only about next month or next quarter. It's about 3 to 4 years up. And this is where becoming a true supply chain enabler becomes very, very important. Because if you start to understand the business from the perspective of your customers, if you position yourself in their sweet spot, if you understand what they're trying to achieve, you can actually generate or harness a pipeline of opportunities that will deliver growth over the long term. You can gain market share one carload at a time. But you can only outpace consistently if you know where the business will be 3 to 4 years down the road.

So delivering superior growth, and you'll hear J.J. and Keith and Luc for that matter talk about growth, is about doing all these things. It's also about balancing operational and service excellence. We are known for our operational excellence. That's our track record. And it's not because we focus on service excellence that we forget operating excellence. Quite the contrary. That's why we use the word balancing. It's a little bit like the guy who does the 4 mile -- the mile under 4 minutes or is able to beautifully juggle 4 balls. And he's the best at it. And eventually, if you want to take your game to the next level, you say, well, you're going to have to add a ball now. You have to do the same beautiful juggling, except it's not 4 balls. It's 5 balls. That fifth ball for us is service. We had an inside-out approach. That's what we needed to drive change. From where we are today, we need an outside-in perspective. We need to leverage the power of what we do and focus it inside the supply chain of our customers or with our transportation partners to open up an entirely new venue of asset efficiency, an entirely new venue of service improvement potential or I call it continuous service improvement potential and a new pipeline of growth opportunity.

Becoming a true supply chain enabler is as much about superior revenue growth as it is about operational and service excellence. It's how it all comes together. And that's how you create shareholder value. And that's how you do it on a sustainable basis over the long term, with an emphasis on steady, consistent return.

We are no sprinters anymore. We can be awfully good in marathon. We have that sleep tight solid return characteristics that is so important in today's volatile markets. That's what we mean. That's the way we think of shareholder value creation.

Now that's the game plan. What do you need to make it happen? What does it take? Well, if I had to give you 4 elements, I would line them up this way. In the rail business, it starts with a great franchise. It's just the law of the map, the footprint, what you have to offer. And we have a great franchise. From where we are, it's about changing the paradigm to become more outside-in to develop that ability to understand and connect the dots in a way that creates opportunities. Opportunities for efficiency, opportunities for service, opportunities for value, opportunities for growth. And how you capture those opportunities and do it relentlessly and lead the way is with a deep DNA of innovation. And you've got to execute. And in any business, and in particular in the rail business, you execute through people. So let's take them one by one and go through the agenda.

Delivering superior growth. J.J. will give you more detail tomorrow. But again, it's framed in terms of -- because we're discussing long-term aspirational goals here, it's framed in terms of what we do versus the rising tide. How can we outpace base market conditions? And we think of that not in the most narrow market share terms of head-to-head rivalry with other railroads. We think in that -- we think in terms of the broadest possible way of defining what your market is without losing your core competency. The larger your zone of focus, the more opportunity you have to grow a business. As long as you stay within that sphere where you have a core competency and you can actually create value.

So we're thinking about growth and outpacing base market conditions in terms of one carload at a time versus trucking, versus other railroads, versus ships and sometimes, even versus pipeline. One carload at a time, blocking and tackling relentlessly.

We're thinking of it also in terms of helping our customers win because we are a derived demand business. If my customers through my services and their own efforts can reach markets further, can gain market share in their own business, I benefit. If PCS and Agrium are gaining more business in North America than Mosaic, CN benefits. If we can help our forest product producers to develop entirely new supply chains to capture business as far away as China and India, we benefit from that. How we help our customers win in the marketplace is a fundamental driver of market share gain. And I haven't taken business away from anybody, whether it's a truck or another railroad in any direct way.

I would tell you, so far, 2 years into it, it's actually been the largest driver of CN outperformance, more so even than direct head-to-head competition with rail or trucking. But it's not enough to grow with your customers and to grow market share one carload at a time. As I said earlier, you need to be able to open up new markets as well. Open up new markets on a gateway basis like we're doing for instance in intermodal, bringing traffic on the Port of Vancouver and Rupert or through Halifax and Montréal for that matter that goes into the heartland of the U.S. That's involvement. That's business that would have another supply chain with another port, another railroad.

It's new breakthrough opportunities, things that might develop only 3, 4 years from now. New mines that are being developed in Canada, for instance, in coal. We are signing collaboration agreements, and we're putting our expertise to work with people who are not even in the feasibility stage of developing new mines. We're leveraging the CN team. We're helping them with First Nations issues. We are helping connect the dots from a real estate or from a government relation standpoint. We are there with them before they even have a project because we want to know about their projects. We want to help them succeed. We want it to come faster. And if we help them succeed and get the project going faster, we benefit. We're doing it in coal. We're doing it in potash. We're doing it in a range of new iron ore and zinc and mining concentrate across Canada. Opening new markets, growing one carload at a time and helping your customer win is the way to outpace year in, year out base economic condition. And it starts with what's in the center of this chart, a deep customer focus, customer centric, customer engagement. They are in business, and we are there to help them grow. And from there, it's about leveraging a range of initiatives. And you've seen little demos of some of them today. What we're trying to do to leverage the strength, the tremendous advantage CN has in terms of velocity and reliability hub-to-hub. We’re about 25% faster hub-to-hub in about every -- whether it's bulk, merchandise, even intermodal. Intermodal, 14%. Faster hub-to-hub over any distance and not just CP but [ph] the entire rail industry. It's like going to a race track and you have a Ferrari and you have a Chevy. You kind of know which car is going to win the race. The game is to get there fast and reliably.

