Third Bridge专家称Union Pacific与Norfolk Southern合并审查仍处早期且可能拖至2028年

[[00:01:12]]
Could you walk us through the current status with the STB [Surface Transportation Board] and the 7 July 2a26 pplication from Union Pacific and Norfolk Southern?

[[00:01:25]]
We're coming on almost over a year now at this point when Union Pacific announced its intent to acquire Norfolk Southern, creating really the first true coast-to-coast freight railroad, significant USD 85bn merger. At this point, we have gone through a series now of reviews in which the Surface Transportation Board, which is the US economic regulator overseeing railroad transactions, has reviewed the application and continues to have had some questions about the extent of the information that's included. The STB has to make a completeness finding, which is part of the regulatory review process. First time around, they had some challenges in doing that, so they went back to the applicants asking for more information. Second time around, there was a completeness finding that was found, however, they were holding the process in abeyance until they still had some additional questions answered for them, and so we are still a bit in that process right now. That process wraps up on 28 July.

To your point, Union Pacific and Norfolk Southern filed some additional information on 7 July, which seeks to provide some of the assurances on some of the issues associated that were raised by the Surface Transportation Board. At this point, we are really truly still waiting for the clock to start on this application. Once we have, if we have an application that is deemed fully complete, and the abeyance is removed, at that point, then we will start a process, which broadly, I think will take at least a year, likely closer to 18 months to the point where I have a good friend and colleague who always likes to say when it comes to Surface Transportation Board reviews, always bet the over. Combining this large of an organisation, this important of a decision, likely going to have to take the over on how long this process will be.

[[00:03:23]]
What are the STB's primary concerns regarding the July 2025-announced merger of Union Pacific and Norfolk Southern?

[[00:03:31]]
This is really uncharted territory here for us, so there is a series of… Going back many, many years, as the STB looked and as we had a series of consolidations and consolidations, the STB recognised that we had gotten to the point where there were really, at that point then seven class 1 freight railroads, really the big four plus the three. Really, the idea was a recognition that if we got to the point where any other railroads were going to combine that it was going to fundamentally change the way the railroading system works in the United States. They basically established new rules, which have not yet been tested, and those rules set a bar, whereas a lot of other DOJ and a lot of other businesses as they review and as they go through conversations about what kind of impacts a merger or an acquisition will have, ie, does it continue to create a situation for consumers where competition exists, a much different bar was established by the STB on a go-forward basis here. The question for them now is, does it contribute to competition? Is it value additive in a way? Defining what kind of contribution to competition, does it enhance railroad competition? That's the exact word, enhancing railroad competition, how does one define that? What are the metrics involved? We're in some uncharted territories. We not only have to essentially build the bar, but then figure out if the application goes over that bar in the review process.

[[00:05:08]]
You mentioned that, when it comes to STB reviews, you should always bet the over. What are your thoughts on the mid-2027 target that the board still seems to be holding to?

[[00:05:15]]
Like I said, here it is July, we'll figure out if the abeyance is going to come off at the end of July, so we really, we'll call that 1 August 2026, so the plus 12 months would be August of 2027. I still think you're going to have a lot of conversations and a lot of issues and challenges, which likely then would put us plus 18 months, so now you are looking at least into Q1, Q2 of 2028 before we actually were to have a decision coming out on this. Again, betting the over puts you roughly Q2 of 2028.

[[00:05:55]]
Could you walk us through how adamant Canadian National Railway's pushback has been against the Union Pacific-Norfolk Southern merger?

[[00:06:01]]
I think a lot of railroads are figuring out exactly what kind of an impact this is going to have. There's still a lot of questions and a lot of railroads as well also need to walk that fine line, which is to say, "We are trying to influence the outcome and influence how the market is going to look, and we still also need to be able to operate in that market." I think there is some questions where, again, are we for or are we against, but then secondarily and tertiarily as well, what kind of opportunities do we have? Are there different considerations that our railroad could get, should get, should be asking for on a go-forward basis? I think you have CN as well as the other railroads as well, not only, again, having some concerns, having some very significant concerns about what kind of an impact this is going to have, while still trying to preserve and protect their ability to participate in the process and again, look at what types of considerations, trackage rights, haulage rights, payments, all kinds of different things, lawyers much smarter than I will figure out what those look like.

