Canadian National Railway Company - Q1 2019
April 29, 2019
Transcript
Operator (participant)
Welcome to the CN Q1 2019 financial results conference call. I will now turn the meeting over to Paul Butcher, Vice President, Investor Relations. Ladies, ladies and gentlemen, Mr. Butcher.
Paul Butcher (VP, Investor Relations)
Thank you, Olivier. Good afternoon, everyone, and thank you for joining us for CN's Q1 2019 earnings call. I would like to remind you about the comments already made regarding forward-looking statements. With me today is JJ Ruest, our President and Chief Executive Officer; Mike Cory, our Executive Vice President and Chief Operating Officer; and Ghislain Houle, our Executive Vice President and Chief Financial Officer. Also joining us on the call today for the Q&A session is Keith Reardon, our Senior Vice President, Consumer Products Supply Chain, and James Cairns, who was just recently appointed Senior Vice President, Rail Centric Supply Chain. Once again, I do want to remind you to please limit yourself to one question so that everyone has the opportunity to participate in the Q&A session. The IR team will be available after the call for any follow-up questions.
It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, JJ Ruest.
Jean-Jacques Ruest (President and CEO)
Well, thank you, Paul, and good afternoon, everyone, and welcome to our earnings conference call. After a very, very cold, bitter winter, we delivered good results and have a positive outlook to report. In the Q1, we produced adjusted EPS growth of 17%, revenue growth of $350 million, and the adjusted operating ratio was 67.2. Our volume and costs was impacted by extreme and prolonged cold weather, down to -35, -40 degrees Celsius, which impacted train costs and restricted revenue ton mile volume growth to 3%. Our CapEx and winter operating plan, which include our air cars, produced good result at temperature as low as -25 degrees Celsius, which we call the Tier 1 train restriction.
But when temperature dropped to Tier 3 and Tier 4, which is at -35 degrees Celsius, -40 degrees Fahrenheit, for about 7 weeks, we were losing significant train capacity, and in some instances, we could not operate during part of the Tier 4 nights. In order to protect customer service and to manage regulatory risk as we know them, we had decided to operate this winter with some additional resources in terms of locomotives, rail cars, and train crews. Given the extreme winter conditions that we experienced, that was the right decision. As we do after every winter, we are now taking the opportunity to rightsize our asset base, including the return of leased locomotives and putting rail cars into storage. In addition, we are also taking into account the current softness of crude by rail following government-imposed crude production cutbacks.
Now, a quick review of the top line for the Q1. We had our best ever Q1 at over $3.5 billion of revenue, or $250 million of top-line growth. During Q1, CN's carload were up 1.5, 1.5%, the best Class I performer. Intermodal revenue was up 4%. Automotive revenue was up 7%. Coal revenue grew by 15%. Canadian grain revenue was up 8%. CN Canadian grain export tonnage is now up 1.9 million metric ton, ahead of the last year's, last year to date crop. Our CN railroaders are really getting the job done for the grain industry. US grain revenue was also up 14% in the quarter.
On crude, we move on average 250,000 barrels per day back in December, but demand took a nosedive in February to less than 100,000 barrels per day after a reduction in production was imposed by the province of Alberta. CN has the capacity to move more crude. It is a national priority to get our natural resource to market so as to protect the country's economy GDP and create jobs. Our CN railroaders are ensuring that we have the infrastructure to move any and all natural resource to world market. Looking to the balance of the year, we have a diverse pipeline of growth opportunities, opportunities ahead of us. For example, short term during Q2, the startup of the Coalspur Vista project, a coal mine, a coal export mine in Alberta, is to start up soon.
We also have the startup of the AltaGas propane export terminal in Rupert, and the introduction of the new container service by ZIM Line in Rupert. We also have immediate capacity to move more crude. In April, we are running at 145,000 barrels per day, but we do have the capacity to quickly ramp up to 300,000 barrels per day. Midterm, we have some other coal business, Alberta chemical business, and automotive business coming our way. At the upcoming June Investor Day, we will give you an update on our growth opportunities for the next three years. In the meantime, we are reaffirming our guidance for the year. With that, I will turn it over to my team for them to give you an update on the winter operation and the financial detail. Over to you, Mike.
Mike Cory (EVP and COO)
Thank you. Thank you very much, JJ. And first, as always, and especially after the challenging weather conditions they tackled day in and day out, I wanna sincerely thank all the railroaders of CN for their efforts. Now, look, from my perspective, the operating challenges that they faced were nothing short of some of the toughest that I've seen over my career, but their overall efforts allowed us to fight through and continue to provide service to our supply chains. So with the tough weather conditions, GTMs were up 3% versus volumes in Q1 2018. And looking specifically at Q1 operating highlights, our network train speed was down 8% versus Q4, but essentially flat versus Q1 of 2018.
Car velocity was down 15% versus Q4, but up 8% versus Q1 2018, and our through dwell was up 15% versus Q4, but down 12% versus Q1 2018. The extreme weather started to really affect our operation, initially in our Winnipeg to Toronto corridor. When I say inclement, I'm referring to consecutive nights at -40 to -50 degrees Celsius, which, as you know, at 40 degrees below zero Celsius, it's the same as Fahrenheit. This type of weather then started to take hold in our Winnipeg to Wisconsin corridor, and by the last week of January, our Western Canadian franchise began to feel the same effects right through the beginning of March.
Under Tier 1 restrictions, at around 25 degrees Celsius or minus 13 degrees Fahrenheit, our operating performance was much like in Q4, as evidenced by our velocity, train speed, and productivity. Under those harsh conditions, the capacity improvements we made in our network and in our equipment, such as increasing our fleet of AC locomotives and air cars, really paid off. When temperatures dropped below minus 30 to minus 35, and even colder, minus 40, we deployed more air cars and DP locomotives per train. However, we could not keep up with the demand as the freezing temperatures did not subside and the customer demand remained strong. As well, when temperatures dropped to minus 40 and colder, we ceased operations some nights until the temperatures warmed in the morning, something closer to minus 25 to minus 30.
So to give you an example of the effect of the most severe weather, at minus 25, we effectively ran our trains at our normal run rate with one air car and/or DP configuration, with the air sources between 4,000-5,000 feet apart. At minus 35 and colder, our train length was almost cut in half. This results in the need for an additional air source in order to maintain train length, as the between length was reduced down to as low as 1,500-2,000 feet. Even with this inclement weather, our overall service to our customers was less impactful than the year before. While port dwells did increase at times, overall, we were able to work with our partners to ensure fluidity was maintained, and our grain movement has seen record volume year to date.
