Canadian National Railway Company - Q1 2013

Transcript

Operator (participant)

Welcome to the CN first quarter 2013 financial results conference call. I would now like to turn the meeting over to Ms. Janet Drysdale, Vice President, Investor Relations. Ladies and gentlemen, Ms. Drysdale.

Janet Drysdale (Head of Investor Relations)

Thank you, Patrick. Good afternoon, everyone, and thank you for joining us. I'd like to remind you the comments that were already made regarding the forward-looking statements. With me today is Claude Mongeau, our President and Chief Executive Officer, Luc Jobin, our Executive Vice President and Chief Financial Officer, Jim Vena, our Executive Vice President and Chief Operating Officer, and JJ Ruest, our Executive Vice President and Chief Marketing Officer. Once again, I would ask you to please limit yourselves to one question in order to be fair to all participants. It's now my pleasure to turn the call over to CN's President and Chief Executive Officer, Mr. Claude Mongeau.

Claude Mongeau (CEO)

Thank you, Janet, and thank you to all on the call to join us. We are here in Edmonton. I have to say, it's a sunny day. There's still snow on the ground, but I can feel the spring, and it's a good thing because, you know, we have had our set of challenge this past winter. It clearly impacted our results in many ways. You'll hear Jim talk about some of the challenges that we face and what we're doing about them. It also impacted our revenues and expense. You'll hear a little bit about that. But more importantly, it hit our service level in a way that is not what we are trying to do at CN. We have an agenda of supply chain enabling.

We are determined to help our customers win in their marketplace, and the winter is a hard reality in railroading. It is extremely difficult to face up to the challenge. We've had our fair share of issues, and we found also that we need to build up our resiliency. But at the end of all of it all, the service was not where it needed to be, and we're gonna be working hard to recover. We are, as we speak, regaining fluidity. You know, there's a lot of demand in front of us, and we're trying to move the traffic and deal with the backlogs so that we can have a strong finish to the year. So on Q1, the revenues were up 5%.

You know, JJ will give you the details, but I will say to you that I'm pleased, despite the challenges, this is a record level of volume. I think in our history, we only had one more quarter with performance at that level. So to be able to handle peak volume in a difficult winter period is a very positive statement on our ability to drive value for our customers and shareholders, despite the challenges. The operating ratio was impacted. It's up a little bit more than two percentage points versus last year. But once again, impacted a little bit by issues that we had to face with, but still solid margins, solid free cash flow and reasonably solid EPS. That's $1.22.

We're up 3% on a year-over-year basis. That's not where we had planned to be for the beginning of the year, but it's still in a range that we can make up between now and the year-end and finish strong. So our first order of priority is to restore the high service levels that our customers expect of us, and from there, everything will work. We can create value for our customers and continue to create very solid shareholder value. With this, I'll turn it over to the team to give you a little bit of detail.

Jim Vena (EVP and COO)

Okay. Thank you, Claude. Good afternoon. As you can see from the operating highlights, the first quarter was an operating challenge. Even with improvements in GTMs per train mile and yard productivity, our key metrics were impacted. Until the changes in mid-February, I was, as Claude has reminded me a few times, sending roses south of Chicago. The metrics on the southern region were strong, outpacing the previous year as a result of our strategic investments around Chicago and hard work by the entire team. I do not want to dwell on our first quarter other than to discuss what we can do different. The network has improved in April to the point where car velocity is lapping last year.

In fact, we had five days of GTMs over 1.2 billion, with train speed, locomotive utilization, and terminal dwell where they should be at this time of year. All this with our revenue loads and trailing GTMs up. I'm proud of the work the operating team performed during the tough first quarter. I'd like you to turn over to slide on page seven, where I'll present our plan moving forward. We have seen a significant increase in traffic on the 797 miles between Edmonton and Winnipeg. We dealt with an extended winter, which was similar to a 15-round heavyweight fight. We got hit with a storm, then got hit by a Native blockade, and when we were starting to recover, we got hit by another blow. Winter is tough.

It's an outdoor sport, and we have taken many steps to try and deal with a prolonged winter. We've invested in DP, power operation, snow clearing machinery, centralized recovery operations, and increased placement of switch heaters and deployed air repeater cars. Even with these investments, winter can be mitigated, but it's tough to knock out. A few years ago, when I was heading up the western region, I still remember shutting down the railway completely around Edmonton and Winnipeg for two days because of cold. Even with the shutdown, we were able to recover because it was a single event. In order for us to deliver on our goals of operating and service excellence and to provide more resiliency to the system, we will be investing an additional $100 million on the line and yard capacity so we can deal with many obstacles and recover, and recover quicker.

The plan is to increase capacity on the line between Winnipeg and Saskatoon, and upgrade our line between Saskatoon and Edmonton on our Prairie North Line, so we can shift trains away from the main corridor when required. As I've already stated, winter can't be knocked out, but we can mitigate it, its impact on the vital corridor. So JJ, why don't I pass it over to your turn?

Okay. Well, thank you, Jim, and good afternoon to everybody on this beautiful afternoon in Edmonton. As Jim mentioned, overall, a very challenging first quarter from a service standpoint. Having said that, though, our customers did well. Our customers' demand remain intact. I will start with a quick review of our first quarter results, and after that, I will give you an outlook of what's ahead. Our total revenue was up 5% in the first quarter, or an equivalent $120 million. The breakdown is as follow: volume and mix accounted for roughly half of that increase. Price was the other portion of the revenue growth. The impact of foreign exchange and of fuel was negligible in this quarter. Same-store price on same-store sales was just over 3.5%.

Now, going over the more specific segment, market segment, and I will do this, as usual, on the FX-adjusted basis. Petroleum and chemical, the revenue was up 16% on only a 3% carload growth. Crude by rail revenue was up 300%, and we now have roughly $75 million of our book of business in the first quarter, which was directly crude. As you know by now, crude is a very long-haul business for CN, and we at CN are directly serving single line, the US Gulf, and all of the Eastern Canada refineries. Looking at metals and minerals, it was up 3% in revenue. We had a 20% increase in revenue ton mile for frac sand, a direct impact of new frac sand plants located on our Barron Subdivision in Wisconsin.

In metals, we also had a strong movement for pipe related to pipeline projects. However, we had an offset by a softer steel-related market. Forest Products revenue was up 2%, 2% in revenue. Overall, the lumber and panel demand was strong in the first quarter, but the winter challenge got in the way of us being able to fully capitalize on U.S. housing starts. Shipments of pulp were also impacted by the winter. However, in that case, we were able to coordinate more use of intermodal as an alternate service. Coal revenue was flat in the quarter. Carloads were down 8%, but the length of our haul for coal was up 6%. U.S. coal revenue was up 4%, and Canadian coal revenue was down 5%.