I do think, CN, certainly when you look at where the other railroad CEOs have been, they have been very vocal. They have made their concerns clear. They have empowered their customers to be able to go on websites and be able to reach out to the STB, share their concerns. A number of them have also joined various coalitions alongside rail labour, alongside shippers who are trying to advocate against this up on Capitol Hill as well as with the administration. Again, I think CN has been very active in making certain that it has an opportunity to make sure its voice is heard as this process goes forward.

[[00:07:49]]
If the Union Pacific-Norfolk Southern merger clears all regulatory hurdles and goes through, what does that do immediately for the competition dynamics of a standalone network such as Canadian National?

[[00:08:04]]
I think you've got to actually back that up and go one more question for that. I think, again, we'll go back to that calendar earlier here where maybe we get a decision about moving forward on 1 August, plus 18 months, which puts us into then a decision Feb, March of 2028. I think then at that point, you then have to ask serious questions about what others are going to do. I think, obviously, first and foremost, you then have another question that exists with CSX and BNSF, the two remaining largest of the largest class Is. Do they then feel a need to have some type of a meet-up or a matchup? There again, you would likely have, I would think, at least maybe a year for those two railroads to watch and see how the integration is going before they would make up their own mind. Then even though you would have then a precedent at the STB, a very strong precedent, you would have a much clearer view if, and this is a big, if the STB were to approve a UPNS, that then sets a precedent that would establish and allow a CSX and BNSF to come in behind. I still think you again are looking at least a year or two process to have that then go through, again, even though you would have that precedent.

Point of the story is that at that point, you might not have another second largest merger coming through for at least another four or five years from where we are today. CN, again, looking back, you've got CPKC, which already had its merger, again, number six buying number seven, it's still the sixth largest railroad in North America. Then you've got a serious question about where would CN fit into that? Is CN in a position to be able to perhaps find a partner in CSX? Is that more attractive for a CSX or a BNSF? Where do they fit in there? If the music stops and CN finds itself without a dance partner, how do they then operate as still a tri-coastal railroad, but again, perhaps growth constrained as other railroads have gone and gotten much, much, much larger networks. There are still short-line alternatives that they could look to acquire that could expand their network, but if the music stops and CN is the only one without a dance partner, it could find itself challenged here in the coming years.

[[00:10:37]]
What would a partnership between Canadian National and BNSF Railway or CSX Corp look like?

[[00:10:44]]
You can do any number of things. Obviously, I think after we had the announcement between UPNS when they had come out, you saw a number of agreements come out with some products developed around shared resources and shared networks. Falcon Premium has been a very successful programme for them. I think CN just recently announced another expanded product coming out of the Gulf that goes over and off to the west. These are the types of agreements that I think a lot of Surface Transportation Board members have spoken about. They have talked about the idea of can you create enhanced service for customers without having to go through an USD 85bn merger? Karen Hedlund, who's on the Surface Transportation Board, has advocated for these kinds of considerations because, again, it creates new opportunities for customers without having to go through these big challenging financial structures.

It could include things like that. It could also include all the way up to, again, do we go all the way and have an actual acquisition, and again, do we follow suit behind a UPNS? That obviously raises a whole host of financial issues and financial opportunities. It also raises some very real political challenges as well. The idea of a Canadian company buying an American company, an American company buying a Canadian company, a Florida-based company buying a Canadian company or the other way around, some real political considerations that I think one needs to factor in when we talk about what the future of additional consolidation could be, would be. Again, the idea, however, is that if the STB were to decide that a UPNS does enhance rail competition, that process would be much easier because we have those issues to find, we know what the bar is, and we know the path to clear that bar.

[[00:12:47]]
Canadian National's management has said that if the Union Pacific-Norfolk Southern merger goes through, there's a meaningful opportunity to use the company's network in a manner that would introduce further competition. What meaningful opportunity is it seeing here? Is it just additional short-line M&As?

[[00:13:07]]
I think, again, even though now we have seen CPKC, CP acquiring Kansas City Southern, which has got a very robust and very efficient and effective market in Mexico, still CN was the first and still has and enjoys that tri-coastal service, being able to go from Vancouver in the West, Halifax and Nova Scotia in the East dropping down into the United States at Michigan and Minnesota, coming into Chicago, railroad capital of the world, and then running south all the way down to the Gulf of America with service down to Port of Mobile, Gulfport, Mississippi, and New Orleans. That tri-coastal reach is, and gives it a very, very significant network.