With the addition of center beams and boxcar fleet, we were able to stay relatively current with our forest product customers through the worst periods of coal. As well, our Alberta petrochemical customers stayed fluid. Now, this was purely a result of our overall investment strategy, specifically more resiliency in key areas in Western Canada, sourcing of crews, mainline capacity, and the investment in equipment I spoke to before. To effectively shut down over some of the nights in very dense volume corridors as we did, and recover each day as quick as we did, could only have come through, come about through these investments. By mid-March, the recovery started, and right now, all of our supply chains are very current. Our operating metrics for Q2 have come back into line, and our volume is at a record pace.
With good weather, we're seeing the payoff of our track capacity projects, and we are very, very active in right sizing our asset base as we're looking to drive velocity and productivity through the short-term reduction of cars, locomotives, and people. With record volumes in April and normalized weather, we see a significant opportunity to gear up for the demand for the year ahead and improve our overall productivity. As JJ spoke to our growth opportunities, we're commencing another round of capacity improvements. In all, our engineering team will be delivering another big program in 2019. 22 projects are planned, including segments of double track, new sidings and siding extensions, and yard investments. Two projects have already been completed and put in service in Q1.
For 2019, to be specific, we're looking at 9 projects between Winnipeg and Edmonton, 5 projects between Edmonton and Vancouver, 4 projects between Tête Jaune Cache, which you would know as Jasper, and Prince Rupert, 2 projects between Winnipeg and Chicago, 1 project south of Chicago, a project east of Winnipeg. The rest of the remaining 140 locomotives will come online, and we're building new air cars and also installing equipment inspection portals. What's also gonna help us is a further rollout of our scheduled locomotive maintenance program, where we've started to already experience more availability and reliability of our locomotive fleet. As these projects are completed, we'll continue to move on more of our customers' business at low incremental cost. Finally, we struggled with our safety performance in the last quarter, specifically in the latter part of January, as temperatures started to decrease dramatically.
However, while our FRA accident and injury ratios increased in the quarter, our significant injuries and accidents were well within our five-year average. We continue to focus on the value we place on safety as being instrumental to our success as we move forward in our journey of being the best-in-class transportation provider. With that, over to you, Gilles.
Ghislain Houle (EVP and CFO)
Thanks, Mike. Starting on page nine of the presentation, I will summarize the key financial highlights of our Q1 performance. As JJ previously pointed out, revenues for the quarter were up 11% versus last year, at over $3.5 billion. Fuel lag on a year-over-year basis represented a tailwind of $27 million, or $0.03 of EPS, driven by a favorable lag this quarter of $17 million versus an unfavorable lag of $10 million for the same period last year. Operating income came in close to $1.1 billion, up $50 million or 5% versus last year. Our operating ratio came in at 69.5% or 170 basis points higher than last year.
During the quarter, we booked a charge of $84 million in depreciation and amortization related to the replacement of our Positive Train Control, PTC, back office system. Excluding this item, our operating income was $1.164 billion, with an adjusted operating ratio of 67.2%, 60 basis point lower than last year. Net income stood at $786 million or $45 million higher than last year, with reported diluted earnings per share of $1.08 versus $1 in 2018, up by 8%. Excluding the expense related to the replacement of the PTC back office system, our adjusted diluted EPS was up a solid 17% versus last year. The impact of foreign currency was favorable by $30 million on net income or $0.04 of EPS in the quarter.
Turning to expenses on page 10, our operating expenses were up 14% versus last year at $2.464 billion. Expressed on a constant currency basis, this represented an 11% increase. At this point, I will refer to the variances in constant currency. Labor and fringe benefit expenses were $798 million, 10% higher than last year. This was mostly the result of higher wages driven by increased headcount and higher stock-based compensation expense. I would also highlight that the sequential increase in headcount is mainly attributable to the onboarding of slightly over 1,300 TransX employees in March. Purchase services and material expenses were $558 million, 14% higher than last year. This was mostly the result of higher outsourced services and repair and maintenance expenses, including higher snow clearing costs, mostly due to the difficult winter conditions. Fuel expense came in at $398 million, or 4% lower than last year.
Lower fuel prices accounted for $30 million of the reduction, while higher volumes were a $9 million unfavorable variance versus 2018. Fuel productivity was unfavorable by 1.6%, or $6 million in the quarter versus last year. Depreciation stood at $440 million, 33% higher than last year. This increase was mostly driven by a charge of $84 million for the replacement of our PTC back office system and net asset additions. Equipment rents were 3% lower than last year. Casualty and other costs were $156 million, which was 8% higher than last year, mostly due to higher incident costs, which was driven by a crude oil train derailment, partly offset by lower legal provisions. Now, moving to cash on page 11, free cash flow was $286 million, excluding net cash from the acquisition of TransX.
This is CAD 36 million lower than in 2018 and mostly the result of higher capital expenditures, driven by the upfront deliveries of new locomotives, partly offset by higher net cash from operating activities. Finally, let me turn to our 2019 financial outlook on page 12. Although there are signs of slower growth in certain markets and volatility in crude by rail, we continue to see a broadly positive economic backdrop in North America, and consumer spending remains healthy. We have seen specific opportunities that will drive further growth, such as the new coal mine from Coalspur and the new propane terminal in Prince Rupert, that will start shipping in the Q2. This environment should continue to translate into high single-digit volume growth in terms of RTMs for the full year versus 2018 in a favorable pricing environment.
As JJ mentioned, we are taking the opportunity to rightsize our resource base, and remain confident in achieving our EPS guidance of low double-digit growth versus 2018 adjusted diluted EPS of $5.50. On the capital front, as winter subsides, we are focused on delivering on our large capacity track expansion programs. We have received so far 63 new locomotives that helped us during the winter, and we expect another 52 to be delivered before the end of Q2. Furthermore, we continue to reward our shareholders with consistent dividend returns, and we are on track with our current share buyback program of $1.7 billion, having repurchased 2.4 million shares for an amount of around $280 million since the end of January.
In closing, we remain committed to our agenda of operational and service excellence with our supply chain focus as we continue to manage the business to deliver sustainable value for today and for the long term. On this note, back to you, JJ.