But it's not enough to be good hub-to-hub. You have to have the right customer touch points. The first-mile/last-mile initiatives. Some of you 2 years ago met -- what do you mean first-mile/last-mile? Are you buying truckers? No. No, no, no. We're fundamentally changing the way we interact with our customers, how we forecast together. How we take orders. How we measure order fulfillment. You've heard Wayne Atamanchuk. You've heard Raul earlier. How we do that, the flexibility we create in our ordering system is key to gaining carloads one at a time. You can't beat truckers if you're not there on the short lead time orders. We used to be very good at baseload orders. We still are.

But how do you inject flexibility into your ordering process so that you can go after short lead time orders that we were not even pursuing 24 months ago? We're doing it. You'll hear J.J. talk about it, how you sell One CN. Now that sounds catchphrase, kind of easy concept, sell One CN. That was a lot of surgery. We were running in all sorts of direction, creating different channels to sell our services. That was not the right way. Today, we sell One CN, and we are a transportation company.

The account manager for a large merchandise customer is as much responsible to sell the boxcar as he is to sell the container offer, because customers are buying transportation. If you don't do it, somebody else will. And if you're smart about it and you can actually start to leverage not just your focus on selling One CN but also your mindset on improving supply chain reliability, you start to innovate and you start to develop products like a mix of boxcar and intermodal container service in the right proportion. It's like having 2 tickets going to the airport. You never know, might serve. And if you don't have to pay for the second ticket and it gives you flexibility, we can grow with the customers. Maybe the business he was giving to the trucking firm when we were not there for him, maybe now he's giving it to us in our intermodal container service that starts with a trucker and is controlled by CN. And if you do that, you get better service. You get growth. You get value. You get superior growth and you do so in a way that creates a fundamental capability to help your customer win in their end market.

We're doing it in steel. We're doing it in forest products. We're doing it in all of the commodities that are using multiple supply chains, and we are doing it by selling One CN. We're not done. Not easy to get a centerbeam account manager who sold centerbeam all his life to understand intermodal. Not easy to connect the dots between our car distribution system, which is inside operation dealing with boxcar, and our container retail product, which is inside intermodal. But how you connect those dots from a selling and an operation standpoint to fundamentally change our service offering is what I mean when I say becoming a supply chain enabler. That's what a supply chain approach is all about. End-to-end visibility, understanding that railroads are in the middle of it all, that we have transportation partners. Sometimes we own the asset, sometimes we are with partners. Customers don't care. It starts somewhere, has to go somewhere. And it if doesn't get there, they have a problem. How can we help them reduce the pain points and create a more efficient supply chain? By engaging and helping our partners do better with us. You'll hear about that. You saw a video with Matt Hipwell and Pierre Renaud and Paul Waite, about how we are interacting with TSI and with, in fact, the 9 container terminals in Canada. The supply chain engagement is fundamental transformation. We used to finger point each other, looking backward at what happened last week. Today, we are managing daily with a precious few measures. And you know what's happening? Not only are we focused on delivering today, but that focus on the same measure, which are defined in a way that help us succeed and optimize end-to-end, is starting to help us plan ahead and tactically address issues that are not today, that are 5 days away from us, or a week or 2 weeks.

I sent an email on the weekend. I don't do that often. I do that on purpose on the weekends for effect. And on that mailing list of the daily scorecard with TSI is everybody inside global container from Michael Moore, down to the guy who manages the terminal. And at CN: Keith to J.J. to Paul Waite, all the way down to Matt Hipwell on the ground. We were January 6. Check it on your calendar, a Saturday. And we could see that what happened over the Christmas period with the Christmas shutdown and the difficulty to get resources and all the business that was coming our way would create a bow wave of container that would be difficult to deal with.

We were, together with the same metrics, not only dealing about today but projecting what we would have to do a month from now. Now it was not exactly pretty, and we're not quite out of it yet. But I can tell you one thing. 24 months ago, you would have seen a lot of finger pointing going on and not much action on the ground and actually fixing issues. It's fundamental change in the way we are approaching our supply chain end-to-end through a collaboration framework. That's how we deliver superior growth. And you'll hear more about that from J.J.

It's about outpacing base market, and I just wanted to give you a little bit of a proof point. You'll have some throughout this presentation. We are riding this economic recovery, and we are outpacing the market so much so that 2011 was a record volume year for CN. We have never ever moved more volume than we did last year, and we are peaking in a range of markets. You have them on the big screen that Bob designed just for you, and it's pretty much across the board.

Now you still have some markets that are depressed. I call them sleepers, like lumber and construction material. When that market in the U.S. comes, watch out. You have a good growth opportunity a few years from now when it comes. But most of our markets, we're at peak. And we have a huge opportunity to continue from there. It's not easy to know where this economy will go, but I am of the view that we will have sluggish growth for many years to come. I don't think I -- I hope at least we're not going to have a double dip or a dislocation. I think we will have sluggish growth for many, many years to come. And from where we are, we see an opportunity to grow one carload at a time. We see an opportunity to grow with our customers, and we see an opportunity to create a pipeline of breakthrough opportunities that are 3 and 4 years out. Take potash as an example.