Really, when you look at where the other big four of the class 1s have been situated and constructed themselves, primarily they're east-west service. It's really, really easy to go east-west from big ports, LA Long Beach all the way inland, New York, New Jersey, Savannah, all these very, very large ports, very, very easy to go east-west. When you start to look at where CN is and we start to look at the bulk of large flows, so if we follow agriculture, it comes out of the American Midwest, comes down to Mississippi and then goes to the export ports and goes around the world. we start to look at energy production in Canada, where a lot of those refined products going into the petrochemical space in and around the Gulf of America off of Louisiana. We start to follow again, Midwest manufacturing, raw materials coming in, and then product going out. Here, again, a lot of north-south flows in all of these customer networks as opposed to that east-west. It still is uniquely situated to be able to provide a lot of growth opportunities for a large range of customers and that's going to continue to be attractive, again, for a lot of customers, but it's also going to continue to be attractive to other potential partners as well.

Never forget, still, nobody does Chicago like CN. Very, very thoughtful, over 25 years ago now at this point, purchasing the EJ&E, which was a short-line railroad that used to carry about three trains a day. It's a beltway railroad that goes around Chicago. It now carries about 24 trains a day. The idea is that if you are moving a product on CN and you're coming from north to south or south to north and you have to exchange in Chicago, you do not need to go downtown Chicago because the EJ&E allows you to bypass that, and like different hour hands on a clock, you're able to go west to Iowa, east to Michigan, south to New Orleans, north to Wisconsin and Minnesota and not have to go through downtown and really what still is the most congested rail city in the United States.

[[00:16:22]]
The US decision to move the USMCA [United States-Mexico-Canada Agreement] to rolling annual reviews introduces a lot of uncertainties. How do you expect this shift to yearly trade talks affect long-term supply chains, and how could this ultimately affect Canadian National?

[[00:16:41]]
When I was at CN when I first got there, I think I actually had a memo pad from the days of old that actually next to the CN logo, it literally said CN, the NAFTA railroad. At one point, I think that was a marketing campaign. You can trace the history of CN in the United States with its acquisition of the Illinois Central and the Wisconsin Central and obviously tacking on Grand Trunk, you can really trace that back to an integrated continental economy, thanks to NAFTA. A lot of that would not be possible were it not for CN. Really when you look at the automobile corridor that is now a seamless corridor running from Toronto to Northern Indiana all the way across, obviously, through Michigan, when you look there again at the north-south flows of energy, all of those things would not be possible were it not for the enhanced competition and enhanced collaboration that exists because of NAFTA and now a follow-on agreement with USMCA.

I think like a lot of businesses, CN has been a great advocate on behalf of USMCA. It has shown a light on how, again, the collaboration between all three economies in the agreement can grow and work together. I think, obviously, there has been significant threats around USMCA Obviously, this administration has had some significant concerns and had rewritten USMCA and now we're getting into this rolling annual review where they will continue to have moves. I think obviously, the Canadian government as well, the current prime minister has been very aggressive at saying how does Canada move forward given perhaps a realignment of the relationship between the US and Canada, given an administration that doesn't necessarily want to move forward as closely integrated. Canada has embarked on very aggressively building its own destiny and making certain that it can compete globally and be very aggressive at being open for business, and we're starting to, I think, see some of the impacts of that.

I think broadly, however, at the end of the day, the inherent advantages that come with close collaboration will always, always create the need for the fact that our economies will continue to be integrated. We will change, we will evolve, we will move around the edges. The next administration may also have some concerns about American manufacturing, the maturation of the Republican party when it comes to labour, there is a pretty unified labour policy viewpoint in the United States between both Republicans and Democrats. They're both very, very pro-labour and trade-sceptical administrations broadly when it comes to their trade and tariff policy. I think we'll continue to see some of the scepticism and some of the changes continue. Broadly, however, is the USMCA going away? Is the collaboration and integration between North America and Canada going away? That still always is going to create an opportunity for CN to be able to support that. That was a long answer to a short question, but I hope it just underscores the fact that as we've seen, again, with six years' worth of a precedent that sought to unwind the collaboration between the two, we're still seeing a lot of investment and still seeing a lot of collaboration and a lot of integration.

[[00:20:20]]
As the review stands now, which corridors, freight types or customer profiles does Canadian National have the most exposure to? Where is the company most vulnerable today?