Jean-Jacques Ruest (President and CEO)
Well, thank you, Ghislain. We are positioned to deliver solid results going forward. We're investing for the long term, for growth, for efficiencies, and resiliencies when there is harsh railroading condition. We are actively working to feed our network with growth. Example, like TransX, effort on Canadian ports, efforts on export of natural resource. We have a proven ability to adjust short-term costs for short-term demand fluctuation, whether crews, locomotive, or cars, and we are committed to protect our core natural resource customers like the Prairie Grain, the Alberta Oil, BC and Quebec Lumber, and Canadian and US coal exporter. Our approach to operating ratio and return on invested capital, which stood at 15.7% in 2018, is also balanced and long-term focused. On this note, Olivier operator, I would like to turn it over to question, which both, James Cairns and Keith Reardon will also join us.
Operator (participant)
Thank you. We will now take questions from the telephone lines. Please press star one at this time if you have a question. There'll be a brief pause while the participants register. Thank you for your patience. The first question is from Chris Wetherbee of Citigroup. Please go ahead. Hey, thanks, and thanks for taking the question.
Chris Wetherbee (Senior Research Analyst)
... I guess I wanted to talk a little bit about the network and the OR potential of the business and compare this year maybe to last year. So last year, this time, you were coming out of some challenges. You had some congestion in the fall leading into a very challenging winter, and I guess another challenging winter again this year. You've added a significant amount of capital. Can you give us a sense of sort of what the OR potential of the business can be as you get out of the weather, start to get some of that volume? And is it as recoverable or is it more recoverable today than it was, I guess, a year ago?
Jean-Jacques Ruest (President and CEO)
Okay. So Chris, it's JJ. Thanks for the question. Just give you a few elements of color without getting into guidance for quarterly operating ratio. Last year, this year, the winter has actually been tougher than last year because of the deep cold for about seven weeks. Also last year, when we ended the Q1, we had backlog of business. Now, you would remember that there was quite a few customers, especially in the world of natural resource, who were waiting for us to get caught up. This year, we actually, because of the resource that we had, we actually did better. We actually were able to grow versus last year, and we did not finish the Q1 with a backlog of grain or potash or lumber.
We are fluid, and we are current, at least at the CN side. This is how we ended the winter. So therefore, right now, the focus is on, you know, putting down resource, talking locomotive cars and crews, till demand pick up in line, the capacity that we have. And one of the factors that we're awaiting to see where things will go is crude by rail. So crude by rail this month ran at 145,000 barrel, which is better than what it was in March, but we do have capacity to ramp it up within a few weeks only to 200,000 barrels. So I think that will also be an element as to how good operating ratio will be in the Q2.
It will be on how much we can use the resource that we actually now have available for our natural resource customer.
Chris Wetherbee (Senior Research Analyst)
Okay. I'll leave it at one then. Thanks.
Jean-Jacques Ruest (President and CEO)
Okay, thank you.
Operator (participant)
Thank you. The next question is from Steve Hansen of Raymond James. Please go ahead.
Steve Hansen (Managing Director and Equity Analyst)
Oh, yeah. Good afternoon, guys. Look, on the growth opportunity side, I'm sure we'll hear a bunch more about it at the upcoming Investor Day, but I was hoping that you could perhaps give us a little bit of color here on how the TransX acquisition is going thus far. And, as sort of a secondary part of that question is just how you view the internal opportunities for capital versus the external opportunities for capital and how you're weighing those going forward. Thanks.
Jean-Jacques Ruest (President and CEO)
Okay, so Keith will do the TransX part.
Keith Reardon (SVP, Consumer Products Supply Chain)
So, on the TransX piece, we have been integrating since the close. We see a lot of opportunities on the commercial side. We see a lot of opportunities on the synergies with regard to cost takeout on both sides. But we also, one of the main reasons, and we've talked about this, is the talent and the entrepreneurship that TransX brings. We've already had several examples where to find a solution to something, and within hours of talking to them and sitting down, we were able to come up with those solutions. So, we're very, very pleased with how it's going. We've actually seen some growth come back to the railroad through TransX, as Mike and his team are improving the service.
That's also going to happen in the traditional domestic part of our business, as well as bringing it back to TransX. So we're very, very pleased.
Jean-Jacques Ruest (President and CEO)
Yeah, maybe quickly, Steve, just say on the capital side, I think, I mean, we're just following our plan. I mean, we, we told the market that this year our plan was for $3.9 billion, so we are following this. We're receiving locomotives. We'll receive 140. As, as I said in my remarks, we received 63 in the Q1. We'll receive another 52 in the Q2. Mike talked a little bit about the capacity projects that, that are out there, so we're well geared. I think we've learned a little bit of how to deploy and how to execute on this capacity investment this year from last year. So I think we're, we're very optimistic, and we're just following our plan of what we had told everybody.
We continue to look for inorganic growth opportunity as well as they may come up.
Steve Hansen (Managing Director and Equity Analyst)
Very good. Thanks, guys.
Jean-Jacques Ruest (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Ravi Shanker of Morgan Stanley. Please go ahead.
Ravi Shanker (Managing Director)
Thank you. Good evening, everyone. So pretty impressive that you were able to maintain your high single digit RTM guidance despite a tough 1Q. Can you help isolate, you know, maybe one or two drivers of kind of what drives the ramp to get there in the back half? I'm certain you guys aren't counting on significant crude by rail volumes until that actually shows up. So what's exactly driving that? And maybe on a related note, can you give us an update on the Port of Halifax and kind of how that process is going? And are you guys counting on additional volumes from some of the new projects to be able to hit that guidance? Thanks.
Jean-Jacques Ruest (President and CEO)
Yeah. Well, it's JJ, Ravi. Thank you for the question. So definitely, as usual, it will be a combination of a number of factors. You know, we always wanna be working every aspect of our portfolio. So crude by rail is an opportunity that we expect at this point will produce growth in the second half. We also expect that our focus on intermodal, whether domestic or overseas, will also produce some volume growth. For the Q2, automotive, even though the North American market is a little soft, should be a growth area for CN because the OEM that works with us still have some product on the ground that is left over from the slow North American network from the TTX fleet....
Brandon, we'll see what kind of drilling activities we have, on the forest products. You may have noticed that even though they've announced some shutdown of sawmills in BC, the price of lumber went up, which means that, you know, there's still good demand out there. So there's a number of factors, and also what's happening here in the Q2. So Vista Coalspur will start up. They're actually shipping, I think, next week, their first train. We hope that, at least at the beginning, they'll be able to run, hit a 3 million ton a year run rate, and that's from zero, what it was. And then also the first few cars of propane to the AltaGas export terminal in Rupert also started to flow in.