For our Canadian business, a number of export supply chain issues negatively impacted our volume. For our US coal business, exports were higher and domestic was lower. Grain and fertilizer segment was up 7% in revenue. Canadian grain was down 13% in both carload and revenue dollars. The business in Canada was directly impacted by the difficult winter operating conditions. However, our US grain business was up, was up 6% in revenue on flat carload. We had a very strong soybean export early in the year. Fertilizer revenue was very strong, one of the strongest, a strong 41% growth in revenue and a strong 30% in carload. Potash demand led the segment, both for export and for domestic, market. Finally, intermodal, which was up 7% in revenue. Our international business grew mostly from the Port of Vancouver and the Port of Halifax.

Our domestic business grew mostly from end-to-end customers, as well as other, as well as from our direct retail program. Here, again, a tough quarter from an operating standpoint. Now, looking at the future, our outlook for Q2 and beyond is constructive. As Jim described earlier, our network has regained velocity and fluidity, and we will exploit that in the weeks and months to come. I will start the review on intermodal. I'm on page 10. In the case of intermodal, we expect a continued growth of that segment in both international and domestic. Our new terminal in Joliet, Illinois, and in Indianapolis, will begin operation this June, sometime late in the quarter.

The way we have redefined transportation time in intermodal, in cooperation with our supply chain partner, the port terminal operator, will continue to reshape the Canadian port landscape with more traffic going to the U.S. Prince Rupert, Halifax, Vancouver, will see the deployment of bigger ships later this quarter. Finally, I expect sustained progress from our carload sales force on selling intermodal services to our end-use customers and compete with truck. Next, the outlook for the bulk market. We expect a decent second quarter for Western Canadian grain, as well as for Canadian Western Canadian coal export, as the operational supply chain issues get progressively sorted out. Our U.S. grain business will be negative. It will be affected by the fact that we have low corn and low soybean stocks on our line.

Our US coal export program will remain positive via the US Gulf, and that should continue to be one of the silver linings on the coal segment. For potash, currently, Q2 volumes are very strong in the potash market for us, both domestically and export. Finally, overall for bulk, the ports, meaning the ports of Rupert, Vancouver, and the ports in Louisiana, are the gift that keeps on giving to CN. CN will continue to generate large volume growth from global trade. Now, my last segment, merchandise. On the merchandise side, from an outlook point of view, we expect solid growth, solid revenue ton mile growth from our crude by rail. CN story in rail, in crude, is a story of revenue ton mile.... We expect new crude loading terminal to open on our line in the coming months.

Rail complements pipeline. In fact, CN and pipeline companies cooperate where it makes sense. The organic growth prospect for rail, for crude by rail at CN are very significant. We also expect solid demand from the buoyant North American energy sector, what I would call the energy consumable, like frac sand, pipe, construction aggregate, and many others, which are solid, profitable, and diverse business for CN. We expect solid demand resulting from U.S. housing starts. It will drive our carload for panel, drive our carload for lumber. It will also support our West Coast container import into the U.S. Midwest. Our lumber and pulp container export to Asia will also be solid, and as we expect—and we also expect the Quesnel panel mill to reopen between now and the end of the year. The same constructive environment applies to U.S. automotive sales, which are steadily improving.

This is good for our finished vehicle carload. It is also positive for our international container import business, namely to the Detroit terminal. In conclusion of all this, the economy is constructive, our customers' goodwill, and our customers' demand remain strong and remain intact. And with Jim's network velocity coming back, the marketing team is focused on making up the lost ground from the recent winter. Luc, you want to take it from here?

Luc Jobin (EVP and CFO)

Yes, thanks, JJ. So I'm turning to page 14 of the presentation. Let me walk you through the key financial highlights of our first quarter's performance. As JJ mentioned, revenues were up $120 million, or 5%, at just over $2.4 billion in the quarter. Needless to say, we were going up against a tough comparison, given the outstanding revenue growth of 13%, which was achieved in the first quarter of 2012. On the positive front, our volume was up 3% in terms of RTM, and as Claude mentioned, this performance weighed in as our second highest volume quarter ever.

Line haul pricing was up on a same-store basis in the 3%-4% range, and our yield was actually up, two percent on a rail freight revenue per revenue ton mile basis. Our operating income was $780 million, down 2% versus last year, as higher expenses in the quarter overshadowed constrained growth. Here again, keep in mind that the operating income was up 23% in the first quarter of last year. The operating ratio was 68.4% in this quarter, which represents an increase of 220 basis points versus last year. Last year, you may recall, benefited from a very mild winter, and so a better winter benchmark would probably be looking at the first quarter of 2011, where our operating ratio was actually 69%.

Other income stood at $42 million in the quarter, compared with $293 million in the first quarter of 2012. This year, we completed the sale of a small portion of one of our Greater Toronto subdivisions for a gain of $40 million, whereas last year we had a similar transaction, but of a larger scale, with a gain of $281 million. Our reported, effective tax rate, or actually, our adjusted effective tax rate, was, in the quarter, 25.1%. We had the benefit of a $16 million adjustment relating to state tax apportionment. However, I would warn you that we are seeing some pressure in terms of the provincial budgets and the corporate income taxes that are still heading higher for the balance of the year.

Our reported net income for the first quarter of 2013 was $555 million, and our reported diluted EPS was $1.30, down 26% versus last year. However, when removing the impact of the gain on disposal of assets in both years, the adjusted diluted EPS stands at $1.22 in 2013, which represents a 3% increase over last year's first quarter. Turning to page 15, let me address the operating expenses. Operating expenses were $1 billion, just under $1.7 billion, up 9% versus last year, or 8% on a constant currency basis, or $126 million. At this point, I'll refer to the changes in constant currency.

Labor and fringe benefit costs were $569 million, an increase of $58 million, or 11% this year versus last year. Now, this was really the result of three principal elements. The first one is an increase in overall wage costs of 5%. This was a product of wage inflation up 3 points and overtime up 2 points. We also had an increase of about 1% in headcount in this quarter versus last year. The headcount dynamics continues to be driven by advance hiring ahead of attrition to allow for training, along with our assessment of future volume growth. The second element was higher pension expense of $21 million, or 4 percentage points in the quarter. This was expected.

The third and final element is a higher stock-based compensation expense in the quarter versus last year, accounting for 3 points of the unfavorable variance. Now, this is the result of an increase in stock price through this quarter versus a decrease in the same period last year. For an unfavorable variance of CAD 35 million, partly offset by the reversal of stock-based compensation awards attributable to former CN executives for approximately CAD 20 million. Looking at purchased services and material expense, stood at CAD 328 million, up 9%. This was mostly a factor of higher volume and cost incurred in dealing with the difficult winter operating conditions. 5 percentage points of the variance, or CAD 14 million of the increase, is due to more repairs and maintenance for cars and locomotives, as well as utility costs and other related costs.

