CSX Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
January 19, 2022

Key Takeaways

  • CSX delivered a 21% revenue increase in Q4 to $3.4 billion and grew operating income by 12% to $1.37 billion, with earnings per share rising 27% to $0.42 despite a higher operating ratio of 60.1% due to quality carrier integration and fuel costs.
  • Merchandise revenue rose 4% amid a 3% volume drag from automotive chip shortages, intermodal revenue was up 16% on flat volumes, and coal revenue jumped 31% despite a 2% drop in volume thanks to stronger export pricing.
  • Omicron-driven labor and supply chain disruptions weighed on Q4 volumes and Q1 capacity, but CSX doubled its average number of active train & engine trainees and expects service metrics to improve as new hires complete training.
  • CSX highlighted its sustainability leadership, noting customers avoided 11 million metric tons of CO₂ emissions—equivalent to removing 2.3 million cars from the road—and continues to invest in fuel-saving and emerging technologies.
  • For 2022 CSX targets GDP-plus volume growth, plans ~$2 billion in capital expenditures focused on safety and infrastructure expansion, and remains committed to opportunistic share buybacks and dividends.
AI Generated. May Contain Errors.
Earnings Conference Call
CSX Q4 2021
00:00 / 00:00

There are 16 speakers on the call.

Operator

Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I like to welcome everyone to the Q4 2021 CSX Corporation Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. Matthew Korn, you may begin your conference.

Speaker 1

Thank you. Good afternoon, everyone, and welcome. Joining me on today's call are Jim Foote, our President and Chief Executive Officer Kevin Boone, Executive Vice President of Sales and Marketing Jamie Boycek, Executive Vice President of Operations and Sean Pelkey, I'm Acting Chief Financial Officer. In our presentation, you will find our forward looking disclosure on Slide 2, followed by our non GAAP disclosure on Slide 3. I will now turn the call over to Mr.

Speaker 1

President, Chief Executive Officer, Jim Foote. Jim?

Speaker 2

Thank you, Matthew, and thank you to everyone for joining I'll turn the call back over to Matthew to CSX and believe his investment research background, including coverage of many of our customers, will make him a great contributor to our team. And I wish Bill success in his new role as Head of Finance and Treasury.

Speaker 1

Our As

Speaker 2

we exit 2021, every CSX employee deserves recognition for their dedication to our customers I will now

Speaker 1

turn the call over to Mr.

Speaker 3

President. In what has been

Speaker 2

another unbelievable year operating through the ongoing impacts of the pandemic and supply chain disruptions. Our next question comes from the line of John. As these challenges continue into the start of the New Year, we continue to take the necessary steps to move I will now turn the call over to Mr. President. We are putting the resources in place to deliver a high quality service product Throughout this period, we have remained true to our core principles, operate safely, our customers are committed to providing customers with additional capacity to help overcome the current challenges.

Speaker 2

Our earnings call will be recorded. These actions combined with expected easing of supply chain disruptions position CSX for growth. I'll turn the call over to our presentation. Let's start with Slide 4, which highlights our key financial results. We moved nearly 1,600,000 carloads in the 4th our Q1 generated over $3,400,000,000 in revenue.

Speaker 2

Operating income increased by 12% to 1,370,000,000 The operating ratio increased 310 basis points to 60.1%, Which includes approximately 250 basis points from the impact from quality carriers and 50 basis points from higher fuel prices. Our earnings per share increased 27% to $0.42 a share. I'll now turn it over to Kevin, Jamie and Sean for details.

Speaker 4

Thank you, Jim. Turning to Slide 5. Our Q4 revenue increased 21% year over year with growth across all major lines of business. Merchandise revenue increased 4% our Q1 results are on 3% lower volume as the impact of ongoing automotive semiconductor shortages was more than offset by revenue growth I will now turn the call over to Mr. President.

Speaker 4

Industrial and construction related end markets continue to demonstrate the strongest growth. Our Even though declines in energy related markets remain a headwind for our chemical business, it's important to highlight that our core chemical, our plastics and waste markets continue to show solid year over year growth. Intermodal revenue increased 16% on flat volumes our international growth driven by strong underlying demand and continued growth in rail volumes from East Coast ports our was offset by domestic declines due to ongoing driver and equipment shortages. Coal revenue increased our earnings call is now 31% on 2% lower volume. Increases in export coal shipments driven by the impact of rising benchmark prices was partially offset by the effect of declines in domestic volumes, largely related to producer outages.

Speaker 4

Our other revenue increased primarily due to higher intermodal storage and equipment usage, driven by supply chain disruptions our results are expected to be in the range of $1,000,000 resulting from truck driver shortages, chassis availability and the lack of warehouse capacity. As we exited the 4th quarter, we clearly saw the effects of omicron with December volumes impacted by labor and supply chain disruptions. These challenges have continued into the New Year we are seeing customers face labor shortages in their operations. As we look across merchandise, intermodal and coal markets, our demand signals remain strong. As supply chain challenges normalize, we would expect volumes to align more with demand.

Speaker 4

I would like to highlight the positive results we have achieved by working with customers on new business development projects. Our Over the last few months, we have seen 3 significant announcements of new production of facilities to be located on the CSX railroad, our including 2 electric vehicle plants and a new steel mill. These projects are a team effort I'll now turn the call over to Steve. And our first question comes from the line of John Importantly, these projects represent significant long term value to CSX. Now let's discuss the progress CSX is making when it comes to our commitment to sustainability as summarized on Slide 6.

Speaker 4

Our rail is the most efficient form of land based transportation and CSX is the most fuel efficient Class 1 railroad, U. S. Class 1 railroad. Our customers avoided 11,000,000 metric tons of carbon dioxide emissions, Which is equivalent to taking 2,300,000 passenger vehicles off the road, an amount greater than all the hybrid and electric vehicles operating in the U. S.

Speaker 4

Today. We are proud of the recognition we have received for these efforts to date by organizations such as CDP, I'll now turn the call over to Dave. But we are certainly not done. CX continues to invest in existing technologies to drive further improvement we continue to evaluate emerging technologies, so we are prepared to realize those benefits when available. We're excited to see our customers' increased focus on improving their carbon footprint.

Speaker 4

Customer engagement on ESG has accelerated We have seen them double their usage of CSX provided tools that help them calculate emission savings from switching to rail. You also see later this quarter, we will be recognizing customers for their efforts in prioritizing carbon emission savings I'll now pass it on to Jamie Gordon to discuss our operations.