So there's been a bit of slow delay versus our expectation on these propane export as well as the Vista project, but now they're finally gearing up. Then in the case of the second half, hopefully, they should be in good position. I think that's more or less, more or less kind of what we expect. On the Port of Halifax, the Port of Halifax looks like it will be changing hands to a new owner, a company. We can't share exactly who that is, but it's a company that we know very well. Assuming it's those folks that eventually take over the terminal, they're an excellent world-class operator, and more to come on that.
We are actually optimistic on how we over the next few years and hopefully if the transaction will proceed how we can work with these people to make much better use of our East Coast port to serve the central part of the continent. So more to come on that.
Ravi Shanker (Managing Director)
So just to confirm, you are so confident in the opportunity there with whoever is winning this bid?
Jean-Jacques Ruest (President and CEO)
Yeah. So it doesn't necessarily mean that we that we have to be a financial partners. I mean, there's different scenarios, but, you know, what's important here is they have now selected who they wanna sell the terminal to. We know these people. We're actually gonna be having discussion with them, and at this point, I would leave it at that as to what our financial role will be. But one thing for sure is we see opportunity to grow the rail business out of Halifax into the hinterland, which is really so the point of, you know, what we call feeding the beast, using Rupert port of the East.
Ravi Shanker (Managing Director)
Very good. Thank you.
Jean-Jacques Ruest (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Cherilyn Radbourne of TD Securities. Please go ahead.
Cherilyn Radbourne (Managing Director and Equity Research)
Thanks very much. Good afternoon. I thought I'd use my one to ask JJ about the recent management restructuring you undertook, which was then followed up with some pretty broad changes to the management team, particularly in the operating department. Just wondering if you could elaborate a bit in your thinking there.
Jean-Jacques Ruest (President and CEO)
Okay. Thank you, Cherilyn. And if you go on the deck that we have for this call, the last page in the appendix, page 22, is where we highlight the most important fact of this management change that took place in the last 2 months. So some involved our operating department. We did promote. You know, we have very solid schedule railroading operator. People have been doing this all their life, even though they may be only in their forties and fifties, namely James Thompson is now heading the West, Derek Taylor heading the South. We've asked Doug Ryhorchuk to become the godfather, if you wish, of the operation by leading the network center. And we've also asked Doug MacDonald.
Doug MacDonald has a very strong career on the commercial side, and we've asked Doug to—myself and the board have asked Doug to lead the east and learn operation, but at the same time, Doug has always been very close to the operating team. So we are really giving the chance to those who are the next—are the next generation of scheduled railroaders to take this very senior job. By doing that, then also we were given the chance to promote some people on the commercial side, people who are very good top line hunters with strong strong track record, like James Cairns and Allen Foster, and our friend Buck Rogers. And we've also beefed up the Department of Technology.
So we're, we're increasing the number of people who are either coming from outside to help us redefine the art of the possible in the rail industry, and we're giving the chance to our people who have been worked very hard in producing very solid results the last 15, 20 years, to be given opportunities at a very senior level or an area which are new to them, for them to kind of finish their their overall learning as to how to become some of the best of the best.
Cherilyn Radbourne (Managing Director and Equity Research)
Thank you for the time.
Jean-Jacques Ruest (President and CEO)
Thank you. We do have a strong bench, and we're developing it.
Operator (participant)
Thank you. The next question is from Turan Quettawala of Scotiabank. Please go ahead.
Turan Quettawala (Director of Equity Research)
Yes. Hi, good afternoon, and thank you for taking my question. I guess I was wondering if you could talk a little bit about CapEx this year. Obviously, another big year with regard to CapEx going into the summer, and with the winter being so tough, just maybe talk a little bit about the level of preparedness here, with regard to the CapEx program, going into the summer.
Mike Cory (EVP and COO)
Hey, Taran, it's Mike. In terms of preparedness, and first, I'd just like to go back. If you look at the results we produced in December and through the first couple of weeks of January, that was a direct result of the capacity, especially through Western Canada and especially the yards in Edmonton and Winnipeg. And so we've—as Ghislain mentioned earlier, we've learned how to better logisticate, I would say, between our materials procurement, our materials delivery. You know, in fact, our engineering department has become one of our big customers for transportation. And whether it's straight communication, we've developed tools so that we can refine the process, get more done with less. And with that capacity we've added, allows us to get a better unit cost.
If you remember, if I go back to 2016 and 2017, when volumes were lighter, we had the capacity. We, we produced a lot more in terms of what we got done in the hours we had. It was very difficult the last year and a half, doing not just the special capital, but the basic capital under such stress of traffic. Well, we're able now. We've already got some good results from the first, first month or so with the big gang that we have out there on all three regions. We're starting to get unit cost back in line. So we are prepared. We learned from last year. We've developed better communication, better tools, but really, you know, we're gonna stretch that dollar as far as we can.
Turan Quettawala (Director of Equity Research)
Great. Thank you very much. Thanks, Mike.
Mike Cory (EVP and COO)
Okay, Trent.
Jean-Jacques Ruest (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Allison Landry of Credit Suisse. Please go ahead.
Allison Landry (Senior Equity Research Analyst)
Thanks. So I just wanted to gauge your confidence in hitting the high single digit RTM growth this year and whether it has changed at all, given the combination of the slow start to the year and softer crude volume. And if it hasn't changed, if you could maybe speak to whether the Q2 RTM growth will accelerate from what you're seeing now, or if you think the full year hinges more on a step up to maybe 9% or 10% growth in the back half of the year. Thank you.
Jean-Jacques Ruest (President and CEO)
Thank you, Allison. So maybe I can start. So, I mean, we would have rather had a, an easier winter with the, the kind of demand that we had back in December and early January, when the, the railroad was running really well and there was some business out there, but, you know, it is what it is. So we're starting with a bit of a slow start, but yet, at 3%, revenue ton-mile growth, I think we're one of the leader in the industry here in term of volume growth. I think we are the leader in the industry in volume growth. And at this point, we're very current, but we're also very fluid, and we will have some assets that we're parking, which is our good assets and good qualified people, that we can easily bring back into as things pick up.
So it will partly be, you know, what's happening in natural resources, what's happening with consumer products, what's happening with Intermodal. You know, I think we're only in the fourth month of a 12-month season, and there's still a lot of time left to go on the clock, just like last year, the same situation. So I think we are. You know, we're looking to the future at this point in very good position, and if we have a little help from the demand side, you know, we will do it. I don't know if you wanna add something, James, on what you see on the natural resources or the manufacturing side?