10 years ago, Canpotex decided to go 100% with one carrier. They were a large player at the time but -- 8 million at the time. Probably not even that, 6 million, 5 million tons. Our supply chain mindset, our focus on account management and going after the business. We said to ourselves, this is a growth market. And for their own good, they need diversity in their supply chain. They should have more than one port. They should have more than one rail carrier.

And we made that pitch. We stepped up last year. It was a fortuitous opportunity for us to showcase our service, but we were already on it thinking that we deserve a reasonable share of that business. We went about it in a very disciplined way. We just want to build diversity. And we have CP, a carrier that -- served their needs for 10 years, and we said we want to be an important player in Vancouver and we want to do that now because we want to prepare with you the opportunity perhaps to build another gateway down the road as you continue to invest and grow through Rupert. We think it makes sense for you Canpotex. We think it's the actual right thing to do. I had this discussion with Bill Doyle, with Michael Wilson, with all of the owners and with the Canpotex leaders.

If you're going to grow and double your volume and you have a commodity that needs to get to market and that has peaking characteristics, winter is winter. Labor disruption, bridges, things happen. You should have more than one railroad, and you should have more corridors. And that's what we're doing. We're doing it on the ground in a supply chain manner. We're helping with First Nations. We're helping with design. We're helping governments come forward to do the financing of the basic infrastructure that's required in Rupert. You saw us announce it with the premiere of British Columbia. Soon, hopefully, you see the federal government put its own share of this investment. $30 million from the government, $30 million from CN, $30 million from the Port of Prince Rupert. Next thing you know you have a beautiful road, rail utility corridor with huge loop tracks and grading and water and electricity and everything you need to build a new potash terminal or to build any other bulk terminal for that matter. We're making it happen. Now that business may never come. It may only come in 2015, but we're working on it today. That's what it is to be a supply chain enabler, and you'll see some exciting targets that J.J. will share with you.

We said our forte is operating excellence, and we said we need to juggle 5 balls. Keith is juggling 5 balls, sometimes 6. It's amazing to see him and his team taking up the challenge. They're just gobbling it up. I mean, they are aching to make it happen.

You know why? Because we've been through so much change that to add this last ball, the one that focuses on switch window compliance, the one that focuses on order fulfillment, the one that focuses on that little detail that matters to the customers, the one that reduces the pain point, that's the most fun aspect to add to the equation if you're an operating guy. I mean, it's one thing to be a tough guy and say no and change a business model. Eventually, if you want to get on their team, you've got to have an outside-in perspective. Keith, Mike Cory, Jim Vena, Jeff Liepelt, they are strong innovators. Every day, they're out there making it happen, creating the opportunity, joint selling. We are a railroad business. We are railroaders. I say to J.J., I say to Vee Kachroo, I say to Paul Waite, I say to all the marketing guys: you don't change the service, the operating guys control the service. But they're on your team. Get them out there with you -- and there's nothing like being out there to build understanding and accountability. And the guys are loving it.

It's all about speed, balance, cost control, but also order fulfillment, spotting reliability, switch window compliance. Keith will give you a lot of proof points around this. And I will give you a secret: I, for one, thought we would have to give away a little bit more on asset utilization to find the right balance. I'm surprised. We have to give very little. And we're right back from where we are, in a mode of growing and improving all of these core operating metrics while maintaining this new standard of service excellence.

And the other thing I did not suspect, or at least quite to the potential that we're seeing so far, is how supply chain collaboration would open up entirely new avenues for us to do better by optimizing. I did not think TSI could go from 88% slot utilization to 95% yesterday. I did not think they could do that. They are. Rupert is doing 98%. Everybody knows it because we have the facts. Everybody's competitive. Everybody wants to win. The fuller the train is, the faster they get to market. The less the dwell is, the better opportunity for growth. It's win-win.

But it's operational efficiency through supply chain collaboration. It's about delivering a high-quality service and helping your customer win. You'll be excited when you hear Keith.

And it's about creating shareholder value, of course. And this is my proof point. I said to you earlier, the business model is simple. It's not that we're giving up on the operating ratio but when you're 63.5, you're not 83.5. And so the math says we have to find a different formula. It's a little more complicated to understand. Hopefully, by the time we're done over the next 2 days, you'll have more ability to connect the dots and understand how it actually can be done. But the model is the one I said: grow a little bit faster than what the economy would give you. We did that over the last 2 years. We actually outperformed our peers by close to 1%. Not promising we're going to do that every year, but we did it.

And that might be a surprise to you. We actually shone in the industry and outperformed our peers in terms of cost management by a fair bit. That's what we were able to do. Yes, the best cost management, the best volume growth and little less pricing. I wish I was in the U.S. with legacy pricing, but solid pricing, nevertheless.

Our operating ratio has stayed at a record level of 63.5 versus 63.6 last year, and we delivered 15% earnings growth. Rest my case. And 63.5%, as Luc will explain to you, is an absolute record for CN.