Speaker 5

All right. Thank you, Kevin, and good afternoon. As Jim referenced, we are working very hard to provide customers the capacity to help overcome I will now turn the call over to the operator. One of the areas we have discussed in our ongoing T and E hiring initiative, This effort is beginning to pay dividends as more employees finish training and begin moving freight. We are also encouraged I expect to see ongoing hiring momentum to start the year as we continue to consistently fill weekly training classes while maintaining a strong pipeline of candidates.

Speaker 5

Our In total, we roughly doubled the average number of active trainees in the quarter. Also, the number of employees qualifying and moving to active status our increased almost 50% sequentially in the 4th quarter to approximately 150 and we expect this number to double to over 300 employees our average daily cases have increased by several 100 employees since early November and are approaching prior peak levels. That said, there is no doubt that the hiring actions taken to date have allowed us to better manage the current situation. We have also supplemented this hiring by bringing additional assets online to help offset network imbalance

Speaker 3

I will be caused by pockets of concentrated case counts.

Speaker 5

We will maintain these tactical asset increases as needed to protect service, I will look to improve asset utilization and drive increased operating efficiency as employees return to work And our ongoing higher initiatives provide the necessary resources to move incremental volumes and deliver the expected high quality service to our customers. Additionally, until Holloway capacity improves at intermodal terminals, we will continue making the necessary investments to keep terminals fluid I'll provide the overflow space and supplemental labor required to move long dwelling boxes out of our terminals. We're also continuing to take a long term approach to network and infrastructure planning and have identified several strategic our extension opportunities that will provide additional long term capacity by helping to alleviate congestion while also supporting growth for years to come. As always, we will pursue these initiatives while maintaining a balanced training plan and a continued focus on strong execution to maximize I want to thank the entire operating team for the hard work our long hours they've put in to keep freight moving for our customers. Despite the incremental headwinds this quarter, service metrics remain consistent with the prior quarter and we are taking the necessary steps to drive these metrics back towards pre pandemic levels I will now turn

Speaker 3

the call over to the course of 2022.

Speaker 5

Turning to Slide 8, safety remains fundamental to everything we do at CSX And we hold ourselves to the highest standard for our employees, customers and the communities in which we work and operate. As shown by the reduction in our train accident headcount this train accident rate this year. Heading into 2022, we continue to target further our reductions to human factor incidents through a combination of increased awareness, best practice sharing, our collaboration across regions and expanding our successful drone program. We are also engaging with our new hires I will now hand it to Sean to review our financial results. I will now hand it to Sean to review our financial results.

Speaker 6

Thank you, Jamie, and good afternoon. As you've heard, our operating income grew double digits, up $151,000,000 with revenue up 21% on gains across all major markets. Below the line, interest and other expense was $60,000,000 favorable, reflecting the prior year debt repurchase expense. Our income taxes were up on higher pretax income, though we recognized $25,000,000 in benefits this quarter, primarily related to state tax adjustments. Our earnings call will be recorded.

Speaker 6

As a result, EPS of $0.42 was up 27% versus the prior year. Now I'd like to take a minute to walk through operating expense in more detail on the next slide. Total costs increased $451,000,000 28% in the quarter. The addition of quality carriers drove approximately $200,000,000 of the increase. Higher fuel prices were also a significant factor, driving costs up about $115,000,000 versus last year.

Speaker 6

Our non locomotive fuel inflation remained consistent with prior quarters, just above 3%. Though as we turn the page to 2022, we expect a number around 4%. Drilling into a few specific line items, labor and fringe increased 115,000,000 our earnings call for 20% in the quarter. Quality was about $30,000,000 Incentive compensation was a nearly $40,000,000 headwind in the quarter, I'll now turn the call

Speaker 3

over to the operator. Largely due to higher expected payouts versus last

Speaker 6

year and the impact of accelerated expense for certain employees. As Jamie discussed, we continue to focus on hiring and retaining Train and Engine employees. We invested over $20,000,000 in new programs targeting our T and E workforce. In line with these efforts, average headcount increased by 230 our earnings call is 1% sequentially. Labor inflation remained in line with prior quarters, though is expected to be slightly higher in 2022.

Speaker 6

Our purchase services and other expense increased $198,000,000 or 44% in the quarter. As a reminder, This is where most of the quality expense shows up, approximately $130,000,000 Also, I'll now turn the call over to Eric.

Speaker 4

You may recall that we expected investments in supply chain

Speaker 6

fluidity to result in higher costs on this line and we saw about $45,000,000 of increased expense our as we work tirelessly to drive network and terminal fluidity in light of unprecedented challenges. We expect these costs will persist I will now turn the call over

Speaker 4

to the operator until we see a normalization of

Speaker 6

labor and the broader supply chain. The remaining increase reflected both the impact of inflation I

Speaker 2

will now turn the

Speaker 6

call over to Bob. Depreciation was up 4% on a higher asset base. Fuel costs were up on higher price than trucking fuel. Our rents were up slightly and we had about $20,000,000 of higher real estate gains. Going forward, you can expect a modest level of base real estate gains, similar to the $35,000,000 we recognized in 2020.

Speaker 3

Our outlook is now open.

Speaker 6

As we shift our focus towards leveraging the real estate portfolio to support growth initiatives. However, our Virginia transaction will continue to impact results in 2022 with a $20,000,000 gain in Q1 our earnings call will be recorded and a $120,000,000 gain expected in Q2. We anticipate receiving the final $125,000,000 of cash in Q4. Now turning to cash flow on Slide 11. On a full year basis, free cash flow before dividends increased 45% I'll turn the call over to $3,800,000,000 As a reminder, this includes $400,000,000 from Virginia and over $500,000,000 of total proceeds from property dispositions.

Speaker 6

Our cash and short term investments finished the year at $2,300,000,000 While this remains elevated, we nevertheless I expect to continue to work the balance down this year, levels more in line with our historical liquidity needs. After fully funding capital investments, our shareholder returns exceeded $3,700,000,000 We will continue to be balanced and opportunistic in our buyback approach we remain committed to returning excess cash to our shareholders. With that, let me turn it back to Jim for his closing remarks.