James Cairns (SVP, Rail Centric Supply Chain)
Yeah, I think, you know, certainly, JJ, we're coming off a kind of a tough Q1 weather-wise in February. But, you know, even if you draw back to crude by rail, if you look at, you know, how we came out of December, we handled 250,000 barrels a day of crude by rail. Clearly line of sight, leaving December to move about 300,000 barrels a day. The only thing that stopped us was government curtailment.
If you look at some of the positive things going on moving forward here in the province of Alberta, whether it's crude by rail and what might happen with curtailment in the future or some of these new clients coming on board, you know, we really are very optimistic about, you know, how we are gonna finish up this year.
Jean-Jacques Ruest (President and CEO)
Okay. Thank you.
Operator (participant)
Thank you.
Allison Landry (Senior Equity Research Analyst)
Thank you.
Operator (participant)
Next question is from Benoit Poirier of Desjardins Capital. Please go ahead.
Benoit Poirier (VP and Industrial Products analyst)
Yeah, thank you very much. Could you please comment about what you see in terms of pricing environment? I know that you don't disclose any precise number, but if you could comment overall in light of the current market environment. Thank you.
Jean-Jacques Ruest (President and CEO)
Yeah, James?
James Cairns (SVP, Rail Centric Supply Chain)
Yeah, we can continue to see opportunities to price ahead of railway cost inflation. You know, our customers have come to expect that from us. We need to be able to, you know, price ahead of railway cost inflation so we can invest back in our network, so we can, you know, invest in hiring people, buying locomotives, invest in our rail infrastructure, so that we can handle our customers' goods to market in a very expeditious manner. Our goal is to be there to grow in lockstep with our customers, and pricing is a key component of that.
Benoit Poirier (VP and Industrial Products analyst)
Okay, that's my one. Thank you very much.
Jean-Jacques Ruest (President and CEO)
Thank you, Benoit.
Operator (participant)
Thank you. The next question is from Ken Hoexter of Bank of America Merrill Lynch. Please go ahead.
Ken Hoexter (Managing Director)
Great. Thank you. Good afternoon, JJ, pretty solid job, and I've been in Western Canada for one of those -42 degrees Celsius days, so I hear you there. Mike, but just some thoughts on the projects. Maybe dig into this a little bit. Are we talking more capacity expansion on a network or is it equipment? I guess I wanna understand, are you at full network capacity so you could see squeezing if volumes start popping up in certain areas? And maybe talk about how you target those projects after the 2022 last year. You know, how do you figure out where you're gonna need that growth target?
Mike Cory (EVP and COO)
Okay, Ken. You know, essentially, Ken, it's, it's in the same, I would say, almost the same location as last year. We still, when you look at our, at our, I always call it the breadbasket between, and I'll go as far as Jasper, Alberta to Chicago, or, or just say, just take Edmonton to Winnipeg, for that matter, that 800 miles. We started a couple of years ago, we had 15% of it only double track. Now, first tranche we did brought us up to maybe 25%. We, we don't have the luxury of having 800 miles of straight double track like, like others do. So a lot of the infrastructure is gonna go in that corridor. At the same time, we know we have growth to the West Coast, especially to Vancouver, and especially with coal's first starting up.
So from, you know, west of Edmonton towards Vancouver, we see pinch points that will take place as the volumes grow. Grain will continue to be strong. CN intermodal is very strong, going to both Rupert and Vancouver. Around going to Rupert, we have more capacity in there, and then we still have that-
... you know, area that, from Winnipeg to Chicago, that, that crude, again, more, more, more commodities that are going in that direction, but really, it's not a lot different than last year. The, locomotives are- it's a big year for us this year. Gilles mentioned 140, we have another 80 to come, but we spoke about that last year. And really, other than that, we're talking technology, and that's where the rest of our capital is going. But really, similar to last year, same areas. We're still, we still got work to do in that Winnipeg to Edmonton corridor.
Ken Hoexter (Managing Director)
Great. Appreciate the thoughts. Thanks, Mike.
Mike Cory (EVP and COO)
Thanks, Ken.
Operator (participant)
Thank you. The next question is from Jason Seidel of Cowen and Company. Please go ahead.
Speaker 24
Yeah. Hi, guys. This is Adam on for Jason. I wanted to follow up on the, the TransX acquisition and potential future M&A, and just ask if there are other types of non-traditional rail or, or non-rail companies that you guys could potentially look at? What types of companies and, and how could you see these types of companies maybe fitting into your network or fitting into your business in a, in a broader sense?
Jean-Jacques Ruest (President and CEO)
Hi, Adam. It's JJ. So it's basically businesses that would bring about more car loads on our network. So you look at our rail line, our main line rail line, and you look at businesses who, who would contribute to increase the amount of car load or container on that rail line. So it's something that would feed the beast. So in the case of TransX, it's a multimodal company. They move containers, they also move freight over the road. We're looking for them to help us grow the container business at a higher pace, and we're also looking for them to help us convert more customers from the road to the railroad. We talked about the port business, the example earlier of Halifax. It's the same thing.
When we use the port very, very well, like in the case of Rupert, I think it's, it's a proven recipe that it does create a lot of volume on the railroad when port and railroad really work together in a very connected way. So these are two examples of things which are good long-term for our rail franchise.
Speaker 24
Got it. Thank you, guys, for the time.
Jean-Jacques Ruest (President and CEO)
Thank you.
Mike Cory (EVP and COO)
Thank you.
Operator (participant)
Thank you. The next question is from Fadi Chamoun of BMO. Please go ahead.
Fadi Chamoun (Equity Research Analyst)
Yes, good afternoon, and thanks for taking my question. I wanted to ask, when you look at your network, is this, at this point, resourced fully for the ramp-up in volume that you're expecting in the second half of the year? And really, I'm trying to understand that, you know, you're guiding for strong volume, I guess, as we go into the second half, but the operating leverage implied in the guidance is a little bit more muted. How should we think about that, kind of, H2 outlook?
Jean-Jacques Ruest (President and CEO)
Yeah. So, maybe I'll start and then, you know, anybody else who wants to complete my answer. But you, in the Western network, our network in the last few years have been under stress from a capacity resiliency point of view, especially when we hit harsh condition. And we want to invest for the long term, not just, not for the quarter or the year. We want to be sure that we can handle growth when growth come in, in the West. We want to be sure that we can run efficiently, so we can produce good KPI from a scheduled railroading point of view. We also want a network that when tough time come in, that we can show resiliency to our customers and not put the country into a hard time.