In 2006, when we did a bit better, we had $120 million of hedging gain and legal claims. We have never handled more volume at a lower operating ratio than what we just did in 2011. And next year, we face a little challenge with pension. I can't do anything about that. Lots of smart experts here. If you have ideas, we're all for them. Discount rates are lower. Asset returns are a lot tougher. We're going to have a headwind next year of about $120 million on pension. So it's going to be a little bit more difficult to have earnings growth next year. But that doesn't mean we have hit a wall. It just means we have a better steppingstone after we absorb that little headwind. And our model, Luc will give it to you, is to continue to grow earnings and to generate solid free cash flow with the business model that I've just described and for which we will talk a lot more tomorrow.

Let me spend a few minutes just to wrap up and give you the what it takes. And I'll go quickly. It takes a great franchise and if I have to parachute in, I would choose CN as a franchise. There's just no -- it's a perfect fit for me. If you want to be a supply chain enabler, if you want to grow a little faster than the economy, we have the best business mix. No question. We have close to 60% of our business, which is high-value goods merchandise, directly against truck; opportunity to shine with service and gain share of wallet. I mean, once you got the load out for a coal mine, you can get another mine. But you get the coal mine, you get the coal mine.

In the merchandise sector, you innovate, you supply-chain collaborate, you focus on the detail, you can actually grow and help them grow. And that's the business mix we have. A very unique business mix in the industry.

We also have a beautiful franchise from the standpoint of what we cover geographically. We cover the 3 coasts. We have this unparalleled ability to serve gateway markets. It took a lot of work to build those -- to build this network. 5 acquisitions. A lot of work to do it flawlessly. But we're keeping -- we are finding new opportunities inside those acquisitions, and we are leveraging the network that we've created every day.

I did not know that in Wisconsin lied the beautiful frac sand franchise. It's in front of us. It's one of those breakthrough opportunities. I had written off coal when I did the business model for BC Rail. I remember the last number, $3 million in the model. It will be $300 million soon. We are leveraging a beautiful franchise that has an exposure to global market, almost 1/3 of the business, a beautiful north -- mostly southbound but increasingly northbound transborder franchise, almost 30% of our business. And we'll rebound with the economy coming back; and good domestic franchise with a very, very solid positioning in Canada. We are the railroad of the north. Those developments, the Ring of Fire, the mining, all the resource play, the oil sand, the gas plays, all of that happens to be north in Canada. And guess what? We are the railroad of the north. So if I had to pick a franchise, I would pick CN.

If I had to pick a game plan that is leveraged for long-term growth, I would pick the supply chain outside-in perspective. If you're into sustainable long-term growth, pick that model. Because at the end of the day, the outside-in perspective is not just about customer engagement. It's also -- and it's very important when you're a highly profitable business like a railroad that cannot go away and that many people think is like a utility. And when you're CN and you were owned by the government before, you even have additional challenges.

How you create conditions where you are part of the solution is not soft stuff. It's not nice words. It's a fundamental underpinning of value creation. How we create value for our customers, how we are perceived as a backbone to the economy. We touched $250 billion of economic activity.

How we deliver safely and responsibly to the communities we serve, how do we leverage our sustainability advantage in a world that's aching for it. How do you connect with your employees. Keith will talk about it. We might even have good news tomorrow. How we connect with our employees to do labor agreements that are win-win is a fundamental underpinning. If you're going to be in business and your customers need you, they want the railroad that has the deal signed up.

Connecting with your employees, delivering safely and responsibly, being perceived as a backbone to the economy, being part of the team, being a key part of the solution, driving value for your customer, doing all of these things and engaging with stakeholders smartly is what we stand for. And when you do that, you get to announce with the premiere of BC on the first day of her Canada Starts Here tour, support for your port that you serve in Prince Rupert. The 2 are connected. It's part of the agenda.

It takes a deep DNA of innovation. I hope -- it was a bit difficult with the sound, but I hope you got a glimpse of that today. We have process innovation at CN; at the heart, our Precision Railroading. But how we leverage the strength of our system, how we focus on executing and how we are slowly but surely going from what used to be at CN weekly, if not monthly, views of performance, to daily in our data city to now, real time.

We interact with our crews real time. We drive fuel efficiency. Keith will explain that to you real time. The system that we are building, the process innovation, is getting us from daily performance, which is unique in the industry, to real time.

We are doing market innovation. Our grain plan -- forget who's going to talk about that, whether it's Keith or someone else. Our grain plan is fundamental innovation. We went from 60% to 80% spotting reliability to the week, to 85%, 90% spotting reliability to the day. In doing so, we're creating supply chain logistic planning capabilities inside every one of our customers. And they are leveraging it. There were some smart analysts like Raul and others at CN that I met at the Canadian Wheat Board a year ago saying, "Mr. Mongeau, this is fantastic." And I remember Ian White saying, fantastic. And CN inside the Wheat Board building in Winnipeg, you saw the smiles on the video. It could almost have been the Canadian Wheat Board on the video.

It's also people innovation. We have a huge renewal. We have the best of the survivors, the backbone of our organization, the people who made it all happen over the last 15 years and the new generation at François Bélanger that you saw at the first-mile/last-mile booth. And basically, it created the iron ore supply chain, carrying the cake at the coal supply chain. These people are driving innovation, and we're allowing them, encouraging them to do it.

And we are wiring our operating people directly in the processes that matter for customers. We are not connecting car like the car distribution example that you heard. It is not connecting a service representative with the customer. This is not a massive call center. This is the real McCoy. The people who are actually doing car distribution or were doing car distribution at CN today are become supply chain enablers. They are engaging with customers every week, telling them about the pipeline, understanding their orders. And you know what? They're doing wonders in terms of order fulfillment. They're doing wonders in terms of feedback loop and understanding what's going on. And they're doing wonders in identifying growth opportunities.