[[00:20:35]]
I think if you were to ask a lot of businesses and mainly supply chain companies that are in the services business as opposed to actual manufacturers, manufacturers are always going to have very, very specific concerns about the definition of product and tariffs and tariff rates and those kinds of things. Broadly, when we look at the product mix, I think a lot of the supply chain providers are really focused on keeping those trade ties strong and keeping the document itself strong. I think they are focused on big areas where they have a lot of customers, so here again, with the CN, that means they're going to be spending a lot of time focusing on issues like automobiles. Country of origin has seen those numbers increase and decrease. That's been a particular area of interest. CN carries about one-quarter of every automobile made in Michigan leaves the state on a CN train, every vehicle made in Michigan, I think, has six or seven border crossings built into it with the sub-assemblies and the parts and all the other OEM suppliers that are out there… Suppliers to the OEMs. You'll see a lot of attention, I think, around those kinds of issues.

I think broadly here again, this is a question of really much more being a binary choice, which is broadly, are we going to make a commitment to being integrated and work together, or are we going to go in different directions? I think that's the main focus is how do we continue to make sure that all three countries are integrated?

[[00:22:17]]
The US is also pushing hard to tighten the rules of origin that you mentioned, particularly concerning China-based parts being backdoored through Mexico. If we see aggressive enforcement of these tariffs, which freight corridors from south of the border are most vulnerable for Canadian National?

[[00:22:40]]
Again, obviously, CN has got its product, the Falcon Premium, which has been a really great product and has been helpful for them, again, for being able to provide with partners getting into Mexico. Now I'm not specifically familiar with which crossings, again, are most vulnerable there, but again, I think the idea is what are the domestic policy pursuits that we're seeing both in Mexico and in frankly, in Canada, as I was discussing earlier with the Carney government, what kind of impact does that have then on their bilateral relationships with the United States? I think Mexico is very good at managing its relationship with the president. Carney , as I said, has been very active at going around the world and saying that Canada is open for business, has signed agreements with some EV manufacturers to allow EV imports into Canada, much to the frustration of the United States.

I think there, again, it's managing those kinds of balancing acts between the fact that if those two countries can't count on the United States, then they need to go out and do their own business and do their own bidding, does that mean that they're going to aggravate and agitate the United States in doing so? I think that creates almost a bigger challenge for them. When it comes to, again, looking at USMCA and looking at those vertical flows, that's where that vulnerability exists for a railroad like a CN.

[[00:24:15]]
What is the status of the ongoing nearshoring talks in Mexico? How long do you think it will be before we see an influx of activity there?

[[00:24:37]]
Obviously, manufacturers are building 50-year or 100-year assets when they're building plants, so they're in for a long haul as opposed to four years of an administration that may or may not have some specific concerns. I think nearshoring in Mexico, structurally, it's real. How heavily are we going to be able to see that influx and how long does that take? That is going to continue to take time. I think there, again, you're going to have people making CAPEX decisions based on their confidence in what those relationships are going to look like, and again, what USMCA is going to be around. I think, again, CN's job and another railroad's job is to work with these customers and say, "Tell us where we need to be, and we will build the product and we'll build the capacity." I think those conversations are continuing. As you know, it just takes time to try to incentivise people to move things as big as manufacturing. Companies are nimble, but it still takes time in order to try to stem the tide and move the CAPEX from overseas to nearshoring or even all the way back home to the United States.

[[00:25:47]]
Canadian National still derives a notable portion of its intermodal business from Asia through its West Coast network. Is there any risk that the company could be cut out as a result of this nearshoring?

[[00:26:03]]
Certainly, look, I don't have the latest numbers, but obviously, to your point, a significant amount of revenue is derived from both Vancouver to Chicago as well as Prince Rupert to Chicago. Prince Rupert, the northernmost port in North America that is rail connected. CN exclusively is into Prince Rupert. Now it's not very large. I think they only have the ability to handle 2 million or 3 million TEU. And I know they've gone through a very aggressive expansion project in the last couple of years that while significant, that has doubled their capacity, where, again, I think you're looking at Port of LA Long Beach has a 10x advantage over them as far as volumes go. When you look at time sensitivity and you're looking at saying, "How do I move something as quick as possible from the Asian manufacturers to American consumers in the Midwest." Prince Rupert is a two-day sail down to LA Long Beach.