With 3% revenue ton mile growth in the Q1, which most of it was in the West, we've proven that we were there for the natural resource customers. So in the East, we got lots of capacity on the network, which is underutilized. That's why we're so interested as to what we can do in domestic intermodal in the East. When I say the East, I mean Chicago to Halifax, and also what we could do with any of the Eastern port. So looking forward, we just need to be mindful of keeping a balance between capacity, as in rail cars, locomotives and crews, and demand, which is fluctuating. And right now, the biggest aspect of fluctuation was crude, which went up to 250,000 barrels. We were basically ready to do 300,000 at the time.
It went down to, what, about 90,000 barrels per day, and now it's slowly coming back. It went from 90 to 135, and we hope that we can help Alberta, the containment production, and get it back up to what it was expected to be a few months back.
Fadi Chamoun (Equity Research Analyst)
Okay. Thank you.
Operator (participant)
Thank you.
Jean-Jacques Ruest (President and CEO)
Thank you.
Operator (participant)
The next question is from Scott Group of Wolfe Research. Please go ahead.
Scott Group (Managing Director)
Hey, thanks. Afternoon, guys. So can you give us maybe just some revenue and operating ratio numbers to think about for TransX? And then just bigger picture with the guidance. So if RTMs end up mid-single digits instead of high single, are we still confident we can do double-digit earnings growth? I know we did in the Q1. Or do you think, given the amount that we're spending here, that we sort of need the volume growth to come in where we want it to be to get to double-digit earnings growth for the year?
Ghislain Houle (EVP and CFO)
Yeah, Scott, this is Gilles Tremblay. Obviously, we're not gonna start splitting the OR of TransX versus the OR of CN. I mean, we're not offering segmented information, and the financial data and results of TransX will be embedded into CN, and that's what it is. I think on the guidance side, I think we're comfortable, very comfortable, and we, you know, we looked, and as we do every quarter, we look-
You know, we do a detailed bottom up, top down with the team, and we did reaffirm the guidance today. And as JJ mentioned, it was a tough quarter. Frankly, it was a tough February and March, because January was pretty solid, actually. And I think we have another nine months to go, and stay tuned. But we're comfortable with our high single digit volume growth and our low double digit EPS growth, and that's our guidance, and we're comfortable with it.
Jean-Jacques Ruest (President and CEO)
Yeah, we're gonna work the lever of the cost, lever of volume and lever of price, as we always do, you know, we adapt.
Scott Group (Managing Director)
I understand you don't wanna give OR on TransX, that's fine. Can you at least give us a revenue sense, 'cause so we know how to model the other revenue line going forward?
Jean-Jacques Ruest (President and CEO)
Yeah. I mean, this was this, I mean, if before we bought TransX, if you go on their website, it was a $400, give or take, revenue company. So that's what it was. And I know now, you know, Keith is working with Mike Jones, who was their COO there closely. And those revenue is gonna be embedded into the intermodal revenue numbers on our financial statement. So, and stay tuned, but I think Keith, as you mentioned, you're pretty optimistic about some of the opportunities and some of the learnings that on both sides that we will get from TransX.
Keith Reardon (SVP, Consumer Products Supply Chain)
Yes, we are. I mean, we're gonna work as a team to help them be able to drive more revenue, more profitable revenue at TransX, and they in turn are teaching us to be a little bit more entrepreneurial and be able to get things done a little bit quicker, a little bit more nimble.
Scott Group (Managing Director)
All right. Thank you, guys.
Jean-Jacques Ruest (President and CEO)
Thank you.
Keith Reardon (SVP, Consumer Products Supply Chain)
Thank you.
Operator (participant)
Thank you. The next question is from Justin Long of Stephens. Please go ahead.
Justin Long (Managing Director of Equity Research in Transportation)
Thanks, and good afternoon. So maybe to follow up on TransX as well, just curious if you have any thoughts around the revenue growth for that business going forward, even if it's, you know, kind of longer term over the next 3-5 years? And then, for the model, also wanted to see if you had any updated thoughts around headcount, I guess, excluding the, the TransX adds, TransX adds, and then, the tax rate as well, if your assumption or range on that front has changed at all. Thanks.
Ghislain Houle (EVP and CFO)
Maybe I can start with your last one, 'cause that's what we'll remember the most. That's what I remember, because there were three questions in one. But on the tax side, again, if you look in the quarter, the effective tax rate came in about 24%. And some of this is due to some of the higher excess tax benefit that is resulting from a settlement of equity settled awards in this quarter. But when you look at the tax, if you remember, Justin, we at the beginning of the year gave a guidance of 26%-27%, and as we look forward, we think we're gonna be more in the range of 26% going forward on our tax rate this year. So that's on the tax side.
Keith, you wanna touch upon revenue for TransX?
Keith Reardon (SVP, Consumer Products Supply Chain)
Well, we're gonna be looking at all opportunities. You know, they have quite a large book of business already. A lot of customers that we don't have in our book of business, and then we have some customers that we deal with that they don't. So there's a lot of opportunity to help each other out there, as well as, you know, they are in the cold supply chain, and they do a very good job there. And as you know, we've been working on investment in the cold supply chain, whether it's exports overseas or domestically. So we'll be working together with them and our other wholesalers in the business to be aggressive and grow that business.
There's a lot of opportunity in the cold supply chain as food safety becomes more of an emphasis in North America. We wanna be right there because it is a differentiator for us in the marketplace.
Ghislain Houle (EVP and CFO)
Justin, I think the last piece on headcount, I think, as JJ mentioned, we are, you know, rightsizing our resources and the volatility of crude right now is such that we are reducing somewhat our headcount on a short-term basis. We're hopeful that the crude, as James mentioned, will come back and then we'll get these people back. But the catch up on headcount and on hiring has been done. We're normalizing, and we're now rightsizing our resources in light of the business that's coming at us. So if... and if you look at headcount at the end of the Q1 versus the Q4 of last year, if you exclude TransX, then we were flat, essentially.
Justin Long (Managing Director of Equity Research in Transportation)
Okay, great. All very helpful. Thanks for the time.
Ghislain Houle (EVP and CFO)
Thank you.
Jean-Jacques Ruest (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Walter Spracklin of RBC Capital Markets. Please go ahead.
Walter Spracklin (Canadian Equity Research Management and Co-Head of Global Industrials Research)
Thanks very much. Good afternoon, everyone. So, so JJ, just on the- on some of your growth aspects, coal is coming on pretty fast here and as you, as you pointed out in Alberta. But, I know that, the terminal in r- in, in Prince Rupert there, Ridley, is having some trouble having gone through a couple, unexpected shutdowns that were pretty significant. I think they're signaling more to come. Does that interrupt your, your opportunity in coal? Is there other avenues for that coal to find its way into the market? And, and how, how sustainable is that fix, if there is one there?