We also had higher expense for contracted services with third-party carriers, in part due to volume increases in the intermodal trucking for about 3 percentage points. The fuel expense stood at $405 million, an increase of 7%. It was due to higher volume, representing 4 percentage points of the increase, while higher prices and lower productivity accounted for most of the balance. Turning to free cash flow on page 16. $20 million of free cash flow was actually used by the business in the quarter this year, versus $48 million generated last year. Now, 321 million of cash was generated from operating activities. This was higher than 2012 by almost $200 million.

This came as a result of lower pension contributions to the tune of about $450 million, partly offset by higher income tax payments, which were $284 million. As well, looking at investing activities, in 2013, $161 million of cash was actually used for investing activities versus $90 million generated in 2012. This is a function of lower proceeds from non-core asset sales done in the comparable period. Capital expenditures were essentially flat to last year at $228 million, while the remaining difference is a factor of higher dividends by $18 million. Our balance sheet remains strong, with debt ratios and leverage within our guidelines. Finally, on page 17, our financial outlook.

We continue to see a gradual, modest improvement in North American- in the North American economy, combined with opportunities in domestic energy-related commodities, as well as other export resource markets. We continue to expect 3%-4% growth in car loads for 2013, and on the pricing front, we maintain our inflation plus policy. So in spite of a challenging first quarter start, we have regained, we have regained momentum and are looking for a strong performance for the balance of the year. Accordingly, we're maintaining our annual guidance, which calls for high single-digit EPS growth in 2013, over 2012's adjusted diluted EPS of $5.61. Our free cash flow guidance also remains in the $800 million-$900 million range.

Our free cash flow guidance, however, now assumes a capital investment program, as Jim pointed out, increased by about $100 million, to the tune of now $2 billion for the full year, as we put more infrastructure in order to increase the resiliency of our network in the busy Western corridor. This also takes into consideration a voluntary pension contribution of $100 million, which we have made in the first quarter, after the first quarter, rather, just, last week, as a matter of fact. So on this note, I'll turn it back over to you, Claude.

Claude Mongeau (CEO)

Okay, well, thank you, Luc and team. And just to wrap up, it's clear that we've had a tough start to the year, but this is a strong team, and what doesn't knock you down makes you stronger. And we are, as we speak, you know, basically focusing on preparing for next winter. As Jim said, winter doesn't go away, and it's difficult for railroads, given our technology, to deal with that adversity without impact on service. But the outlier impact this year is something we don't want to repeat in the future, and so we are preparing ourselves to have stronger service into next year as we speak. We're also determined to take advantage of the strong demand that's in front of us. We do have, you know, a good outlook in intermodal, in energy markets, in bulk markets.

If the economy stays with us, which I have no indication is not the case, we should be able to come in with the full year in line with our guidance and have the back end of the year very strong. With this, we will go over to your question, questions from the audience. Patrick?

Operator (participant)

Thank you. We'll now take questions from the telephone lines. If you are using your speakerphone, please lift the handset before making your selection. If you have a question, please press star one on your telephone keypad. At any time, you may cancel the question with the pound key. Please press star one at this time if you have a question. There will be a pause while participants register for questions. Thank you for your patience. The first question is from Scott Group from Wolfe Trahan. Please go ahead.

Scott Group (Analyst)

Hey, thanks. Good afternoon, everyone.

Claude Mongeau (CEO)

Hi, Scott.

Luc Jobin (EVP and CFO)

Good afternoon, Scott.

Scott Group (Analyst)

Wondering if you could help frame kind of the impact of the weather in the quarter, maybe from an expense standpoint. Then, is there a sense on how much revenue maybe you missed out on in the quarter because of weather, and kinda how we should think about the pent-up demand in 2Q related to that?

Claude Mongeau (CEO)

You know what, Scott? Winter is winter, and I don't think it really serves a purpose to try to parcel out how difficult this winter was and how easy last year was. As Luc told you, last year was extremely mild. This year was much tougher than usual. Whether it's $50 million or $60 million, the important point is we are focused, as we speak, to recover it. We will - We can't deal with the expense that we paid. We can only get productivity and efficiency to help offset it. The revenues, much of it, is still available for us. We did lose-

... some business, tough to measure. The important point is we're focused on finishing the year strong and are staying in line with our guidance for the full year.

Scott Group (Analyst)

Yeah, that's helpful. And is there a sense on, you know, we've seen sometimes in the past in Canada, when you've got a rough winter and then heavy snow, sometimes you get things like a spring melt that can be, you know, hurtful. Are you confident that the network is kind of coming back and we're not seeing other operating issues, or maybe some of the grain elevators are going to the other rail, just from a market share perspective?

Jim Vena (EVP and COO)

It's Jim, and let me just talk about the snow. We do have some heavy snowfall, snow pack in areas. Most of it is away from our main line and our main corridor through the Prairies. But still, we're monitoring it. And if everything goes the way we would expect, that we should, you know, a nice cool spring is helping us. And unless we get an effect with a lot of rain, I don't see anything, and we're monitoring it on a daily basis. But you know, it's a guess like anything else. If everything went bad for us, I guess it'd be bad for everyone. But at the end of the day, we've got a lot of factors that are positive.

Cool spring, it's not on our main corridor, and that, you know, I'm being told by the experts that even the ground is not saturated with water, so we have a better chance for it to dissipate in and not run off against our track.

Jean-Jacques Ruest (EVP and CMO)

Scott, it's JJ. On the grain question, we're moving grain just as well as anybody else right now. We do have good fluidity in our network, and we're going through our backlog nicely.

Jim Vena (EVP and COO)

Yeah. Thank you, Scott.

Scott Group (Analyst)

All right, thanks a lot. I appreciate it, guys.

Operator (participant)

Thank you. The next question is from Turan Quettawala from Scotiabank. Please go ahead.

Turan Quettawala (Analyst)

Yes, good afternoon.

Jean-Jacques Ruest (EVP and CMO)

Hi, Kiran.

Turan Quettawala (Analyst)

I guess my question, maybe I'll just talk a little bit about the coal volumes. Again, JJ, maybe you can give us a sense of how much inventory is piled up here in the mines, maybe, and if there's any ships or something waiting around for you to ship the coal to the terminals. And also added to that, I guess, I think CSX was talking about weakness in the thermal coal side to Europe. I know you mentioned that as a strong point. So your customers, I guess, feeling better. Is that the way to look at it? Thank you.