Because an account manager is a good guy, but he's not on the call every week with the plant guy. They are. That's what I call people innovation, and we have it throughout. It's a deep DNA of innovation that is allowing us to lead the way from where we are.

And I kept this slide for last, almost last. I have a proof point after. It all happens through people. When you buy CN, you buy an awful lot of assets, good quality assets, beautiful franchise. I've already convinced you of that. But you buy a management team, you buy a 23,000-strong workforce of true railroaders. And we are railroaders. 1,000 people in our management ranks are qualified conductors. Close to 350 are engineers. That helps them with understanding of the business. Also helpful when the time gets tough, or you're negotiating a good deal that everybody in the end says it's the right outcome for everybody. We are unique. Not one railroad in the last hundred years ran without locomotive engineers. We did in 2009.

Yes, today, we signed an agreement, Keith, with Rex Beatty, the leader of the Teamsters, before the conciliation officer even showed up, before the contract was over. And it was a good deal for both parties. How we get there is because we are all connected together. We spend an awful lot of time. I spend perhaps most of my time dealing with management chemistry at the top, management coaching and motivating through the management ranks and communications, sometimes broadly, sometimes one email at a time. I fix the order for a jacket to one of our retirees on the way in. Somehow UPS fails, and I had to personally get involved to get his retirement jacket. And I do it because we are all together, and it's important they understand that the pride and passion and our success is not about the top management. It's about how we come together.

And that's why I choose rugby. Now it's Super Bowl weekend and you have the NHL, the hockey playoffs coming up, so sometimes we have hockey and football analogies. But I keep coming back to my rugby analogy because in my book, rugby exemplifies what it takes to succeed in the railroad business. It's a tough sport. It's a tough industry. It's out there. You got to be connected over long distances. You got to know how to run the ball. You got to know how to pass the ball. You got to know how to kick the ball. You have to be able to play defense. You have to be able to play offense. And there is no Tom Brady. It's a scrum. And sometimes, you don't know where the ball is. And when you get it, you have to move it forward, but you can only pass the ball backward. And you know what? It's also a great analogy because most people don't know anything about rugby. So I have a chance to have a lot of latitude, and it exemplifies in many ways what you have to do when you want to lead the way from where we are. It's a bit of a new sport. And so we are learning it, and those scrums are making it happen. And it's, in my book, after the franchise, perhaps the greatest asset CN has. And that bench strength, I have the finest leadership team. You'll get to listen to each of them. But below them is a best-in-class group of executives. And below them is a strong, experienced backbone of railroaders. And coming up is a large group, sometimes it's scary, of new recruits with different aspirations but an awful lot of smarts. And how we take them, maintaining our culture of accountability but getting them to share that passion and pride and work as a team is perhaps my biggest personal challenge. And if it works, it delivers wonderful results. And so far, it's working wonderfully.

Let me take just a few minutes because I'm already beyond my time. Bob is going to get mad. To give you one example, you're going to get these proof points. I said we would come here to give you a report card, so we're going to repeat the why, but it's the same game plan. We're going to give you more color on the how, hopefully, a lot more color, and we're going to give you the "so what?" Because now, we have a track record.

Well, let me give you the example of the coal supply chain, and others will go over other supply chains and we don't have time to do them all. But we have the same mindset, so take note. It's about how we come together with a new paradigm. We used to run our trains in coal, focused on locomotive utilization. We used to focus in bulk on locomotive utilization. We would take the power off too often because we did not look at the end-to-end supply chain performance. We used to have very little coal in Northeast BC. I told you, my BC Rail model had none. Now the bottleneck, the obstacle to wonderful value creation, is on the waterfront. We have a lot of capacity on rail. The waterfront capacity, the terminal handling capability for coal is the single most important bottleneck. So if you're into value creation, do you focus on one metric inside the railroad, or do you focus on the end-to-end supply chain for your own selfish interest? You focus on the end-to-end supply chain performance. We did not have the data. It's not rocket science.

Now we have the data. We have the mine tonnage every day, Kerry gets the call, we get at EDI. We have the production every day. We have our trains in spades. What you see there is pops [ph], we know where they are. We're managing that like nobody else in the industry. We have the piles at the dock by customer name. And we have the ships. Where they are, what's their capacity, and when they're going to be at the port.

And if you connect all of that and you develop the fundamental discipline and the tools to allow you to see end-to-end, all of the sudden, you manage differently. You may have a different mix of coal sets in steel versus aluminum to optimize the rotary dump at RTI. You may have a slightly different approach in how you cycle tonnage -- locomotives. You might have a slightly different approach in how you line up the flexibility to go from RTI to another terminal. Because if you are trying to manage against perishable capacity and you're focused on end-to-end supply chain, you have to have this data and you have to have people on top of their day job of running the railroad to have this ability to connect the dots and make it happen. We call them supply chain enablers. They have simple but very powerful tools like the one that you see here, the mine-to-ship construct, and it's doing wonderful things. We are setting new records in terms of throughput at RTI. They're expanding capacity. We have never moved more coal, and we are doing it just as efficiently as before because what we had to give here, we're gaining there, and the net is an improvement in throughput capacity. It's powerful, and it's there to drive growth.