Jean-Jacques Ruest (President and CEO)
... Yeah, thank you for the question, Walter. There is another avenue for that coal to get to market if Prince Rupert, Ridley can't get it done. Without getting into confidential information on how these different contracts work between a terminal operator and its customers, if they can't perform, some of that can definitely go a little more south to the other coal terminal and still go to market. So I think from that point of view, we as a railroad have the capacity in the corridor and the crews in the two different corridors to get the new mine to be able to be served and shipped to ship overseas. And just talking about Vancouver, I know you wrote a piece back in the days on the CTA.
I was almost hoping, Walter, you'd ask me a question of that. We want to be sure that people understand that we disagree to the decision by the CTA, regarding Vancouver. We will be appealing that decision. In our view, we did a great job of moving 10% volume growth during the month that they were talking about. We moved 1.9 million more metric ton of grain this year versus last year. This is solid performance, and, as I said, we will appeal the decision. However, looking at long term, Vancouver is a very busy place.
There's not that much industrial land left in the city, and as you could see from our page 17 in the appendix, we have significant capital plan to serve both the South Shore and the North Shore of Vancouver for the next three years. You know, we want to be part of the solution, and we will be part of solution for the export terminal in Vancouver.
Walter Spracklin (Canadian Equity Research Management and Co-Head of Global Industrials Research)
Okay. I guess, thanks for the two questions then. Thank you.
Jean-Jacques Ruest (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from David Vernon of Bernstein. Please go ahead.
David Vernon (Managing Director and Senior Analyst)
Hey, guys. Thanks for the question. Hey, just, I would like to know if you can tell us kind of what impact weather had on the cost lines? Obviously, the constant currency variance on labor and purchase services, I'm sure, weather had a lot, a big impact on that. But is there any way you can dimension how the Q1 sort of margins at the margin were negatively impacted by weather?
Jean-Jacques Ruest (President and CEO)
Yeah, David, I mean, definitely, the weather had an impact on costs. Definitely, it had an impact on revenue as well. It had an impact on volumes. I mean, if you can't—if you have to shorten your trains, or in some cases, can't even move because it's minus 40 and it's not safe to move, then obviously there is impact on revenue, and there is impact on costs. You'll have more recrews, you'll have more deadheads, your trains are shorter, therefore, you need more locomotives, you need more cars.
David Vernon (Managing Director and Senior Analyst)
Okay.
Jean-Jacques Ruest (President and CEO)
Then there's more—there's snow clearance. I mean, if you look at my remarks, I said there were more, you know, expenses related to snow clearing, related to repairs and maintenance, and the like. We're not gonna give a specific estimate of the winter per se, because, you know, at the end of the day, it's, you know, I mean, it is what it is. And obviously, when it's very cold, then you consume more fuel, and therefore, from a fuel standpoint, it's more expensive, so. But, I mean, you can have the bits and pieces of our costs that are higher due to winter, and, you know, I'll let you do the math, but these are the big pieces.
David Vernon (Managing Director and Senior Analyst)
Okay. And then, and then maybe just as a quick follow-up, if we think for the full year, X, the PTC depreciation, add back, depreciation's up about 10%. Is that a good run rate for the, for the full year?
Jean-Jacques Ruest (President and CEO)
Yep.
David Vernon (Managing Director and Senior Analyst)
All right. Thank you.
Jean-Jacques Ruest (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Seldon Clarke of Deutsche Bank. Please go ahead.
Seldon Clarke (Research Analyst)
Hey, thanks for the question. Just getting back to margins for a second. With everything going on across the industry in regards to the PSR, does it feel like the floor for OR has been lowered at all from the high fifty level-- high fifties level you guys have previously talked about? And, if so, do you think CN can return to sort of being the industry leader there?
Jean-Jacques Ruest (President and CEO)
Well, you know, where's the floor? It all depends how much risk you want to take the business. So, you know, one can have a lower floor, then take the risk of not being able to meet demand or not being able to, you know, respond under pressure when demand and harsh conditions come in. So we have a plan that we wanna be a cost leader, but a cost leader that also takes things in balance from how we serve our customers and move the economy, but also be a leader that's also looking at the return on invested capital as much as EPS growth, as much as operating ratio. So, you know, the one-trick pony of operating ratio only does not necessarily give you the best EPS growth.
When we have investment that can generate a good return on investment capital, taking to our cost of capital, we are inclined to do these things as opposed to sit on the sideline and shave off one more point of OR. But this is what we're, we're sort of evolving from what we were doing the last 15 years, and we're looking at cost efficiencies, organic growth, some acquisition, strong focus on return on invested capital, but also strong focus on operating ratio. So what you'll see from CN, or what you're seeing from CN, is a more balanced scorecard than than strictly pure PSR.
Seldon Clarke (Research Analyst)
Okay, so that's still at the high 50s level, is the right way to think about it longer term?
Jean-Jacques Ruest (President and CEO)
We don't guide on the. We're not gonna get drawn in into the PSR discussion, how low can you go on the limbo limbo contest? We'll leave that for others.
Seldon Clarke (Research Analyst)
All right, I appreciate it.
Jean-Jacques Ruest (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Brian Osenbeck of J.P. Morgan. Please go ahead.
Brian Ossenbeck (Managing Director)
Hey, guys. Good afternoon.
Jean-Jacques Ruest (President and CEO)
Good afternoon.
Brian Ossenbeck (Managing Director)
JJ, just, just wanna go back to the Vancouver investments you called out in the slide deck. Or, would you characterize if these more improving-
... fluidity and resiliency, or are you actually expecting to get some capacity expansion and growth off of that? And to that point, and your mention on the CTA, when do you expect the resolution of that appeal? And is this a signal that you might expect a more aggressive or more involved regulator as a result of what just happened earlier this year?
Jean-Jacques Ruest (President and CEO)
Yeah. As it relates to the appeal, these things takes time, and it'll take whatever time it takes. It does not really-- That's not a concern for us. What's a concern for us is that the process is fair and reasonable to all, including the railroad. Regarding the capital investment we're making in Vancouver, and also I wanna recognize that we're doing this in conjunction with others, we have, in one case, it's about $80 million. It's between CN, the Port of Vancouver, and the federal government, and it is to serve the expansion in the South Shore. Centerm or DP World is expanding their container terminal. So when they're ready, sometime in 2020, we will be ready with them as well.