Jean-Jacques Ruest (EVP and CMO)

Well, thank you, Turan. Starting with the thermal coal. The thermal coal comment was in relation to our business in the US, where all of our export is thermal coal from the US Gulf. And we had a year-over-year growth in that coal business in the US Gulf, and I think we'll be looking at the same thing in the second quarter. Maybe it's just the way the CN network is laid out that to still do that. On the Canadian coal, the West Coast coal, the Canadian mine, I would say broadly, without going into a specific name, they do have inventory at the mine, and therefore, we do have available the pent-up demand for them to get to the port and sell it to Asia, whether it's in some cases, thermal coal or some cases, met coal.

But right now, I think we're moving coal at slightly above the rate, the production rate, and then, week by week, month by month, we're going to go to what they have on hand.

Turan Quettawala (Analyst)

Great. Thank you very much.

Jean-Jacques Ruest (EVP and CMO)

Thank you, Turan Quettawala.

Operator (participant)

Thank you. The next question is from William Greene, from Morgan Stanley. Please go ahead.

William Greene (Analyst)

Yeah. Hi there, good afternoon. You know, JJ, can I ask for your views on some of the comments you made on crude by rail, just the strength and the amount of sort of runway you still see for growth? And of course, all of us look at things like differentials and say, well, maybe the opportunity is diminishing a bit. Can you just talk about how you think about the durability of this demand? Could it go away as fast as it arrived? How do you think about that?

Jean-Jacques Ruest (EVP and CMO)

Yeah. Thank you, Bill. We actually had a discussion just before the call, and looking at the differential, just the differential itself, as a bellwether or a signal is maybe too simplistic. There's a number of things—there's a number of crude producers that don't necessarily get access to this price, either because they're geographically challenged or their product is not quite the product that, you know, is a product easy to process and refine. Also, from the point of view of the refiners, the refiners today are still extremely bullish on leasing cars, buying cars, doing backstop capital investments for those who are willing to build a terminal for the product to move.

And they're still very much of the view that, you know, getting product by rail allows them to get a price that they can't get from a pipe. So we're still very positive on, well, not still, we are very positive on crude by rail. A number of people around us are also very positive. The refiners are investing into fleet. You see pipeline companies getting interested in doing multimodal with the railroad and themselves investing in some terminal to load. A number of people in the US Gulf on our CN line are investing into receiving facilities. More and more players are looking at going the way of unit train. So this is just still picking up momentum from one quarter to another, and the capital investment by all these different players is very, very encouraging.

William Greene (Analyst)

So you have the confidence, yeah. And, and when I look at this crude by rail or any of these mix effects, I think your same-store sales pricing came down. So is that, is that sort of a mix comment when that came down, or are we seeing something in the pricing that, that's causing it to be weaker on a sequential basis? Thank you.

Jean-Jacques Ruest (EVP and CMO)

Well, overall, the same-store pricing was above 3.5, you know, around 3.6, basically. The way we publish our same-store pricing is all in, you know, including coal, including everything, including all commodities. The run rate from late last year is slightly lower. You know, I would say it's a combination of mix, some market are tougher than others. We're quite happy with the range the way it is right now. It's still very much above inflation rate, especially when you take into account that we already deal with fuel inflation with the fuel surcharge.

I'm not a big user of RCAF-U or, you know, anything that deals with that brings the fuel into my same-store pricing. So, you know, I think at 3.5 and dealing with a fuel surcharge that already addressed fuel is a good model.

William Greene (Analyst)

Thank you very much.

Claude Mongeau (CEO)

Thank you, Bill.

Operator (participant)

Thank you. The next question is from Walter Spracklin, from RBC Capital Markets. Please go ahead.

Walter Spracklin (Analyst)

Thanks very much. First, I want to just say, congratulations, Jim, and welcome to the call, and, congrats on the new role.

Claude Mongeau (CEO)

Thank you.

Walter Spracklin (Analyst)

Starting, I guess, my question is on your forestry business in particular, but general, in general, your customer reaction. Obviously, you've had a lot of volume on your network. That's a good thing, obviously, but with the winter problems, it probably affected your service level. And I'm just curious as to where exactly you're seeing bottlenecks, which customers are complaining, I guess, the most? And certainly, we read in the media here that forestry products customers are complaining quite a bit. I'm just curious, Claude or JJ, how you'd,

Claude Mongeau (CEO)

Yeah.

How is that something weather related only, or is it a little bit more than that?

Yeah, there's no question, as I said earlier, that our service was not where we want it to be. But, you know, frankly, I'm not sure I would take what the associations are saying as necessarily a good barometer of our true service level. We did miss on a number of orders because of the cycle times and the difficulty to bring our fleet back into a position to load effectively. This has impacted not just forest products, but basically all of our merchandise customers, especially from, you know, the middle early February to late March. Unfortunately, the picture that I had on my first slide, Walter, that train, which is dug in, about 12 feet of snow, was on March twenty-second. So we did have a lot of adversity.

It did impact service, but we did move more business across all of our segments and are committed to restore the service level that our customers expect and to finish the year strong, you know, dealing with their backlogs and meeting all of their demands for months to come.

Walter Spracklin (Analyst)

The bottleneck outside of forestry, is there any other ones that concern you at all?

Claude Mongeau (CEO)

We did have issues also in bulk. You know, some of it because of CN, some of it because of the difficulties in the supply chain with our terminal partners. So, you know, coal, for instance, to Western Canada, did not move the, you know, as strong as we would have liked. But we are, as we speak, you know, recovering ground there. You know, bulk potash would be a similar story. We did have a, you know, a couple of weeks there, in particular, late February, early March, where we were getting behind. But as we speak, we have a very strong export program. We're moving four sets for Canpotex, are doing our level best to get them to have, hopefully, a record export quarter. We're getting caught up on our domestic potash.

So it's not by commodity. The issue that we face is what Jim explained. We had extreme adversity to deal with and an issue of resiliency in our corridor between Edmonton and Winnipeg. We are dealing with the issue of resiliency by adding infrastructure, and we're gonna be dealing with adversity by being even more prepared into next year for our locomotives to be running and all of our initiatives to be kicking, so that we reduce the risk of an outlier impact. But you know, it is what it is, and I'm not sure I would take the press as a good barometer of our true service level.

Walter Spracklin (Analyst)

Okay. Makes sense. Thank you very much.

Claude Mongeau (CEO)

Thank you, Walter.

Operator (participant)

Thank you. The next question is from Ken Hoexter from Bank of America Merrill Lynch. Please go ahead.