Speaker 3

I'll now

Speaker 2

begin. Great. Thanks, Sean. Let's conclude with our outlook for the year on Slide 13. Our earnings call will be recorded.

Speaker 2

We remain optimistic about the opportunity to grow this year, driven by a combination of strong underlying economic momentum our outlook for the Q4 of 2019 is expected. Based on these expected tailwinds, we are targeting I'll now turn the call over to the operator. GDP plus volume growth for the year. Volume should build sequentially throughout the year as supply chain bottlenecks ease. Our earnings call will be recorded by the initiative Jamie reviewed to I appropriately resource our network for the current demand environment and to ensure we can provide customers I will now turn the call over to Mr.

Speaker 2

President. We also expect pricing to benefit from a combination of market forces, our earnings call will be recorded. Full year capital expenditures are planned at I will be conducting approximately $2,000,000,000 Our top capital priority is and always has been maintaining and improving the safety our outlook is in 2020 2, we will replace in excess of I expect to drive further efficiencies in 2022. Our plan reflects the impact of increased inflation and a number of discrete our strategic investment opportunities. We will continually evaluate future strategic opportunities as they come along, but still have ample our across our network to absorb future volume growth.

Speaker 2

And finally, after investing in the railroad and high return growth our projects, we remain committed to returning excess capital to shareholders through a combination of dividends I will now turn the call over to Mr. President. We are entering the year with strong demand across the economy, our shippers are facing ongoing challenges from the lack of capacity in labor, materials and transportation. Our focus remains supporting our customers by providing effective rail solutions I will now turn the call over to Mr. President.

Speaker 2

As I said earlier, we are encouraged by the progress we are making, I will now turn the call over to Matthew. Thank you. I'll turn it back to Matthew for questions.

Speaker 1

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

Operator

Your first question comes from Brandon Oglenski with Barclays. Your line is now open.

Speaker 1

Hey, good afternoon everyone and congrats, Matt. I guess you guys didn't provide any discussion on I'll turn it back over

Speaker 7

to Tom to take

Speaker 1

a look forward on profitability or margins and I get it. You have the lapping of quality carriers plus lower land sale gains. So I guess, can talk to the core efficiencies in the business and how you plan to leverage growth this year. Are there incremental opportunities for you guys to drive core profitability

Speaker 6

Yes. Thanks, Brandon. This is Sean. So just to I'm going to clear the record. So you're going into full year 2022.

Speaker 6

We're going to have the full year impact of quality, going to have lower real estate gains as I just outlined. Together is about a 3 50 basis point impact. So kind of on a like for like basis, you're starting at a 59 OR. Fundamentally, nothing has really changed about our story, right? Our expectation as we come out of the pandemic this year our expectation is for supply chains to normalize.

Speaker 6

As they do that, some

Speaker 4

of this some of the

Speaker 6

costs that we've added in order to better serve our customers will start to come down a little bit. Obviously, the incremental growth that we see stronger in the second half than in the first half of the year should be at good incremental margins. And so at the end of the day, I think the core story that you've seen over the last couple of years with us is the same next year or this year I'll turn the call back to the operator. As it's been, the only unknown is what's the pace of the normalization? How do we get how quickly do we overcome what we're seeing right now out there in the environment.

Speaker 1

Thank you.

Operator

Your next question comes from the line of Brian Ossenbeck with JPMorgan. Your line is now open.

Speaker 1

Hi, thanks. Good evening. Just wanted to ask, Kevin, maybe you can go through some of the puts and takes of the outlook for some of the key end markets. I know Sean just talked Some of the uncertainty around the supply chains, but where you feel like you have some maybe more opportunities that could come to bear and where you I'll see some of the challenges, and then if you can layer in some of the impact of those new business development wins. It sounds like there might be a little bit more longer dated, but is it too early to see

Speaker 4

I'll Yes. Thanks, Brian. Look, there's a lot of our demand tailwinds that we see, there's pretty robust demand across pretty much every end market currently. So we're optimistic Sean pointed out that supply chain challenges and I think the timing of those normalizing is probably the biggest question as we move into our Q2, Q3, Q4 kind of when does that really translate into some more better fluidity out there for us. But Starting with merchandise, really it's a story of auto.

Speaker 4

When did the autos really start to production really start to come back online. When you look at current estimates, it's really for a back half story on the volume. And certainly, autos drive more than just our carloads in the auto side, it touches the metals business, plastics business for us as well. So auto is going to be very, very important. Certainly, we all know the demand.

Speaker 4

We've all been to the local dealership and they don't have any new cars. And if you want a new car, you probably got to wait 12 months. So that's the demand is there. There's no question about it. Where we see right now, the metals business is very strong.

Speaker 4

Our Classics remains very, very strong. Probably the only thing that we're really seeing weak and I touched on a little bit is the energy market. And then that's all about spreads And spreads can collapse and then gap out again. So we'll continue to watch those and we'll benefit if those I will get more positive in the future. On the intermodal side, we really benefited from the international market and we see no slowdown at this point.

Speaker 4

Our there's still a lot of ships waiting at the port to get in and we've been very successful in moving that freight and we continue to I have the operations and I think we'll continue to benefit from that. The domestic side is really where we've seen the disruption and that's been largely due to The driver shortage, the equipment shortages that we're seeing on the chassis side. And to be honest, I think the chassis problem I think we're being pushed out every month. I know the suppliers are having a hard time ramping up production, but that's probably going to I'll be happy to answer your question. I'll be happy to answer your question.

Speaker 4

I'll be happy to answer your question. I'll be happy to answer your question. I'll

Speaker 2

our

Speaker 4

And then finally, moving to coal. The demand is outstripping supply. You see it in the export benchmark prices. They're incredibly strong right now. We're at all time highs almost and when you look at the met and thermal markets And so we have some opportunity there.

Speaker 4

The mines that have struggled quite frankly, they've underinvested. They had a hard time ramping back up production. Some have dealt with strikes. Some have dealt with other problems. And Those things should normalize hopefully and we should see the benefit of that.

Speaker 4

We've also seen recently a new mine come online and so that should help us I think the biggest question is how long do the export prices stay at these levels, But we would expect hopefully volume to pick up as we move through the year. Those are some of the moving parts through the markets.

Speaker 1

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

Speaker 4

Yes, gold levels, Particularly in our southern utilities are very low. So there's restocking as needing. We're working really closely with our customers. I would expect that to persist through this year and probably in the next.