The GCT, who owns Vanterm, is also planning some expansion. So these things are really in sync with other people's investment on the South Shore, and same thing on the North Shore. On the North Shore, it's even more capital money. It's about $200 million over two years. Again, here with the funding from the Port of Vancouver, CN, and the federal government. Of the $200 million, we're roughly $85 million, and that's really is to serve the export of natural resources on the bulk. So you're talking more coal going to the North Shore, Vancouver, the G3 Grain Terminal, and a number of other items. So the investment on the North Shore and the South Shore eventually are part of the CN long-term or midterm growth plan, and we're investing in conjunction with others.
But again, as I said earlier, we moved 1.9 million more tons of grain this year, this quarter than last year, and we're not getting a whole lot of noise from the grain industry about our performance last winter, even though we had some super cold conditions. And back in November, December, which was a period where CN was criticized, we did move 10% more volume than the prior year. So from our point of view, these are very reasonable performance, and this whole investigation was maybe overkill from our own point of view.
Brian Ossenbeck (Managing Director)
Thanks, JJ.
Jean-Jacques Ruest (President and CEO)
Thank you.
Brian Ossenbeck (Managing Director)
I appreciate it.
Operator (participant)
Thank you. The next question is from Brandon Oglenski of Barclays. Please go ahead.
Brandon Oglenski (Director and Senior Equity Analyst)
Hey, good afternoon, everyone, and thanks for taking my question. JJ, or, or maybe Mike, you know, you guys have historically spent more than maybe some of your North American peers, but you've also gotten more growth out of it. So, I mean, I know there's been a lot of questions on capital this call, but and I don't want to steal thunder from your investor day either, but can you just talk to where you still see the pinch points in the network? And, you know, if the outlook for 2020 was to be high single-digit RTM growth, would we have to be spending at a similar level, or is it really some upfront tech investments that have made, you know, the past couple of years so much higher and that should come down looking forward?
Mike Cory (EVP and COO)
Yeah, I think it's Mike here, Brandon. So just go back to. I think Ken asked a question I didn't mention. Like, if you look at the corridor that we're putting the capacity into, Western Canada handles 50% of our volume. If you stretch that out through Wisconsin, through the route to Chicago, you're now talking 65%-70%, and those are big growth lanes for us. So we're, in one sense, we're picking up volume, but we're catching up to just the capacity we need to be efficient and reliable. There is a technology jump over the last few years with PTC. We've spent a good amount, and now that's starting to come down.
Then the other technology that we're really looking for effective capacity with that, so whether it's the train inspection portals, some of the things we're doing from equipping our crews with handheld devices, whether they're car mechanics or conductors, then, you know, autonomous track inspection vehicles. Those are things to really take advantage of the capacity, the hard capacity we're building in the ground. Probably see us catching up this year with this next round. Again, it's all dependent on future volume growth, but we've really hit hard the area that's the toughest. And as JJ said, whether it's the winter conditions across the Prairies, I would just remind you that we're still only at 35% double track capacity there, and that's not as resilient as we need it to be.
Jean-Jacques Ruest (President and CEO)
Maybe, Brandon, to go to your question on CapEx for 2020. As we've said, as we said previously, I mean, we, the big capacity, big CapEx program, we said, was for two years, 2018, 2019. We are now in our second year of our CapEx catch up. 2020, we've said we were gonna go back in the range of historical levels, but obviously, we will look at the growth that comes at us. And again, I wanna remind everybody that our use of cash policy has never changed. The first use of cash is towards the business, and that's what we've done.
When you look at our ROIC, that has delivered in spades in the range of, you know, 15%-16%. So, you know, we're continuing to do what we said we were gonna do. Next year, you know, we've said that we will go back to historical levels, but obviously, we'll look at the growth that comes at us, and we'll assess as that grows and as we have a better visibility of that growth.
Brandon Oglenski (Director and Senior Equity Analyst)
Thanks, just fine.
Jean-Jacques Ruest (President and CEO)
Thank you. Thank you, Brandon.
Operator (participant)
Thank you. The next question is from Tom Wadewitz of UBS. Please go ahead.
Tom Wadewitz (Senior Equity Research Analyst)
Good afternoon. I know you've touched on this topic quite a bit, so maybe I'm just not-
... understanding what's implied within the comments, but you clearly identified the capacity on crude, and you've, you know, you reiterated the high single digit RTM guidance for the year. Are you assuming in that RTM guidance that you see the ramp up towards that 300,000 barrels a day capacity in crude? Or are you assuming that you stay at the current level and you can get there other ways? Or how do we think about linking those two together?
Jean-Jacques Ruest (President and CEO)
James, you wanna talk about, maybe how some of the middle ground we took on crude?
James Cairns (SVP, Rail Centric Supply Chain)
Yeah. So if you, if you kind of think about what we're-- how we're thinking about crude, is we built the capacity for our customers. You know, we're very hopeful that they're gonna be using it come the second half of the year. We have some solid contracts that kick in starting in July, but that's not kind of built in that core guidance that we have. If you look at our core run rate, I think that's kind of the, you know, the bottom end of what we're gonna achieve. I think, when we talk about having capacity to go up to 300,000 barrels a day, that kind of gets us to that, that next level, I would say.
Quite frankly, you know, if you, if you step back and you just look at the supply-demand for crude, whether it comes in in July of this year or January of next year, it will be there.
Tom Wadewitz (Senior Equity Research Analyst)
Right. Okay. See, but you get to the high single digits without a ramp in crude?
James Cairns (SVP, Rail Centric Supply Chain)
That's correct, Tom.
Tom Wadewitz (Senior Equity Research Analyst)
Yep. Okay, thanks for the clarification. Thanks for the time.
Jean-Jacques Ruest (President and CEO)
Thank you.
Operator (participant)
Thank you. We have no further questions registered at this time. I would now turn the meeting back over to Jean-Jacques Ruest.
Jean-Jacques Ruest (President and CEO)
Well, thank you for joining us on the call. I'm hoping that many of you, if not most of you, could join us on our Investor Day on June third and the fourth. On the afternoon of the third, you'll have a chance to meet our team of railroaders, as well as to see the different items of technology that we're deploying. On the fourth, we'll do the usual presentation and give you our outlook for the next two years. So thank you very much. Thanks for joining us. See you back in early June. Operators, we turn it back to you.
Operator (participant)
Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.