You do not have to worry about taking 24 hours to get the box onto a train car and just into the warehouse like you do at LA and Long Beach, you can get it onto a train much, much, much faster. CN has experimented with products where they are able to get from Rupert to Chicago in five or 4.5 days, which is lightning fast. It's a product that is fantastic. It's a market that is constrained on the top side just with actual volumes. To your point, it does raise very large questions about if we're going to continue to nearshore, what does that mean for Asian manufacturers in the transpacific business. There are economists that are smarter than I at figuring out where those growth strategies will be and what those growth numbers look like. I do tend to think at the end of the day, we are still going to see a very large demand for manufacturing in the Asian basin, and you will still see a significant demand, which will still continue to drive significant revenue for CN, both through Rupert and through Vancouver.

[[00:28:23]]
Would you say that one of Canadian National's most defensible moats is purely speed?

[[00:28:31]]
It is speed, it is quality, it is efficiency. It's also, I think, having a single ownership, not ownership, being able to be the single provider in and out of Rupert is really, really unique for them. I'm sure all our audience knows, obviously, how complex and how congested LA and Long Beach can be, trying to get the box off the boat and then getting that train or getting that box out. You just don't have nearly those same issues at the other ports. Not only, again, is CN uniquely situated to be able to get that speed out, but knowing where the box is, being able to handle that box, being able to make certain that you can get that moving in a much faster way, that speed, that reliability is second to none on the alternatives that they offer as opposed to, like I said, staying on the boat longer, getting into LA Long Beach, dealing with LA traffic and then eventually getting your box to Chicago.

[[00:29:28]]
Canadian National's Q1 2026 results showed a 3% increase in GTM [gross ton miles] alongside a 7% drop in T&E [transportation and engine] labour costs. What have been the primary drivers behind such impressive operating leverage?

[[00:29:50]]
First and foremost, never forget CN's got a great group of railroaders. They've got some fantastic leadership that really knows how to move their boxes and knows how to utilise all their assets. I think from Tracy all the way on down, you've had some great leaders who have been able to continue to figure out how to get the most out of the assets that they have. I think as well, looking back over the last winter, two things. One, it was a moderate harvest. Coming out of the Plains, it was not a bumper crop by any stretch, which did gave everybody a little bit of room to breathe. Oftentimes, if you have a very, very large crop, you will still be moving that crop into June, July, August. I think the railroad has had some room to move. They have been able to make certain that their dwell and their terminal dwell and their train speeds have been able to see significant improvements, which really, really helps, obviously, as well. Any time you have that dwell and any time you're able to increase your speeds, your labour costs are going to be able to come down as well.

They've been able to really take advantage of some savings, both on the upside as well as on the downside there or on the bottom side on that, which has really helped margins all around. I should add as well, in addition to the fact that harvest didn't whack them coming into the H1 of the year, they also had a pretty mild winter up there. Again, remembering too, that it's not about snowfall, but it's always about temperature because temperature nothing brings a railroad to its knees like a cold snap and really, it can obviously get really, really cold up north. It's a pretty mild winter by comparison up there. You just did not have the same kind of challenges associated with that. Coming out of winter into spring, you had a railroad that was already running at a pretty good clip. Normally, that railroad has to spend a couple of weeks unpacking from winter and getting itself righted when we just did not have those challenges. Again, couldn't do that without great leadership.

[[00:32:08]]
Should we expect Canadian National's operating leverage to continue through H2 2026?

[[00:32:16]]
I'm not an economist, but I think you are continuing to see, again, very smart leaders make very informed decisions about optimising the assets that they have, taking full advantage of the unique network that they have and seeing some good numbers in different parts of their customer makeup. Yes, I think you will continue to see some improvements.

[[00:32:37]]
How sustainable is Canadian National's level of labour productivity if volumes start to scale very aggressively?

[[00:32:50]]
CN is very, very good at optimising its workforce. They make smart decisions about where their resources need to be. They make very smart decisions about the pipeline. They're uniquely positioned in that they have a centralised training centre for all of their new engineers and conductors coming in. They run them all through two training centres that are on property. They have the ability to maintain and manage that pipeline as far as where their employees are. They've got a significant amount of flexibility. The challenge always is you can take somebody off the board today, but if you need to replace somebody, it's really about seven months before you're taking a new recruit off the street and having them comfortable at operating their own train. It's much harder than a GM, a Walmart or McDonald's as far as bringing people back or making certain that you're meeting your mission when it comes to labour. CN is very good at maintaining that and managing that, I think.