Speaker 1

All right. Thanks very much.

Operator

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

Speaker 8

Yes, good afternoon. I wanted to ask you a bit about how And is that the right way to think about it? Or do you think that the factors outside your control In broader supply chain are kind of a bigger variable in terms of your volume growth.

Speaker 2

Tom, it's Jim. Just generally, clearly, CSX is no different than any other industry Right now, where we have been challenged, finding people to come to work. And because we have been short our train and engine service employees, simple fact is we have not been able to move the amount of freight we could have, I would like to turn the call back over to the operator.

Speaker 3

And we've been staffed up

Speaker 2

at the appropriate levels. That's why we've been talking for the last year at least I'll take

Speaker 4

your

Speaker 2

questions. Our I will now turn the call over to Jamie. And as Jamie said, we're starting now, just now, after 12 months of very, very hard work I will now turn the call back to a positive growth number in terms of the number of employees. And when we do that, we'll be able to move more freight. Jamie, do you want to add more detail?

Speaker 5

Yes. I think Jim pretty much nailed it. This is probably one of the most difficult environments we've ever seen. You think about all the stuff the rail industry has gone through over the past 10, 20 years, my 25 years of railroading, I can tell you when you come in 1 week and you've got 60 people off on COVID and a new variant comes through, You got 350 off on COVID on your T and E side. You really start to feel the effects and believe me Kevin and I I'm talking all the time about the opportunities of moving as much product as we can for our customers And not only just the product that we currently have with our current customers, but the growth side of things and what else can we move out there.

Speaker 5

So to Jim's point, our hiring classes have over, I would say, probably the past 2 months have been extremely successful. We are putting 150 plus T and E, well, new conductors, I guess, through our training center in Atlanta And we continue every single week to hold a new class and I'm proud to say that all the hard work our HR team has done Through the honest ore fleet, it's paying off. And honestly, when we start looking at where we're going to be in 3 or 4 months from now, We're going to be a different look on railroad and these opportunities that Kevin is talking about is going to be opportunities that we're going after.

Speaker 8

So are you optimistic about a quick improvement related to omicron or really just focused on Q2 for that improvement in capacity?

Speaker 2

Yes, Tom, it's Jim. We're thinking about maybe getting an epidemiologist on I'm just on staff. So if you're ready to step up and tell us, this is it, this is going to be over in 2 months and we're not going to see another one, come on in. You can start tomorrow.

Speaker 8

Sounds like second quarter.

Speaker 4

Thank you, Jim. I

Speaker 3

will be back.

Speaker 9

Your next question comes

Operator

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

Speaker 7

Yes, thanks. Good afternoon, guys. Maybe I wanted to ask a question on pricing. So Kevin, maybe when you think about renewals for 2022, maybe how what the opportunity set is there and maybe how those are progressing as we've gotten through the month of January here? And then I'm happy to take your questions.

Speaker 3

On the coal side, any

Speaker 7

help you can give us with how to think about yields and maybe just the first half of the year or over the course of 2022? I know the thermal exports are probably a full year renewal, so maybe you have some uplift there. But I think some of the met stuff is a little bit more closer to market. So if you could just help us with those points, that would be

Speaker 4

Yes. Sure. Let me cover the pricing side first and obviously knew we're going to get this question. The market is clearly there's tight from the supply chain, from the transportation side. You've seen our primary our competition, truck rates are up significantly, and we're having to react to that, obviously, in what we're doing, I'll be happy to answer your question.

Speaker 4

But also working with customers on opportunities for them to convert more freight over to rail. In this high inflation market, they're looking for ways They can save on their transportation costs and rail is almost every time the most our earnings call will be available for the Q1 of 2019. And so those discussions, I'm happy to say are really accelerating now and I'm talking to Jamie every day on what we can do. So that's a really, real positive for us. So I would say certainly the market is better than it was last year.

Speaker 4

We're working with customers. They understand the cost pressures that are out there across the world. They're seeing it. They're asking their customers for the same. So we're seeing some positive momentum on that side.

Speaker 4

In terms of coal, I mentioned it on my opening remarks, Export coal prices, benchmarks are at highs. What we've assumed and your guess is probably as good as mine is that will moderate through the year. But what I can tell you is if the economy reaccelerates post Omicron and China demand continues to be strong, then Who knows it could last much longer, but what our assumption is going forward is that likely those prices will come down. So that will impact yields somewhat into the back half of the year. But offsetting that somewhat, we would expect maybe some volume progress our producers ramp up some of their production as one of the new coal mines that I mentioned comes online, our next question comes from the line of David.

Speaker 4

As perhaps one of the coal mines that we serve resolved their strike and there's another major mine that we have right now that shut down completely. So hopefully some of those things come back online and help us on the volume side.

Speaker 7

That's great. And just quickly, merchandise and intermodal, how much of conference will come up for renewal at the beginning of the year.

Speaker 4

Yes, we see about 50% to 60% renewed annually and about, call it 75% of those in the 1st and 4th quarters of the year.

Speaker 7

Great. Thank you very much.

Speaker 3

Yep.

Operator

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

Speaker 1

Great. Good afternoon. Jim, Union Pacific this morning talked about growing faster than industrial production or about 4.8% For their level of carloads, you picked GDP in your outlook. I just want to understand, kind of trying to parse your growth target, which includes services on GDP. So can you kind of talk about that overall target or maybe that's a Sean question.

Speaker 1

And then you're now more than half a year in with quality. Are you seeing any of the contributions that you expected at this point from the acquisition? Thanks.

Speaker 2

Yes, I think we're comfortable with The quality so far, I mean, it's playing out as we had expected. The customer enthusiasm about This product that we have in the marketplace now is very good. A lot of conversations ongoing about Converting to a transload type of operation versus truck direct. So and we haven't even got the equipment yet here from to utilize some of the ISO containers, which will I'll help this conversion even more. So all in, yes, I mean, they're a great team, really smart people, I'm extremely enthusiastic and excited about this opportunity so far.

Speaker 2

I think Sean is probably better to

Speaker 6

I don't know about that, But I can just kind of give you a little bit of color, which I think Kevin really sort of already went through in terms of each of the markets and the puts and takes there. But I think the first half of the year or first quarter at least on the auto side, we're going to continue to remain challenged. So and you can see it in our weekly numbers in terms of how that's trending. So the hope is that as we get into the second half of the year, that's part of kind of what drives the above GDP growth. Kevin also talked about some of the growth initiatives and the 3 he mentioned aren't the only 3.