There is no terminal capacity for coal on the West Coast outside of Canada at the moment. Maybe one day, you'll have more. But at the moment, if you want to ship coal to Asia, you have Vancouver, 2 terminals; and you have Prince Rupert.

There is a lot of demand. There is a lot of projects for new mines that are happening as we speak. We are developing those opportunities. And when we look at the pipeline and when we look at our franchise, and when we take into account the fact that we are the one railroad that serves RTI, the one terminal that has the most capacity to grow its terminal throughput, we see ourselves doubling our coal export franchise over the next couple of years.

Now if China collapses -- I may have to revisit, but if demand for met coal of the quality we supply and the supply chain reliability that we have continues, we will have an opportunity to fill in the capacity that will get developed in Vancouver, a little bit at Westshore, a little bit at Neptune, and we will be there with RTI every step of the way as we are living and sleeping with them when they do their expansions to create a supply chain to Asia for Canadian Northeast BC coal and for export terminal coal out of the Powder River Basin that will drive huge value for CN.

And we're doing the same thing right here in New Orleans with our partner Cline. In that case, we sold them the terminal. But we sold them the terminal in an entirely new supply chain, one that will see us double the volume there as they grow and expand capacity from today, 4 million tons, to 8 million tons in 1 year or 2.

So it's working in coal. I'm the CEO, so I guess I got to pick the simplest one to explain and the one with perhaps the most compelling bang for the buck in terms of growth and profitability. But these examples are across our entire portfolio of business from frac sand to crude to potash to grain to merchandise to gateway traffic in the containers, and we're going to grow the business faster than the economy. We're going to get good value for our services, and we're going to bring that business at low-incremental cost.

And if we do all of that, we have many years of strong value creation potential. And that's the journey we're on. And we hope you will ride it with us. And with that, I'm happy to take a few questions.

Question-and-Answer Session

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

It's Tom Wadewitz from JPMorgan. How can you -- can you frame how far along you are in terms of these supply chain agreements? There are, I guess, obvious large customers that you do these agreements with and then presumably some kind of step change in improvement and potentially market share, but there's a finite number of ports or large bulk customers or so forth you can get agreements with. They're kind of -- can you frame how far along you are and how long it takes you to get to completion?

Claude Mongeau

Good question. In terms of intermodal, it's perhaps the one that we're the furthest along. We effectively have the infrastructure in place with every port in Canada, and every one of the 9 large terminal operator that we serve in terms of the score carding, the precious few measures, the daily engagement, the rhythm, the port enablers, et cetera. So the fundamental agreement, and I call it the creation of the ecosystem of collaboration, is done everywhere. Now we're just, in my view, at the third inning of reaping the benefits. The benefits are coming through, as I said earlier, better execution and understanding daily. But also increasingly, because people connect the dots, I'm not alone with my visions on the weekend. They are starting to see patterns. It takes a little while to be able to do so, but now we are able with the data, with the understanding of how the system reacts end-to-end across partners. We are able to view ahead and start to do tactical planning. So we're in a pickle at the moment. For instance, in Deltaport, J.J. wished and I wished we would have been faster to actually get it going, but creating an alternative trucking out of Deltaport from the trains that are -- overseas trains to our domestic train in Vancouver in order to create a better outcome. Reduced dwell time and accommodate the business is one such example of kind of 2 week, 3 week out forward planning when you're going to get into a tough position. So intermodal is very, very far along. The bulk, we started with coal. We've done it with potash. We have fundamentally changed our grain approach with the spotting -- the new scheduled grain plan. Now what we need to do, and some of these supply chains are a little bit more complicated to do, is connect the end-to-end information. More players, sometimes more granularity to what it is we're moving. So how we go about that, we want to go from strength-to-strength. And I would say, the easier, more dedicated supply chains, like coal with 9 mines and 2 ports, are done, and it's a question of reaping the benefits. Other more complex supply chains, it's -- we're in the beginning of incubating the concept, and we are putting the infrastructure in place. So many years to come to drive benefit in this regard. The service level agreement that we do with our actual customers, not the transportation partners or not the -- I mean, it's a bit of a difficult situation. Customers love the engagement. They love the benefit that it is bringing. But they have been for a few years lobbying for regulation, and they don't know that they want to say that they love it as much as they love it. And so we have a little bit, this issue of people wanting to have it both ways. And so it's slowed down a little bit, the leverage and the opportunity to deploy service-level agreement, but I am personally convinced that we are driving so much value to those who have embarked with us. It's a question of finalizing the process for most of our customers, I believe, who want to join on board. And if you're a merchandise customer, wouldn't you want to have the chance to call the real McCoy who actually does the car distribution in our network center in Edmonton every week to discuss order? I mean, why wouldn't you? And we say, hey, let's get this framework together, and that's your benefit. And those who are tasting it are loving it.

William J. Greene - Morgan Stanley, Research Division

Claude, Bill Greene, Morgan Stanley. You outlined the track record of value creation here, and it's obviously astounding what you've done over these years. And one of the things that obviously was the operating ratio getting better. So we had that margin leverage, and we understand kind of where we are in that. So when you think about the levers from here, do you think we should be expecting you? I realized this year maybe the economy's not going to be helpful in that regard, but we saw a 5% growth rate in carloads. Do we need greater than that if we don't have as much leverage on the margin? Or do we need more price? Or how do you think about sustaining a long-term growth rate? What's sort of the levers that we should be thinking about you driving for?