Ken Scott Hoexter (Analyst)

Great. Good afternoon. Claude, maybe just to review here a bit on the staging and prepping, or maybe it's even for Jim. But, you know, in the past, you've always talked about how you've prepped for, you know, things that have gone, whether it's been storms or other factors that you have to deal with in dealing with outside weather. Did something change here, or was this, as you mentioned, just a factor of so many different events, one after the other? Just, you know, I guess we're starting to see that rebound now. And in that same kind of thought process, maybe talk about the speed with which you snap back.

Claude Mongeau (CEO)

Ken, bottom line is, it was just the length and breadth. If it was one or two events like we would normally see, then you know, you bounce back real quick. But I've been working on this railroad in a number of different jobs across, and you know, every so often it happens that you can have the best laid plans, and it doesn't matter what you have in place, when it starts to hit you and you start recovering, and it hits you again, I don't care what it is, you can't put enough capital into the system to be able to get you to the point where you can alleviate everything. So you know, and also it wouldn't make sense for us to do that.

But at the end of the day, what we've done is, we've got a plan moving forward in an area where we've seen substantial growth over the last, 2 years, 2 to 3 years. In fact, close to, you know, 17%-18% in, the number of cars that are running through there, that we need to do something to give us that flexibility. Now, we recovered real quick. Second part of the question was, how fast can we recover? Once we got, a week without anything happening, we recovered, but it took a while. We've, you know, we've dropped our total cars down by, 6,000, so that's excellent.

Our car velocity, which is the number that I, I've used, because it's an all-in, you know, you don't fool around with train speed or dwell, those are sort of subsets, we're better than we were last year on the time. So with business up-

... I'll let somebody else tell you how much. But business up substantially so far in April, and, so I'm very happy with the system. We just need to fix, and that's why we're gonna spend that $100 million to make sure we fix and give ourselves some resiliency if we have a winter that's normal, even be able to bounce back quicker.

Ken Scott Hoexter (Analyst)

Appreciate that insight. If I could get my follow-up on, I think you mentioned, or, or maybe JJ mentioned something about larger ships and, and prepping at the ports. So obviously, as you prepare for the Panama Canal expansion, what does that do for trains in terms of whether you're handling more on a, on a per train basis, increasing the, the train lengths? Does that mean more investment for sidings, or is this kind of a temporary fix before some of the vessels start to move through the, the canal? Can you kinda just maybe round out some thoughts on that?

Jean-Jacques Ruest (EVP and CMO)

Okay, well, Ken, the canal, I think, would only open in 2015, so what's happening is the bigger ships are starting to come in service this year, and they've been cascaded around the issue of the canal is not yet to be open. So there will be, for example, bigger ships in Rupert from COSCO. They will increase the size of their ships on one of their rotations, the CN. You'll see the same thing in Rupert, in Halifax, the G6 coming in Halifax sometime in late June. And in Vancouver, also, some of the ships are being upscaled. So what that means is you have a bigger discharge, potentially bigger discharge.

I think, Jim, we're already run these trains as long as we can be, so if you have bigger discharge, eventually you run bigger, you run more trains because the train length already today is probably maximized to the best horsepower ratio. And what that means really is if you have bigger ships, you have to have places for them to go and get market, but you can only put so many containers in Montreal and Toronto. So one of the success here is why some of the lines are attracted by CN, is that if you're gonna bring in bigger ship, you gotta, you better have a bigger discharge because you don't want to add the number of port of call.

Therefore, you need to access a bigger hinterland, hence our effort to make Detroit a real place to go for CN from both east or west, and that's why we're opening Joliet and Indianapolis. We're trying to attract these bigger ships to us by giving them a bigger catchment area. Now, come 2015, when the canal open, we'll see what happens. All kind of speculation is what will be the fee, the toll in that canal, and whether or not the toll is gonna be make the canal extremely attractive. Don't know. You know what? That might help our coal business from coming out of Colombia going to Asia, because now you'll be able to put some bigger coal vessel, grain vessel from the U.S.

Gulf, going back through the canal, and that's not to be dismissed also as one of the impact of, the expansion.

Claude Mongeau (CEO)

Okay, thank you, Ken. I don't know, I don't know about that follow-up question, but, you know, it was a good one. Next?

Operator (participant)

Thank you. The next question is from Cherilyn, Cherilyn Radbourne from TD Securities. Please go ahead.

Cherilyn Radbourne (Analyst)

Thanks very much, and good afternoon.

Jean-Jacques Ruest (EVP and CMO)

Good afternoon.

Cherilyn Radbourne (Analyst)

In terms of the volumes that you moved this quarter, they were a new first quarter record, and as you alluded to in your comments, you know, not far from an all-time record, for the property. So I'd just be curious of your assessment of how much of the issues you encountered in the quarter were a function of winter weather, versus, you know, setting new volume records and perhaps bumping up against capacity constraints in a few key areas.

Claude Mongeau (CEO)

You know, good question. I'll let Jim add to this, but for sure, you have to stay ahead of the curve when you're growing. But we're not growing beyond what we were expecting. And, and it really is an issue of, you know, effectively, it's a little bit like a downward spiral when cold weather forces you to have more trains. When you have more trains and you're hitting problems, you get to a point where you need more locomotives, and you get if you don't have enough resiliency capability in the network and the impact that you face is larger than usual, you can get into a situation where you just don't have enough time to recover in between weather disruptions. And that's what happened to us during 2013. We had, you know, punches.

We would start to recover but didn't have time to recover enough, get punched again, get punched again, and it stayed like this until this big blizzard all the way to the first official day of spring. So it's much more the difficulty that we face and the resiliency on that corridor than growth. But of course, you know, growth is what you have to move, and it plays at the margin, but it's not the reason why we faced issues in 2013.

Jim Vena (EVP and COO)

No, Paul, the only thing I can add is this: I think overall, we have a real thorough plan of where our pinch points are, depending on where the growth is specifically. So in this quarter, it just makes sense for us to add some capacity just because of the traffic flow that we see moving forward in there, plus to give us some resiliency. And, you know, we spent money on the BC North for the coal and the intermodal running through there, and we've spent money on over the lakes to get to Toronto. And of course, we spent money on the EJ&E and tie-in in Chicago to help with capacity and resiliency.

There isn't, Cherilyn, any specific area, but this one here, we needed to deal with, with what we just encountered and the growth that we see.

Cherilyn Radbourne (Analyst)

Okay, thank you. That's my one.

Jean-Jacques Ruest (EVP and CMO)

Thank you, Cherilyn.

Operator (participant)

Thank you. The next question is from Jason Seidl, from Cowen Securities. Please go ahead.

Jean-Jacques Ruest (EVP and CMO)

Jason, the floor is yours.

Operator (participant)

Your line's open. Please go ahead.

Jean-Jacques Ruest (EVP and CMO)

Maybe next question, and Jason can come back, Patrick?