Speaker 6

Obviously, there's a lot going on within the sales and marketing team in terms of attracting our new business to the railroad. And then fundamentally, our ability to capture the demand picture that's out there, Assuming that the recent momentum we've had on the hiring front continues and the tools that we're using in terms of retaining the employees we have I continue to be successful. We grow the active T and E count. We're going to be able to move more volume. Great.

Speaker 6

Thanks, Jim. Thanks, Sean.

Operator

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

Speaker 7

Thanks, Emma. Good afternoon, everybody.

Speaker 1

Jamie, we spent a lot

Speaker 7

of time on labor for obvious reasons, not just impacting you, it's impacting I

Speaker 1

will be speaking to your customers as well. But if we could go

Speaker 7

all the way back to a few quarters ago before it really kind of reared suddenly had in the supply chain, got into a real bad congestion issue. I I know

Speaker 4

you're out in the field

Speaker 7

kind of looking for other type of improvements you can make within the network. So as we think about rightsizing the organization, getting to some of the supply I will now turn the call over to the operator for questions. Congestion and to normalize fluidity. You guys seem to have a head start here. So are there other opportunities for you within the network, Whether it's just on trip plan performance or some of the cost levers in the back half of the year into 'twenty three that you think that being a front runner here, you have a real opportunity on a relative basis.

Speaker 7

On a recorded

Speaker 5

basis. John, we are always analyzing the railroad. So, I'm going out there again next week I will be analyzing again what we're doing with our plan out there. So of course, as market conditions change And other factors that go on out there, we analyze what we do. Yes, we just finished finding different opportunities to service our customers better, Particularly in the Carolinas, we spent a lot of time out there just over this past quarter.

Speaker 5

But as I mentioned, we've put some assets out there in order to ensure We can provide the service that our customers require right now. So there are some expenses that go along with that. And We see a quarter or 2 from now as our hiring catches up

Speaker 1

to where we need it

Speaker 5

to be, we'll be able to pull those assets back And or use those assets for continued growth as we move forward. So there is there absolutely is always an opportunity on our railroad. The job of the folks out there who are working really hard on the ground, their job is to execute. The network center's job is to analyze And I work between those folks to make sure we're making the right decisions and we'll continue to do that. So, yes, there's always opportunities.

Speaker 5

But I can tell you right now, our focus is on growth, our focus is on service and our focus is to make sure we continue to balance those expenses along the way. So That's going to be where we continue to push in towards 2020.

Speaker 7

Great. Thanks, Jamie.

Operator

Your next question comes from the line of Amit Mehrotra with Deutsche Bank. Your line is now open.

Speaker 10

I just had a couple quick kick questions and then one kind of maybe broad one for Jim. But first, Sean, I wasn't sure about this when you answered it earlier. Are the margins of

Speaker 5

the business going to improve on

Speaker 10

a year over year basis against the 58 I 0.1 OR that you did in 2021, and I'm obviously excluding Virginia. I understand the timing of the QualityCarriage acquisition and all that, but I Ex Virginia, are the margins going to improve year over year relative to the 58.1? And related to that, can you just talk about I'll Maybe what the expectations are on SSO revenues year over year because I think that'll probably be a little bit of a headwind in 'twenty two. And then, Sorry, Jim, one out of the box question a little bit. You've had great success leading CSX and the whole team over the last many years under very difficult I for sure.

Speaker 10

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

Speaker 6

Amit, this is Sean. I'll take the first two To begin with, so on your operating ratio question, you've got the 58.1%, full year impact of quality. So What I was saying is that kind of takes you to a 59%. So I think your question is, can we do better than that in 2022? And we're not going to give our guidance today.

Speaker 6

And but that being said, I think we've kind of walked I'll pass through all the factors that are going to drive growth both in terms of our volumes, our revenues as well as operating income and what that means for OR. We go into the year with a little bit of an elevated cost profile. Probably in Q1, you're going to see costs That are largely similar to Q4, given that things have not gotten better from a supply chain and labor availability perspective. As we go through the year, we think that does improve. And if it does, then we also see volumes come along with it.

Speaker 6

And we think that sets us up very, very well. There are other uncertainties, what happens in the coal market, export coal pricing and other factors like Kevin talked about. And then the other piece of it that you hit on was the other revenue. I think largely other revenue is going to trend with I'll turn the call

Speaker 1

over to the operator for questions.

Speaker 6

The broader supply chain because the issues that we're facing that are causing containers to dwell on the intermodal side are the same factors that we're facing more broadly in the economy between driver availability, chassis availability and so on. And so it's likely our other revenue is going to remain elevated here in the Q1. And then I would say our baseline expectation is that it begins to normalize starting next quarter and then hopefully sort of back to normal by the second half of the year, which means we're probably moving more volume. So those are the factors.

Speaker 2

On the question of succession, clearly, it's been a topic since I got here, started in the beginning of 2018, you may recall there's been quite a significant change in the management makeup here over that 4 year period. I will now turn the call over to Mr. President. And it has always been my goal and it has always

Speaker 3

been the goal of

Speaker 2

the Board to make sure I would like to remind you that we had in place a rock solid diligent succession planning I will now take a question from the line of the executive management jobs. I think when you talk on the call today and you hear these great new voices I will now turn the

Speaker 3

call over to Eric. Thank you. Thank you. Thank you. Thank you.

Speaker 3

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 3

Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Our next question comes from the line of I'll take a look at the pipeline of qualified talent. And I can tell you from working with the Board, that's no different from my job. Our job and the Board's job is to make sure when Jim decides to go, whenever that might be, hopefully it's when I decide, not when they decide. I will now turn the call over to Mr. President.

Speaker 2

But whenever we're going to fill that job that we have qualified people both internally and externally that I can step right in and being a significant shareholder. I hope you can do a better job than I I think I've done. Maybe other people disagree, but it's been an interesting ride.

Speaker 8

Yes. I appreciate you I'll take my question. Thank you very much. Thank you very

Operator

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

Speaker 11

Yes. I have 2 probably quick ones if I can squeeze them in. The first is just when we're looking at the $2,000,000,000 of CapEx, curious if you might be able to parse that out between or what portion of that might actually be growth related? And the other one is, you talked a little bit Coal allergies and I know there was an issue at Kurtz Bay. How should we think about coal in the Q1 specifically?