[[00:33:59]]
Canadian National's management has highlighted Western Canadian grain and potash volumes as its key growth drivers. Given where we are now, do you see the agricultural and fertiliser segments as long-term growth engines, or are we more at a cyclical peak?

[[00:34:21]]
No, look, I think that's always been baseload revenue, and I think it will continue to be. Obviously, you've got some significant disruption in the fertiliser markets because of the situation in Iran. That is weighing heavily on the markets, and that's being priced in. You're seeing some significant demand there. Again, obviously, you still have some significant concerns when it comes to grain shipments in and around Europe, Ukraine and others. Those all create great opportunities, I think, for Canadian grain and potash manufacturers. Great opportunities that exist there, and I think will continue to exist. again, not a grain trader, but like I said, always been a significant part of growth opportunities there.

[[00:35:05]]
Could you walk us through Canadian National's Fast Track initiatives? What exactly has the company been optimising?

[[00:35:15]]
Yes. I think really, that's an opportunity where they have had their commercial and operational teams working together to look and see how are they rightsizing terminals? Do they have the terminal network? Where do they need to be? Where do they need to be making investments? How do they make certain that they have the investments in each of these facilities to make sure that they're handling the numbers and where they want to be. I think they've had somewhere upwards of 10% YoY improvement in velocity and 6% drops in dwell. It's been a significant opportunity to really unlock a lot of growth and also really help on the margin side for them as well. There, again, I think that speaks to the great management that they have had there. Really, it's how do you debottleneck, how do you find the areas of concern and how do you make sure that you've got the right capacity around to continue to grow.

[[00:36:09]]
Are there still any commercial or operational bottlenecks left for Canadian National to work through?

[[00:36:17]]
We're always trying to debottleneck the network. I think each year, we always have a CAPEX portfolio. That's the unique thing about rail is you're always going to be spending upwards of CAD 0.20 on the dollar in inbound each year to debottleneck the network. CN has a lengthy list of projects that they're working on. These can be something as simple as expanding sidings, double tracking in certain areas, adding additional capacity in places. Broadly, broadly, CN is aware of where the issues are. Some of the volumes that we have seen over the last couple of months and a couple of years have been able to, again, allow people to get out ahead of some of these challenges. It's hard to point to a specific big bottleneck. Like I said, Chicago is always going to be a challenge for folks, but CN is so uniquely positioned with its EJ&E alternative that goes around the city. It's not nearly that kind of a challenge.

The hardest part of railroading is being dependent on somebody else. When you own your network and you own it all and you operate it all and you make all the calls and all the decisions, you don't have to share it with anybody. Being able to make certain that we own our network and we're making those calls, that's where your ability to optimise the network comes from. It's when you have to start worrying about shared track trackage rights coming to a diamond with another railroad, those kinds of things, those challenges that you have in Chicago, for instance, a lot of that creates those challenges. CN is able to eliminate a lot of that because of the EJ&E because of the way around the city.

[[00:38:11]]
We've seen notable announcements surrounding natural gas and NGLs [natural gas liquids] projects in Western Canada, including partnerships with Keyera and AltaGas. How significant a growth runway does this NGL and hydraulic fracturing franchise provide for H2 2026 and beyond for Canadian National?

[[00:38:32]]
I think that was upwards of like a CAD 0.25 billion terminal project that they've been working on with AltaGas to give them that opportunity. I think that's probably not until a mid-'28 play. I don't know what that is necessarily going to do for them coming into the back half of this year. I do know, however, that obviously, when you start to unlock a lot of the resources that are up there, which are going to continue to require some significant investment that CN has been working on, that's going to provide a real long runway in the out years to be able to drive some additional revenue. Obviously, we're going to continue to have issues and have challenges around natural gas, and we're going to continue to have markets there. Is this a win that where you can bank on in 2026? I'm not so sure. Is this a win that you're going to be able to bank on in the decade to come. Certainly much more likely. Now again, I don't have a ton of visibility into the precise ins and outs of their dates. Again, I think this is something that will start to really pay off here in the coming years.

[[00:39:39]]
Could you walk us through some of the challenges you're seeing in natural gas?