Operator (participant)

The next question is from Jacob Bout from CIBC. Please go ahead.

Jacob Bout (Analyst)

Hi, good afternoon. Just a question on your expectations of growth in intermodal volumes over the next couple of years. Maybe talk a little bit about, if you can put it in the buckets of, you know, either new product, supply side, collaboration, or how much of this would actually be from taking market share?

Claude Mongeau (CEO)

Well, the supply chain, the supply side is something we're trying to create a product which is unique, not only just to serve Canadian cities, but also, US market, import and export, by the way. We've often talked about import, but also export. Then you have the new destination, which we said earlier, is there to attract bigger ships. Not to dismiss the, the domestic market, where we've actually bring in new product. For example, we're really working hard to give, what we call industrial customers a reason to use a container as opposed to only a boxcar or a gondola. We got some new product coming up this summer to move steel inside of a 53-foot, container box. So some cases we'll take it from, you know, Canadian truck, some cases we'll take it from the cross-border truck.

some cases we'll take it from one of our, you know, US railroad competitors. Some cases it might be flowing from us, from our Canadian competitors. I think it will come from all of these different areas and organic and, you know, we're aiming a lot of different things at the same time.

Jacob Bout (Analyst)

And what are you targeting for overall growth?

Claude Mongeau (CEO)

Definitely better than a CN average. So if you take the CN average, you would think intermodal, because it's a product which is more nimble, and it's, it does a job for more as opposed to less. Intermodal should be able to outperform the CN average, and the CN average, I think we have guidance that covers that well.

Jacob Bout (Analyst)

Thank you very much.

Operator (participant)

Thank you, Jacob. Thank you. The next question is from Tom Wadewitz from JP Morgan. Please go ahead.

Tom Richard Wadewitz (Analyst)

Yeah, good afternoon.

Jean-Jacques Ruest (EVP and CMO)

Good afternoon.

Tom Richard Wadewitz (Analyst)

Wanted to ask you a little bit more on the intermodal, if you could talk about the specific terminals that you're adding and review. I think you mentioned a little on the timing. I didn't, I didn't catch all of that. And I, I don't know if you've talked about the capacity in terms of lifts and percent of total capacity, but if you could perhaps run through that from a capacity perspective and also maybe give us a sense of, you know, do you harvest that in a year, or does it take, you know, three or four years to fill that? So a couple on intermodal. Thank you.

Luc Jobin (EVP and CFO)

Okay. So one of the terminals, the one that's maybe the most talked about is Joliet, Illinois. It's on our rail line. It's an old merchandise yard that we're converting partially to an intermodal ramp. The terminal will be open in June. In June, we'll start the import service, the export service, and we will also start the grain stuffing facility on site for those who want a higher payload per container. And we've have a number of pre-selling. Before we made the announcement, we had a deal, some deal with some shipping line about how many containers they will bring into this site. Now, how long will it take for us to load up the terminal? Time will tell, right?

So the terminal is not even open yet, so I think it will- we'll let it open and see what are these pre-commitment actually come in, all in, you know, as said or even bigger. The other one is Indianapolis. Same thing. This one will open in June for both import, export and grain stuffing facility on site. Same thing there. We have done some pre-selling before the opening of the terminal. And in both cases, the starting of a size that, without getting into specific, is very reasonable. It's not a very risky capital investment for us, and then from there, we can add in based on customers' reaction and, you know, the profitability of these sites.

Claude Mongeau (CEO)

And Tom, we try to keep our network of intermodal terminals kind of in balance. You know, some have more capacity than others, obviously. The obvious example would be Calgary. We just opened it officially last week. This is a brand-new facility. It has loads of growth in terms of you know, the available capacity. You know, terminals like Toronto and Detroit. Detroit has been a fabulous growth story, so we're obviously have to be nimble and watch capacity and stay ahead of the curve. Same thing in Toronto. It's our hub terminal. We have to make sure we stay nimble and ahead of the curve. So we try to always stay in line and have the ability to serve our customers as the growth materialize.

Tom Richard Wadewitz (Analyst)

Is that having been said, is there any way to frame it? It just seems like it's quite a bit more capacity addition than would be normal. I mean, is it like 5% add to your total lifts, or is there a way you can kind of frame the capacity?

Jim Vena (EVP and COO)

Well, I guess we have capacity more than just for 2013, whether it's, Calgary, as Claude mentioned, or Detroit, Montreal, the two terminal opening up, and we still have room in the case of, you know, the other terminal. We have a capacity more than just for 2,000, 2013, so we, we do have some runway ahead of us to be able to exploit that.

Tom Richard Wadewitz (Analyst)

Okay. Thank you.

Claude Mongeau (CEO)

Thank you, Tom.

Jean-Jacques Ruest (EVP and CMO)

Thank you.

Operator (participant)

Thank you. The next question is from Jason Seidel, from Cowen Securities. Please go ahead.

Jason Seidl (Analyst)

Hey, guys. I guess this is take two. Sorry about the phone issues. I want to touch back on crude rail a little bit. You said there was gonna be a new terminal opening up on your lines. Can you talk a little bit about the size? And also, if you will, should we expect sequentially that, you know, petroleum revenue per carload to tick up as that becomes a greater percentage of the whole?

Jean-Jacques Ruest (EVP and CMO)

The terminal, there will be terminal opening both in the Central Gulf, US Gulf in our line, as well as in Western Canada. These terminals, some are brand new, meaning they don't have any shipment today. There's a tendency for investors to look at ways to either put a rail loop, or you could do unit train, or take an existing one that is doing carload service and see if they can extend a footprint to unit train operations. So these are two tendencies. One is more site closer to the oil well. The other two is sites that eventually are unit train capable or will be transformed into unit train capable. And obviously, when you get to destination, you need to be able to receive that.

So those are buying the crude more and more, are looking at expanding their footprint on the receiving side, either at the refinery itself or their terminal, which is close by, where they barge in or truck in. So there, there's a significant infrastructure, more and more unloading, offloading, to make this a, larger scale, more unit train operation over time. Something where the cars really turn fast, load fast, move fast, get there, come back, next load.

Claude Mongeau (CEO)

I would say, Jason, it's quite exciting, and it goes to the durability question that was asked earlier. We went from initially, you know, smaller terminal by smaller player being built to origin, the crude traffic. You know, as of late, what we are, the discussions and the dialogue and the agreements that we are reaching are with larger scale refiners that are looking at building capabilities to unload at their refineries, but also are getting involved in partnership for themselves, in creating the loading as a facility at the origin point. And, you know, they're investing in very large number of cars and investing in loading and unloading facilities. And I would think that they're investing in all of this infrastructure to move crude by rail for many years to come.