Speaker 6

Hey, Ben, this is Sean. I'll take your first question around the CapEx and I would say CapEx CapEx up about $200,000,000 versus 2021, about half of that is related to growth investments. So Jamie talked a little bit about the sidings already, which set us up very well for the long term to grow into the capacity that he'll be creating. We're making some incremental investments on the technology side. Some of the quality investments in the ISO tanks fall into that category and then some commercial our earnings release is a lot of good high return growth oriented investments.

Speaker 6

The balance of the increase in capital is really Driven by sort of inflation in the core infrastructure spend as well as a slight increase in hardening the core infrastructure for safety and reliability. I

Speaker 5

would just add on the CapEx side that the siding extensions we're looking at is mostly on our L and N part of our our property which was down in the southern southwestern part of the railroad where we had smaller sidings, it worked for us, I will now turn the call

Speaker 1

over to the operator. The growth coming

Speaker 5

out of some of that area through Alabama and other stuff that's going on, the need is there. So that's where the majority of This CapEx money is going to and we're excited to get it out in that area to support that growth that Kevin and his group are bringing. With respect to Croda's Bay, yes, we were down for a couple of weeks, but we're back up doing direct dumping. We did redirect a few trains I'm going to a couple of different locations, but we are back in business.

Speaker 12

All right. Thanks.

Operator

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

Speaker 13

Thanks and good afternoon. I was wondering if you could talk about the impact you expect from quality in 2020 I'll take your questions from both the revenue and operating expense perspective as we try to model that out. And then circling back to some of the labor commentary, Can you help us think through what you're expecting for the sequential change in headcount as we progress through this year?

Speaker 5

Yes, Justin, it's Sean.

Speaker 4

I can take both of those.

Speaker 6

So the quality impact is pretty straightforward. What you saw in the second half of this year, both in terms of revenue and expenses, probably a pretty good run rate going into the next year, into 2022. We'll have kind of a happier impact In Q1 and Q2, and then as we get into the back half, it should be pretty similar. The things that are going to drive any difference would really have to do with driver availability. The demand is very strong on the quality side, but that's how I would think about it.

Speaker 6

So a our earnings call will be recorded. A little over

Speaker 3

$400,000,000 of revenue in the second half of

Speaker 6

this year. That's probably a good run rate around $200,000,000 a quarter. In terms of sequential labor headcount, so you saw an increase of 1% from the Q3 to the Q4. I think that's probably a pretty good our estimate of what we might see over the next couple of quarters. The good news is, as Jamie talked about, the headcount we report to you includes both our employees who are in training as well as those that are marked up in revenue service.

Speaker 6

The mix our expectations between those that are in training and in service will change a little bit over the course of the first half here, which is great news. But the headcount should go up very modestly on I'll be on a sequential basis over the 1st couple of quarters here.

Speaker 13

Okay, helpful. Thank you.

Operator

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

Speaker 5

Hey, thanks. Good afternoon. So, Sean, we had some pretty big headwinds from comp per employee and purchase services In the quarter, I think including some accelerated costs, how should we think about those two pieces this year? And then Kevin, just circling back on coal for one second. Was your point about the net prices at highs suggesting that there's another

Speaker 6

Scott, so, comp per employee, you're right. I think it was elevated here in the Q4 and that was one of the big factors there obviously was the incentive comp piece. So that should normalize As we get into 2022, I think if you look at it excluding that for the back half of this year, that's probably a good baseline to build off of. We're going to have some higher labor inflation, which includes health costs as well as payroll tax and railroad unemployment. That will be partially offset by the incentive comp and then there's some favorable mix from the quality addition in the first half of the year.

Speaker 6

Hopefully as we get later into the year and the network is cycling better, we also see a reduction I'll be happy to take your questions. And over time, things like that. So, they're probably as a result of inflation will be a modest increase versus the normalized comp per employee, But not significant. And then in terms of purchase services, that's a line that has a lot of different moving pieces. What I can tell you is that you're You're probably going to see something similar in the Q1 to what you saw in the Q4.

Speaker 4

But a

Speaker 6

lot of the costs that we added recently have to do with off-site our internal facilities, supplemental labor, adding some locomotives, things like that and that ties directly to overall fluidity within not only our network, but the broader supply chain. So as that gets better, the purchase services costs should come down commensurate with that.

Speaker 4

Yes. And then on the coal RPU, we would expect something Probably flattish in Q1 versus Q4. Mix always matters. I would say the mix in terms of our domestic coal side, our next question comes from the line of the mine and improve could help some of that southern coal our longer haul, call maybe later here in the quarter that could help, but largely flat as the way we see it today.

Speaker 5

Okay. Sean, if I can just clarify one thing. So it sounds like the purchase services headwind is an offset to this accessorial stuff. So As the accessorial goes lower, the purchase services costs go lower too. So don't think about the accessorial as 100% margin.

Speaker 6

Yes, that's correct. I think it's that's right. That's right. Now, we probably accessorial may come down a little bit purchase services just from a timing perspective, but they will trend together. Okay.

Speaker 6

I'll

Speaker 3

take your questions.

Operator

Your next question comes from the line of Bascome Majors with Susquehanna. Your line is now open.

Speaker 12

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

Speaker 14

Can you talk about

Speaker 12

potentially updating the investor community with an Investor Day or other type of event? I mean, it's approaching 4 years. You've acquired some non rail businesses. You've got new faces and we've been through The global pandemic, just curious when you think it might be time to kind of share your vision of where you think and you take CSX kind of midterm And how we're going to get there? Thank you.

Speaker 2

I think we had probably planned on doing I will now turn the call over to Mr. President. Another Investor Day at least a year ago, if not longer. I personally have not felt that it's really I'll be happy to answer your questions.

Speaker 3

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 3

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 3

Thank you. Thank you.

Speaker 2

Thank you.

Speaker 3

Thank you. Thank you.

Speaker 2

Thank you. Thank you. Our next question comes from the line of Getting out to New York or doing something here or whatever it is, something else comes along and kind of I will take some water what gets here and tells me when the pandemic is going to end, then we'll schedule it up and get out And talk to all of you. We love to show this team off. They're fantastic.