[[00:39:47]]
Again, I think the challenge in North America is the US is really good at producing natural gas. The US is getting better at exporting it and what infrastructure needs and challenges do we have in order to make certain that we're moving all that nat gas. I know that there's been a lot of projects and this administration has been moving very quickly to provide the permits to get those export facilities. are we in an oversell situation? Do we have more supply than the world is looking for? I think we're always going to need that and maybe we're going to need a little bit of balancing here in the shorter term. Longer term, for the United States and North America to be able to provide those energy resources to the world, that's only going to be a great economic opportunity for us as well as a strategic opportunity. There are energy analysts that are far smarter than I in answering those questions, however.

[[00:40:51]]
The Zanardi Bridge and Glen Valley Abrahamson projects are slated for completion by the end of 2027. Once these are completed, how will they reposition the competitive dynamics for Vancouver port access and for Canadian National?

[[00:41:06]]
It's my understanding is that they're looking at double tracking that, I think, by the end of 2027. Again, to your earlier question about where some of the stubborn choke points exist, that will finally go ahead and pull that out and be able to get rid of that bottleneck around the approaches into Prince Rupert and Vancouver. That will, I think, be a significant increase in the fluidity in and around Vancouver for them. I think you will start to see that. Again, CN is uniquely positioned along with CP to provide some great service in and out of Vancouver. Once you remove those choke points, CN is only going to be able to offer even greater fluidity, shorter turn times and be able to provide even more interesting products to customers in and out of Vancouver there.

[[00:41:56]]
You mentioned shorter turn times. Could you quantify where we are now and where we should be once everything is cleared up? What would that shift look like?

[[00:42:08]]
Unfortunately, I just can't do those numbers for you, I'm sorry.

[[00:42:11]]
Canadian National achieved record first-quarter fuel productivity at under 0.9 gallons per 1,000 GTM. With fluctuating fuel prices, how insulated is the company's bottom line by fuel surcharges? Is there still room to innovate fuel efficiency?

[[00:42:35]]
The great thing about railroading is it is profoundly sustainable. The efficiencies you're getting out of using diesel fuels and the mileage you're able to get is absolutely second to none when it comes to operating. Obviously, however, next to people, power and other expenses, obviously, your fuel is a significant outlay. CN has been very effective with its fuel surcharges. They have also really led the industry in fuel efficiency. That's just again, through smart use and through the use of technology and through the use of other different policies and procedures that have been able to get there, the record of fuel efficiency that they have. Again, the idea of being able to have fuel surcharges, which gives you some cushion and gives you some protection on costs as we have seen with, again, all the fluctuation up 10%, down 10% seemingly on price of oil on an almost daily basis lately, CN is able to really make certain that it can safeguard itself and give itself a little bit more predictability coming into the next couple of quarters for that. It's an important tool, and you will continue to see that in full use.

[[00:43:56]]
You mentioned the 10% swing. If fuel prices move beyond that 10% swing, is there ever a case in which Canadian National would have to absorb some of the fuel costs itself?

[[00:44:07]]
I think that's always a conversation. Every day, there's thousands of train starts, which means every day, there's thousands of conversations between CN and its customers. Each of these contracts, each of these discussions is going to be unique to meeting its customers' needs, but also making certain that CN can fully optimise the network as well. All of these factors contribute to the discussion about what that operation looks like.

[[00:44:40]]
Canadian National is looking to capture incremental volume while maintaining strict pricing discipline to protect its operating ratio. What exactly does striking that balance look like without turning away profitable business?

[[00:44:57]]
I think it all is about yield management. How do you make certain that you are incentivising not only customers and be able to convert from truck to rail, but you're also making certain that you're able to fully optimise your network with margin contribution with smart business and you're making smart decisions. I think they are always looking to say, "How do we make certain that if there are businesses that are going into congested areas that are dense industrial areas in urban areas, how do we balance that out by making certain that they're going to discount backhaul lanes," or other ways to make certain that you're not moving empty air, which is the absolute nemesis of any railroad. You want to make certain that everything is moving in balance. Again, I think sometimes that means you're making tough choices. Sometimes that means you maybe are looking to make certain that you're not bringing customers and new customers, even though there are some business opportunities, but you don't want to end up, again, taking the place on your network of another higher-margin opportunity. Again, CN, I think, it continues to have strong operating ratios, and that is the result of that hard work going through with that discipline.