Jean-Jacques Ruest (EVP and CMO)

Investing in coiled and insulated tank cars, meaning that, there's a lot of people out there who view the long-term viability of rail to move heavy crude, the one which is, you know, where you can buy the crude before it gets diluted, therefore, you need a coiled and insulated cars to be able to move it.

Matt Troy (Analyst)

Okay, gentlemen, thank you very much for the time, as always.

Claude Mongeau (CEO)

Thank you, Jason. We also had our take two issue earlier. Someone, you know, from our office in Montreal, apparently, was on Edmonton time when he issued our results.

Jason Seidl (Analyst)

Yeah, I noticed that.

Claude Mongeau (CEO)

We did, too. Next, please.

Operator (participant)

Thank you. The next question is from Steve Hansen, from Raymond James. Please go ahead.

Steve Hansen (Analyst)

Oh, yes, good afternoon. With respect to the Canadian crude by rail phenomenon, particularly as it relates to heavy oil, you've obviously been very successful at signing up many of Western Canada's small to mid-sized heavy oil developers over the past year or so, and that speaks to your originating capability in Alberta, I suppose. What I'm curious to know, though, is whether or not you've had any positive indication from Canada's larger bellwether heavy oil producers, and whether or not they might be willing to embrace crude by rail here as discussions around Keystone continue to extend out.

Claude Mongeau (CEO)

I'll let JJ answer, but as I just said a minute ago, that's the phase that we're entering. We have a number of larger scale refineries or integrated producers with which we are having dialogue as we speak. But JJ, within the confines of our agreements, what else can you say?

Jean-Jacques Ruest (EVP and CMO)

Some of these, hopefully major terminals are being built in Alberta to load unit train, actually being backed by the bigger producer. The producer have enough volume and tonnage to backfill into, you know, into a viable investment. And these same producers, some of them are integrated, also going out and buying and leasing fleet. So you, you're gonna get to see some of the, the bigger players now backing some of these capital investments with some of their product, either as seller or as, as buyer.

Claude Mongeau (CEO)

The part that's interesting is it's not just rail, it's rail and barges to get to the destination refineries and use the ship unloading capacity. It's pipeline, then rail. We are seeing a range of new avenues being created and new players getting involved, and all of which point, in terms of the prospects for the future, to something that clearly shows that rail and pipeline are complementary, and that we are helping moving energy to market in an efficient way, and I believe for many years to come.

Jean-Jacques Ruest (EVP and CMO)

Yes, Steve, think of rail, crude by rail as really becoming a net model solution. Many of these terminals are going to be fed by a pipeline and then rail. So it's a combination of more than one mode from origin to destination.

Steve Hansen (Analyst)

That's very helpful. Thank you.

Operator (participant)

Thank you. The next question is from Matt Troy, from Susquehanna. Please go ahead.

Matt Troy (Analyst)

Yeah, thank you. Jim, I just wanted to ask you a question. You've obviously been at it for three and a half decades now, and you picked one heck of a quarter to assume the helm. But if I were to look beyond the current weather-related issues, you know this railroad well. If you look out on a 3, 5, 7-year basis, what are the opportunities for you to bring and add value, given your skill set and experience in the railroad? You're obviously, you know, coming a long line of very good COOs.

I'm just curious, as you look at the network and its needs and its opportunities, maybe if you could just give us a, you know, top three list or a focus list that you see as what you'll be doing and to leave your mark over what's called the next half decade?

Jean-Jacques Ruest (EVP and CMO)

Well, great question. First of all, what the heck? You know, you might as well—you could have, I could have showed up in July, and we would have been having a different discussion on how the second quarter was so nice, and thank you very much. But yeah, at the end of the day, you got to get back to the basics and what you have to start, and I've been out to some of the terminals to fit, to look at ways that we can move the boxcars, move all the cars with less cost. And looking at the locomotives to make sure we got full utilization. So you develop the skills over a number of years and ... I guess you're right, it is 35 years. It is a long time.

But at the end, but at the end of the day, I think there's value in looking at it. It's a, it's a simple model, really. It's not that complicated. You know, we went to Prince George, myself and Mike Cory, and walked in there and figured out a way with a yard that had 13 assignments and taken two out of, out of there and be able to handle the same number of cars. And I wanna do that and spend as much time on the ground as possible that with a few of the other things I have to do. So I'm looking forward to it. As is, I've been doing this for a long time, and if any of you followed where I've been, it's we got to improve it and drive the most you can to have, though, a balance.

You can't just drive the operating metrics to the point where we limit our service to the customers that we commit, 'cause in the long run, we hurt ourselves. So I'm looking forward to developing a good, clean operation that allows us to handle the business that's there in a smart manner.

Matt Troy (Analyst)

Okay, thank you.

Claude Mongeau (CEO)

If I could add, I've been watching Jim over the last couple of weeks in, you know, fairly tough conditions, and I like his no-nonsense approach, and he's rallying the team, and he's already having a huge impact, not just on fixing today, but on laying for the future. And there's quite a good buzz also with the rest of the team. We've had quite a bit of other promotions as part of this, you know, transition to the leadership team and operations. And there's a lot of people that are a bit tired about the winter, but excited about the future and geared up to deliver a strong back end to the year.

Matt Troy (Analyst)

Great. Thanks, guys.

Operator (participant)

Thank you. The next question is from Benoit Poirier, from Desjardins Capital Markets. Please go ahead.

Benoit Poirier (Analyst)

Yep, thank you very much. My question is on crude by rail. Looking at the percentage derived from light oil—I think it's about 60%, but as the trend moves toward heavy oil, just wanna know, what is the kind of your expectation in terms of percentage of heavy oil in the next few years, and how your network compares to CP when it gets to the heavy oil business?

Claude Mongeau (CEO)

Well, we think we are very well positioned for the heavy oil market because that comes from, you know, Canada and the north of, of Alberta in particular. The, you know, there are places like the Peace River area, Grande Prairie, where, you know, we clearly are the, the one railroad to, to support the, the development of, of that, particular, crude plays. Similarly, with the CN and our previous strong presence in Edmonton, all the way down, in, in Saskatchewan to the Manitoba border, we, we have a, a beautiful origination franchise. But I think if anything differentiates us, it's our, the combination of that origination franchise with our destination, reach. We, we go all the way to, Saint John, New Brunswick.

We serve every refinery in the east, you know, starting from Quebec City, Montreal, you know, in and around Toronto, Chicago, down all the way to the Gulf, stopping in Memphis. So we, we are able to go places. And if people are looking to get the best out of the fleet they're buying and to also be able to manage the, their supply chain of crude to to feed in the the crude in the right sequence for their refineries, we think we have a, you know, a very great offering. And, and I think as the market evolves, we will be a, we will be a, you know, a strong player in that segment.