Speaker 12

Yes. Thanks for the color.

Speaker 9

Your next question comes from

Operator

the line of Jason Seidl with Cowen. Your line is now open.

Speaker 1

Hey, thank you, operator. Afternoon, gentlemen. Wanted to talk a little bit about the performance in the quarter on the operational side. I think this was the first time your trip plan compliance for our carload division got above 70%. So wanted to find out what was going on there and what else needs to be done to sort of try to close that gap

Speaker 5

I'm Thank you, Jason. I'd say, as you Probably quarter to quarter, it is a slow climb. We're working really hard on this service product. It really comes down to the availability of people. Our COVID numbers were down into October, November, we had maybe 30 or 40, maybe up to 60 T and E employees.

Speaker 5

And then towards the end of the year, Up to where we are today, well over 300 to 350 folks off. So for us to really get this service our product where we're arriving on the hour as we continue to commit to, it really comes down to people. And we've been saying this for probably over a year now as we've struggled to even get that pipeline going. Now we've got a great pipeline. We continue to fill those classrooms and the folks in Atlanta are doing an absolute amazing job under Jim Swissenburg and his team.

Speaker 5

It's all about producing conductors. And as this quarter continues, we should see that number come up. But again, I think Jim's mentioned a couple of times it all comes down to what happens in the world with respect to COVID or whatever the next our item might be that affects our crewing of our trains. So that for us is I'll turn the call back over to

Speaker 3

the operator.

Speaker 1

So I guess we'll just wait for I wish to confirm the end of COVID. But good job on the numbers, and we'll look for the more steady improvement as the year goes on. I appreciate the time.

Speaker 2

Well, you'll see that number. I mean, we published our velocity and dwell every week. And that's a good proxy for understanding how fluid the railroad network is, Whether you're trying to look at it from a service standpoint, a customer perspective and where are we in terms of trip plan compliance I for how much extra cost we're having out there because we're running slow. And the reason we run slow It's not that the locomotive is moving at a slower rate of speed. It means it's sitting in some place because it gets to a terminal where it's supposed to be recruit and there's nobody We don't have an employee to get on the train because he got sick.

Speaker 2

And so as The velocity number increases as that draw number goes down. The result is that our our customer performance metrics or our TripPlan compliance numbers will just improve over time.

Speaker 1

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

Speaker 2

Yes, great.

Operator

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

Speaker 3

I will now turn

Speaker 1

the call over to Eric. Just wondering if I have some thoughts on revenue per carload sort of from a total company perspective. Obviously, coming off our 2 strong quarters. We talked a little about the Q1 with coal. But as you think about moving through the year, taking into How do you think about revenue per carload, first half, second half or wherever you want to talk through it?

Speaker 1

Thanks.

Speaker 4

Hey, this is Kevin. I'll take this one. Clearly, yes, we had some strong performance. Some of that obviously was due to the impact of fuel surcharge. We see that probably being a favorable impact into the Q1 and probably less so as you move into the back half of the year and just face Tougher comparisons there.

Speaker 4

There's a couple of probably larger swing items. We've talked about it quite a bit already, but the export coal side our earnings call will be a large swing item into the second half of the year. If prices the benchmark prices remain I will obviously be a good impact. We talked about how we reprice 50% to 60% of our business I'll be happy to take your questions. And so you'll start to see that impact start to flow through probably more heavily in the back half of the year.

Speaker 4

And then on those are probably the major moving parts across the business and obviously mix always matters if Intermodal is outgrowing our merchandise side of your business, that's always a negative mix. So we would expect merchandise to remain strong, but intermodal has we've been over the last few years to be outgrowing merchandise, which is a good thing, but can have a negative impact on the overall RPU.

Speaker 1

Okay. Thanks for the call.

Operator

Your next question comes from the line of Walter Ashish Bracklin with RBC Capital Markets. Your line is now open.

Speaker 14

Yes. Thanks very much, operator. Good morning or good afternoon, everyone. Just a question here I will now turn the call over to Eric. On the environment that we are in right now and how different it is and whether that creates opportunities for you to kind of re envision I will now

Speaker 3

turn the

Speaker 14

call over to Eric to

Speaker 3

discuss some

Speaker 14

of the historical practices you do particularly around contracts with customers and contracts with employees. So Given, Jimmy, you mentioned you just can't get, and Jamie as well, you can't get people. I'm wondering if this sets the stage possibly for a bigger push on automation. Perhaps it's a little Easier to get automation through if the workforce is short people. And secondly, same thing on the customer base.

Speaker 14

If you've got a customer base that is it appears to be extremely High demand for transportation services, does it allow you to perhaps restructure aspects of the contract You might not have been able to do in the past, open up that door, whether it's on duration Your favor, longer or shorter, I'm not sure which one you would prefer, but items like that on either of those 2, I'd love to hear any color that you might have.

Speaker 2

Well, on the customers, we have and for good or bad, and yet maybe the last 2 years has I'll pause us to rethink everything, because things that we never thought were possible to happen have happened. So we look at I think we look at the world differently. Our relationships with our customers our this is big business to big business. Our we have relatively long term, not as long as some contracts, but a couple of 3 year our duration with a customer who is making huge capital investments into his our expectation costs are going to be for him to be able to plan how to run his business. So trying to change that It is difficult.

Speaker 2

I think every again, our customers are reasonable people. So I think there's dialogues about what works. There's always what works I'm happy to answer your question. It's a partnership arrangement in terms of how we help our customer be successful in these markets. I think we have accelerated our views to a certain degree in terms of there's Been a modification.

Speaker 2

There's been certainly been a change in the e commerce arena about who buys and sells the transportation in the marketplace. And so we're dealing in certain circumstances more directly with the customers as it was the 3rd parties that we did in the past. I think that's something that probably will evolve and continue to change. In terms of working with How we interact and how we contract with people that want to work for us, I think this is a big challenge and a huge opportunity for us to really upfront address What we think the worker who wants to work for the railroad is, what's the profile of that individual I'll turn the call back

Speaker 5

to the operator for questions.