Claude Mongeau

Yes. Our model has not changed, growing a little bit faster than what the economy would give you. I set a 0.5 point to 1 point in volume, some years a little more, some years a little less. That's the model for volume. Pricing for the value of our services, ahead of inflation, and we've said in that 3% to 4% range. And we are at the upper end of that range at the moment, and that's what we need. And if we do that and accommodate that business in a fluid network at a low incremental cost, that's all we need. Like we did in 2011 to deliver solid shareholder value, both in terms of earnings and free cash flow.

William J. Greene - Morgan Stanley, Research Division

Just a little, if we look at that track record of 16%, is that sort of a long-term growth? Is it your target? And I realized this year you got a pension expense and so this year's not a good example, but...

Claude Mongeau

You're getting me on a good day, so I might say, absolutely, Bill. But realistically, I think double-digit growth over the cycle from where we are, backed up with solid free cash flow and the sleep tight value of a company that's doing it day in, day out, and you can focus on your other issues, is what we have to offer. The early leverage of the turnaround, I can only lead from where we are, not from where we were. We have one in the back.

Scott H. Group - Wolfe Trahan & Co.

It's Scott Group from Wolfe Trahan. I guess 2 things. One, as you get closer to the supply chain, how do you think about acquisitions throughout the supply chain? As you learn the supply chain better, does that make you any more interested in making deals outside of the railroad? And then on the pricing side, if I think back, CN was really the first rail to get pricing as it really saw a lot of productivity and efficiency. With the focus on service, do you think there's an opportunity to get another real bite at the pricing story?

Claude Mongeau

You have to look at the customers you serve and it's not the -- pricing ahead of inflation on a sustainable basis requires solid service and an awful lot of value creation. So in your portfolio, where you have huge breakthrough, you can do better. But as a whole, to think that you can break through on price because you have good service, I think the equation will come with share of wallet and solid pricing ahead of inflation as opposed to kind of a quantum jump on pricing. Now we may, eventually to a point where I prove myself wrong -- but that's the way I would think of things at the moment in terms of pricing. To your other question, we learned a whole lot more. And I learned that we can achieve an awful lot without owning these other assets as much as I'm learning about these other steps in the value chain. And we are not shy to own other steps in the supply chain if we are creating something that's unique we own. You saw iron ore supply chain, for instance. It's ready -- CN was -- I think I already had that paradigm. I'm the one who did the acquisition, and we were not scared to buy the ships and the docks at the GLT. Other railroads didn't even look at it. So we're not opposed to the idea. But you have to get to a point where you say, is there a market failure? Am I replacing something that would not be there? If I'm creating a new transload facility in Prince George to make our intermodal gateway that much more efficient at filling boxes for export and you're in Prince George and that would not have happened, otherwise, we do it, and we do it wonderfully. And it's driving great results for us. If you're in Vancouver, could we do the same? Absolutely. But you also have a lot of stuffers and transload operators, and you have to ask yourself, do I have the cost structure? Do people want choice? Are they willing to do it with only one railroad? And it's a case-by-case situation that will bring you to make those decisions. I don't see supply chain as an avenue for related diversification until it pops up on me. I see supply chain as a way to make the supply chain drive better outcomes and help us grow our rail business. Ken?

Ken Hoexter - BofA Merrill Lynch, Research Division

Ken Hoexter, BofA America Merrill Lynch. Claude, can you just talk on the cost side? [indiscernible] can that maybe take a step functionality, get more and more real time information from the network itself? Can you get to that step function?

Claude Mongeau

We're pretty efficient, and the way Keith and the operating team drive value, he is 1 million small hits. I mean, it's bunt singles and well-placed doubles that add up to an awful lot of efficiency year in, year out. And it's true with these new technologies. How do we do -- I mean we have -- we're getting close to 15% more fuel efficient than the rest of the industry. The –- it’s a topical subject these days, that our ruling grades are exceptional. But there's an awful lot of innovation and focus on real time pinpointing that is helping us drive the results. But it drives 1.5% of fuel efficiency every year. It doesn't all of a sudden create a 10% eureka moment.

Unknown Analyst

[indiscernible] any thoughts on that and how it would impact you?

Claude Mongeau

Yes. You know what, we'll have to see how it goes -- I think the Wheat Board is there to stay in a different role. And quite frankly, the grain today moves through elevators and railroads. And the fact that the Canadian Wheat Board's role is changing is not actually changing the pattern of movement other than how they come about and how they are planned. And in this regard, I believe there are efficiency gains, opportunity perhaps, because they are -- there will be fewer players optimizing, and it will be simpler to arrive at that end-to-end optimal supply chain. Giving you an example, if you have to deal with Vitara and Vitara has to deal with the Canadian Wheat Board, and now that Canadian Wheat Board becomes a marketer, all of a sudden, Vitara does all the elevation and all the terminaling at the waterfront, and we do the railroad. There's one less player in the transportation. And I think that bodes well for efficiency over the longer term, with the Canadian Wheat Board continuing as a marketer.