Benoit Poirier (Analyst)

Okay, that's my one. Thank you.

Claude Mongeau (CEO)

Thank you.

Operator (participant)

Thank you. The next question is from Brandon Oglenski from Barclays Capital. Please go ahead.

Brandon Oglenski (Analyst)

Hey, good afternoon, everyone. JJ, I just wanted to come back to your comments about some potential panel mill openings on your network and what that could mean for the lumber business looking forward, and how you balance that against a pretty challenging paper market. And just along with that, we're also hearing from the media this morning about constraints for rail cars and capacity for the lumber shippers. So can you just talk through what this opportunity presents for CN?

Jean-Jacques Ruest (EVP and CMO)

Okay. Well, panel prices are up. They were up last year. That's why some of these mills, which have been mothballed in the last housing stock recession, are now have the guts and the money to reopen, and there will be panel mill reopen. There's been a number of them announced. Some others are not announced. Most panels typically ship in boxcar. However, we do see some customers are looking at using a center beam, because even though it's not the usual way of doing it, they can get a bigger payload of shipping on a center beam. That means a little more capital on their side, on the way they wrap the bundle. So the panel resurgence is positive. It will require some equipment, some cases boxcar, some cases center beam.

The discussion today about, you know, the newspaper, about lumber, yeah, we had a tough winter, no question, especially out west, where a lot of the lumber mill are located. We, the demand is also strong, stronger than what, you know, I think even the lumber producer were forecasting themselves last fall. You know, it's a great thing. You know, price of lumber is up. Stock price of lumber company is up. And, you know, we've deployed, but as Jim said, deploying more fleet when the network velocity is there, is not, is not even moving more lumber. So now that we have network velocity, we'll work on that. And, you know, already our lumber revenue are pretty good in April, and we'll just, keep it to one week at a time.

Claude Mongeau (CEO)

And we've been flirting around this April number, and our April to date numbers are up 10%, and lumber is up, you know, something like 30% on a year-over-year basis. So we're dealing with the business in front of us, and as we are regaining fluidity, we will be serving our customers to help them reach their, their markets. That's what, you know, helps them win in their marketplace, and that's what helps us create value for our shareholders.

Brandon Oglenski (Analyst)

... All right, thank you.

Claude Mongeau (CEO)

Thank you.

Operator (participant)

Thank you. The next question is from Chris Ceraso from Credit Suisse. Please go ahead.

Chris Ceraso (Analyst)

Thanks. Good afternoon. Just a question about the addition of capacity to your network, which you mentioned will help you better prepare for dealing with tough winters in the future. Do you think that on a through-the-cycle basis, that will end up pumping up or pushing up slightly your normal operating ratio if you're carrying a little bit extra capacity for those outlier circumstances?

Claude Mongeau (CEO)

No, I'll let Luc add to this, but you know, clearly we're doing this for service improvement and for efficiency improvement both. So that should help us drive more productivity going forward and more resiliency. I mean, you just have to look at our first quarter results. You don't wanna be caught without enough network to recover, because once you get into that downward spiral, I mean, the cost impacts are fairly significant. So this is not about adding cost. This is about adding capacity, adding resiliency, and adding throughput so that we can create more value for our shareholders and help our customers win in the marketplace. Luc, anything else on that side?

Luc Jobin (EVP and CFO)

No, I think, you know, again, you don't... You lose a little bit of business when you don't have the capacity, and the resiliency is another issue because then, you know, your customers start to wonder what actually can you do? So as far as we're concerned, we're seeing the growth, we're seeing the opportunity, and we're investing, and I have no question in my mind that, you know, this is a worthwhile investment, and in fact, will maintain, if not improve, the operating ratio. So, I mean, I think it's a good thing.

Chris Ceraso (Analyst)

Is it a function of that you perform a little bit better during the stress periods, so that even if you're carrying a little bit extra cost during the non-stress periods, on average, you end up a little better?

Luc Jobin (EVP and CFO)

Well, we'll also gain velocity and then during the, you know, the non-winter periods, so we'll gain efficiency as a result. So I think it pays, it pays throughout the year. Yeah.

Claude Mongeau (CEO)

A good example of that is just when you have a busy corridor. It's not just busy in the winter. It's also busy in the summer when you have to have work gangs do their scheduled maintenance. So, you know, adding a little bit more resiliency, the detour route through the Prairie North Line, for instance, that's gonna help us deploy our engineering gangs more effectively and have less impact during the summer months when we are, you know, trying to maintain the railroad. So it's this is an all-weather investment. We're basically just advancing investments we would have had to do a year or two from now to make sure that we, you know, mitigate the risk of having another unusual, you know, winter next season. That's right.

It will be useful for the coming fall peak.

Chris Ceraso (Analyst)

Okay. Thank you.

Operator (participant)

Thank you. The next question is from Chris Wetherbee from Citi. Please go ahead.

Chris Wetherbee (Analyst)

Thanks. Good afternoon. Maybe a question on crude by rail. Just thinking about the, you know, kind of targets for this year. I think you've talked about doubling, I guess, the carloads moved. Run rates around 60,000 carloads as we stand right now. I guess, how should we think about maybe potential growth opportunities that might come incrementally over the rest of this year? And then maybe on the back of that, how do we think about the mix of unit trains versus non-unit trains right now? And maybe how does that mix shift as we go through the rest of the year, as you guys have gained some scale on that business?

Jim Vena (EVP and COO)

Well, most of our business is still carload business as opposed to unit train business. I would think by the time we get to the fourth quarter, probably most of our business will still be merchandise business and not yet all the, you know, not yet more than half of it unit train business might still be picking up at that point. In terms of the, you know, the guidance that we've talked about, we're still to come up with these numbers. We'll probably do a little better than that, and I would like encourage people to look at revenue ton mile. When you look at CN for crude, revenue ton mile is what gives you the best indicator of what, how well we're, we're gonna be doing, as opposed to carloads or barrels.

Chris Wetherbee (Analyst)

Okay. That's helpful. Thank you.

Claude Mongeau (CEO)

Thank you. Okay, I think we have one last question, maybe. No? Okay. So, thank you for being on this call. We're, we're sorry if the results, you know, were issued a couple of hours early, and I kept you on your feet. Certainly, you know, got, you know, Janet and her team noticing the... I think it's an issue of time zone error. And we will, we will be working hard here in the next few months to develop the rhythm that we need to show you that not only are we improving service, but we have resiliency, and we are able to, you know, create solid returns for our shareholders. So look forward to the call at the end of the Q2. Thank you.

Luc Jobin (EVP and CFO)

Thank you.

Operator (participant)

Thank you. The conference has now ended. Please disconnect your lines. At this-