[[00:46:16]]
Are there any customer profile types that fit into Canadian National's tough choice? What would a customer look like whom the company would choose to turn away?

[[00:46:30]]
Again, we've got a common carrier obligation. There's no turning away. At the end of the day, it is recognising the fact that I think the smartest thing railroaders can do is the idea that you want to make certain that every move is not one move, but every move is two move. Once you get a box and you get that box to your customer, how do you absolutely minimise the chance that you're moving air? How do you get a box to again to another customer and making sure that it's moving? How do you make certain that you're not tying up the extent of your network on business that's just paying the bills. There's a lot of different tools in the toolbox to make certain that they're able to optimise. Again, looking at CN's OR, they're uniquely situated to really excel on that.

[[00:47:15]]
You mentioned trucking. Given that truckload spot rates have been rising week after week, should we expect any spillover into rail?

[[00:47:29]]
It's the age-old question. I think at this point, any growth strategies and certainly UPNS leads the way with that when they're looking at their merger is how do we continue to incentivise that truck-to-rail conversion. Obviously, truck will always win if you're trying to move 100 miles from point A to point B. Train will always win if you're trying to move from Rupert to Chicago. It's those middle margins, which create the biggest opportunity. It's the folks that could be on the fence. It's the folks that can be at coin-toss. It's a 400, 500, 600-mile shipments depending on what the product is, where you can just as easily call a truck as you can call a rail. Now the big challenge is and a great railroader once said that the railroading needs to be better than railroad good. Railroads can be difficult to deal with. Railroads can be a challenge. Railroads require infrastructure. It requires acreage.

It requires how do you actually bring the box car in, in order to help to move that. Most logisticians know how to find a trucking company this afternoon. calling and getting involved with rail can take longer than that. It's really making certain that the product that you're offering meets your customer expectations. It has the ability to give the information, to give the reliability, to give the idea of when the train is going to be pulling in, all those kind of metrics that we all are accustomed to now operating here in an Amazon world, how do we make certain that those customers are also able to see that. That challenges on the railroad. I think CN has been very good at that, at making certain that there's a whole suite of products that are available to customers so that they can get a sense of where do they need to be, what are the savings, how long is it going to take? When is my product going to arrive, all those kinds of questions.

[[00:49:38]]
With tightening truckload spot rates, customers may become more cost-conscious. Should we expect them to switch to rail, or are they more likely to wait for rates to go down a bit?

[[00:49:54]]
I think USD 7 diesel certainly isn't helping trucking's argument. Again, I don't have numbers to show this, but I think when we look at where trucking has been and what trucking rates are and what is USD 7 diesel going to do for trucking and trucks. Certainly, trucking operators are on the margins. I'm not sure what that's going to do to demand there. I think that creates some opportunities for all rails.

[[00:50:28]]
What would be some critical leading indicators if we were trying to determine whether Canadian National is going to outpace its peers over the next 12-24 months? What savings would you watch out for? What levers does the company need to pull to get there?

[[00:50:45]]
Again, I think you look at some two great numbers, which are real strong indicators of where you need to be on labour cost, car velocity and dwell times. Those are critical indicators that show again how fast that network is moving and also, again, gives you an indication of where costs might be. Again, I think there is a lot of uncertainty right now in the rail space as people figure out what UPNS is going to mean for the rest of the railroads. I think there are some questions about performance. Obviously, CSX has gone through a significant amount of cost reductions. UPNS, are they in a position where they're going to be spending a lot of money right now on investments and CAPEX. CN might very well be poised to take advantage of a lot of the uncertainty that exists in the rails for at least the next five or six years.

[[00:51:43]]
What would Canadian National taking advantage of the uncertainties we've discussed look like?

[[00:51:58]]
I think when you look at some of the other railroads, if they're preparing to go through an M&A, are they going to be making large investments in CAPEX to try to debottleneck their systems? Are they going to have as much power available? What are they doing with their employee counts? What does all of that contribute then to their ability to deliver for customers as far as their own metrics. I think CN might be in a position to be running a very, very strong railroad, which will only help to attract and keep customers.

[[00:52:32]]
I think that is a great place to end our call here today. I do want to thank you for joining me on Third Bridge's Interview and for bringing all of your insights.

[[00:52:42]]
Thank you so much. Really enjoyed the conversation. Appreciate the opportunity.

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