David Vernon - Sanford C. Bernstein & Co., LLC., Research Division

David Vernon with Bernstein. You've talked a lot about the opportunity from supply chain collaboration. Could you talk a little bit more about what the incremental OpEx investment is in terms of staff or resources to take people out of their day jobs or add people to go actually pursue this? And then how do you -- actually, how do you think about that in the perspective of...

Claude Mongeau

So far it's been very few people that work long hours, and I don't see that really changing. Because quite frankly, remember what I said earlier when -- our innovation from a people's standpoint and our focus on rewiring -- and you'll hear more about that tomorrow -- our key customer touch point is anchored on our operation. This is a network business. If you start to have adjunct organizations that are looking at things differently, the next thing you know, you're going to create complexities inside the railroad, let alone complexities with your supply chain partners. So you really have to -- that's why we call them enablers. You have to inject people who take this end-to-end view, but you've got to keep the accountability in the center of gravity where it belongs, which is, in our case, right back down to the transportation and the backbone of our operating groups. So it's not many people. And so far, they are huge home runs. Everywhere, we have had the -- it's never the cost, it's the pipeline of ideas. Every time we have had a good idea and pursued it, it's very cheap, and it drives huge results.

Okay, we'll take only a few couple. Yes, Walter and perhaps -- I don't want to -- we have another day tomorrow and everything, so we'll take a couple more and then have cocktails.

Walter Spracklin - RBC Capital Markets, LLC, Research Division

Walter Spracklin from RBC. Claude, you mentioned that you would only look at acquisitions if they really -- if they were a real constraint to your business and how you're operating. But you also mentioned prior that the biggest bottleneck right now in your coal franchise is at the port. RTI, as you know, is a government-owned organization. It doesn't have the access to capital that you might have as a public organization. Would this be something that you would contemplate? Do you think that under their current structure, they are constrained because of that structure? And could that -- could a change in that structure through your ownership open that up?

Claude Mongeau

Yes, they've gone through a very difficult period. But I have to tell you, they are doing a wonderful job now, and they're back on their feet. And all of their expansion, you saw the chart there, whether it's this fourth quarter expansion to 16 million or the one after to 24 million tons is all approved and funded. The one that would take them eventually to 40 million tons or perhaps 60 million tons would need to be approved. But if there's a good business case, the government could do it or maybe it becomes a natural transition point for the government to decide it should go in private ownership. We would certainly be willing to sit down, but we would have to be convinced that our customers actually want us to create that end-to-end supply chain and that there is not a concern of vertical integration or us having too much of the pie. So the answer is yes, possibly. I don't think it's in the short term. And it's certainly not necessary to achieve what we are setting out to achieve, because we've already done the job. When I say creating an ecosystem -- the first briefing of RTI and the Port of Prince Rupert with the current Minister of Transport, Minister Lebel, was a 3-way briefing. And it was in Montréal with myself and the Chairman of the RTI and the Port, together. That's what I mean by smart stakeholder engagement when we talk from one voice, we're a true team, all the way to how we go about doing government briefings. And what we were explaining to the new Minister is the business case. And it's powerful. Imagine the Minister receiving a briefing from the Port but also largest Canadian railroad saying this is a good thing, Minister. It kind of cuts through a lot of bureaucracy. Cherilyn?

Cherilyn Radbourne - TD Securities Equity Research

Thanks for letting me sneak one last question in, Cherilyn Radbourne from TD Securities. I just wondered, Claude, if you could address the argument that staging assets around the network to pick up short lead time business is something that's possible at this stage in this cycle. But if we get to a point where some of the sweeper industries that you referred to come back, that there's something that's ultimately unsustainable about what you are currently doing.

Claude Mongeau

No. We're saying -- you'll hear a lot of that from J.J. tomorrow, but we're fast developing redundancy well above just short lead time orders. We have those strategic reserves. And yes, it's easier when you have surplus cars to create those strategic reserves. But we are creating alternative supply chain using our container intermodal service. And if the business case is right, we can replenish those strategic reserve. And this is true business, and I talk about one carload at a time. That business -- customers don't give you an order because they know we are not as good on short lead time orders as we are on regular order. So they don't just wait for the fun of waiting. If they have the order, they're going to give you the single 10 days ahead, and they maximize their chance of having a car in the right place at the right time. But when they get a short lead time order themselves and they need to get the transportation solution, we were not in their radar set, period. We had given up. We were not there. So that was going trucks. This is -- like on a fixed cost network, this is beautiful, one carload at a time share of wallet, and I don't see the end of it. And as I said, I think we have the franchise to make it happen. Nobody has more steel, forest products, industrial products than CN to go after with that same mindset. And thank you for changing your mind so quickly.

We'll leave it at that with the show. I hope this was a good overview. I've tried to give you the big picture and communicate my passion for the journey that we're on. And tomorrow, you're going to see the finest team of railroaders. It's my leadership team. We are glued together, and we are making it happen, and they're going to give you an awful lot more detail about how it all comes together. And hopefully, that's what you're looking for. Thank you.

Robert Noorigian

Thank you, Claude. And for those on the Internet, we're going to resume at 8:00 Central Time tomorrow. We'll broadcast it. And for those of you who are in the room, cocktails are in the -- with the supply chain enabling journey that you just left before we did the presentation now. We're going to have a short cocktail and then we're going to go to one of the best restaurants in New Orleans. So we'll join you out in the supply chain area. Thank you.

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