Speaker 3

About 6 months from now and not a year

Speaker 2

from now, but 5 years 10 years from now in how do we evolve I will now turn the call over to Mr. President. Thank you. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you. We can't put kiosks in place to do the work of a conductor or an engineer, But there's certainly technology out there that would allow us to do things more effectively, easier, and probably with fewer employees. I will now turn the call

Speaker 3

over to Mr. President. We also work in an extremely

Speaker 2

heavily unionized environment that is also very heavily regulated with at times Ben's on telling us how we should do things. So we're always in the middle of I'm going through the process. And but yes, it's opened our eyes, and I think it's opened everybody's eyes in the transportation business about What we need to do to be more effective and handle these types of issues in the future.

Speaker 14

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

Speaker 2

No. No.

Speaker 14

Okay. Okay. I appreciate the time, Jim.

Operator

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

Speaker 1

open. Hey, guys. Good afternoon and thanks for taking the time. 2 for me. Jamie, could you talk a little bit about where you expect headcount I will be as we exit sort of the 2022 timeframe.

Speaker 1

And then, Jim, I'd love to get your perspective having had some time, presumably to review Norfolk's ask in the CPKC transaction, kind of what you think about that and what you think about the implications of that? What you think the implications of that ask I would like to thank

Speaker 2

you for the Q1.

Speaker 5

Just touching, I think Sean I'll talk a little bit about it, but we have 6% to 8% attrition per year. We have to remember that. So not only do we have to hire to cover attrition, I've got to hire to get that number where we need to be in our minds to be able to provide the service that's required And the growth that Kennen and his group are going after. So I'll leave it I'll kind of leave it at this. We are actively hiring.

Speaker 5

We have over 500 conductor trainees right now between Atlanta and what's out in the field And we're not stopping. We're going to continue to get folks out there qualified as conductors. And we've got a round of qualifying for locomotive engineers here at some point within the next year or 2. So let's we want to make sure that we can provide that service and grow this company.

Speaker 2

As it relates to the other railroads our filings in the CP KCS deal, I'm not surprised at all that the other railroads, Some of the other railroads have weighed in with the requests to make sure that their franchises and their customers our primarily are protected and each railroad has its own unique I will be taking the questions and that process is just starting. We're just we're getting involved in the substantive our conversation around what the impacts are of that transaction. You may have seen that We took the position with DSTB that we didn't have enough information basically yet I will be able to formulate an opinion. So until we have gone on the record, so to speak, with I will ask for and we're still kind of looking at What it is we're going to ask for and what did other people ask for and what does that mean, that sort of thing, it's really I'm not going to comment

Speaker 1

That's fair. But I guess if I could just press a little bit, is the scope of that Norfolk gas surprising to you or you or is that kind of as expected?

Speaker 2

Again, I'm going to characterize it. No, like I It's not appropriate for me to comment really one way or the other where I thought it was aggressive or not aggressive or We're trying to figure out what everybody is doing and that takes time. It's a long, long, long process here for us to gather information, for us to look at everything and then we'll formulate what we think I will now turn the call over to Chris. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you.

Speaker 14

Thank you.

Speaker 1

Thanks a lot for the time, guys.

Operator

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

Speaker 9

Thanks very much. Good afternoon. We're starting to run a little long. So I'll just ask a quick one here in terms of coal and the producer outages that you during the quarter and the new mine you have coming online, just wondering if you can help us frame that a little better in terms of the are there any impact in the timing of when it could come back or come online initially in case of the new mine?

Speaker 4

Yes, I wish I had a crystal ball. There's one particular mine that keeps on telling us that they're going to come back online and it seems to get pushed out I don't have a lot of visibility. I have probably more confidence that As we get in the second, third, Q4 that we'll see some pickup there. The good news is they have a lot more cash to reinvest

Speaker 2

in their

Speaker 4

business, whether it's equipment and other things, so I would think we'll see some benefits of that as well. I mentioned our 1 particular customer dealing with a strike, those things have continued for quite a while, but eventually those things get resolved as well. The other one, the mine that I mentioned that's coming online, it will be a slow ramp up and we would expect more volumes in the second half And that's mainly under the export market. So we're positive there. We're it's a supportive market obviously and We're going to look for opportunities to move more coal as we get more crude availability into the second half.

Speaker 9

Thank you for the time.

Operator

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

Speaker 15

Thank you. Hello, everyone. One, Viktash Yogesh and one follow-up. The big picture question is on domestic intermodal. Just based on your conversations with your customers, do you have a sense of what it's going to take for shippers to move significant amount of You've been off truck and put it on rail.

Speaker 15

Is it as simple as just clearing the congestion or are there more complex issues with speed and service and flexibility that cannot take too long to resolve. And just as a follow-up, Kevin, you kind of mentioned the cadence of your our contract renewals we are seeing on the truck side that customers are trying to push for shorter contracts or more frequent are you seeing anything similar? Thank you.

Speaker 4

On the contract Nothing has really changed. We're obviously working with customers to create more even cadence through the rail network. And I work with Jamie all the time and we go out to customers and explain the challenges that they create. And they can create more readability our volumes through our system, that's extremely helpful. So working with them a lot on that side.

Speaker 4

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

Speaker 6

Just intermodal and kind of what it takes to

Speaker 14

get. Okay.

Speaker 4

Yes. On the intermodal side, I think having spoken to you recently just one of our Many customers, I think consumer behavior is actually going the other way. The expectation is not that they necessarily need something next day. So I would say our the emphasis on speed is actually going the other way to some degree and we're seeing conversations around maybe I don't need to move it over truck and get it there in 24 hours that the our 48, 72 hour option is valuable. It's obviously cost effective where a lot of our customers are looking to offset I'll be very, very high prices.

Speaker 4

I would say on the domestic side, really the challenge has been equipment. It's not a lack of demand. We get calls every day. They want to put more volume on us. But if you can't get the volume out of the terminal, that's a problem.

Speaker 4

And that's what we've been dealing with, but we think that will resolve itself. It's obviously going to be easier to get truck drivers that you can get home at night that are doing the short haul And that really plays into our sweet spot. The long haul truckers aren't there. And I don't think that the drivers I'm going to come back to that market, but we do think the shorter haul drivers are going to become more and more available. But it's not just the drivers, it's the chassis.

Speaker 4

And We know there's a lot of orders out there and so that will resolve itself and then the container side, a lot of containers being ordered right now. So we do think as we get into the second half, we'll have a lot of our tailwinds that will help us really accelerate growth.

Speaker 15

Great. Thank you.

Operator

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

Powered by Quartr