CSX - Q3 2023

Transcript

Operator (participant)

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2023 CSX Corporation Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one. Thank you. Mr. Matt Korn, Head of Investor Relations, you may begin your conference.

Matthew Korn (Head of Investor Relations)

Thank you, Krista. Hello, everyone, and welcome to our third quarter earnings call. Joining me this afternoon are Joe Hinrichs, President and Chief Executive Officer, Mike Cory, Executive Vice President and Chief Operating Officer, Kevin Boone, Executive Vice President and Chief Commercial Officer, and Sean Pelkey, Executive Vice President and Chief Financial Officer. In the presentation accompanying this call, you will find our forward-looking disclosure on Slide 2, followed by our non-GAAP disclosure on Slide 3. With that, it is now my pleasure to introduce Mr. Joe Hinrichs.

Joseph Hinrichs (President and CEO)

All right. Thank you, Matthew, and hello, everyone. Thank you for joining our conference call today. Over this last year, CSX mission and message have remained clear and consistent. We have seen great progress with our ONE CSX initiatives, which are helping to build a focused, collaborative culture that enables all of our employees to feel engaged, energized, and focused on working better together. At the same time, our service levels continue to lead the industry. These successes go hand in hand, and as our customers see that CSX is truly dedicated to providing consistent, reliable service over the long term, they're responding positively. As we look forward to all the opportunities ahead, we are confident that these efforts we are making will drive clear, sustainable, profitable growth. We took another step forward on this path this quarter.

Thanks to the hard work put in by our ONE CSX team, our railroad is running well. Our merchandise business remains steady, and our coal shipments were very strong. Our domestic intermodal volumes are growing well compared to last year, while our international intermodal business, though down year-over-year, has stabilized. Overall, our network continues to perform, and I am pleased with how the team has succeeded in managing the things that we can control. I continue to be very excited about all the potential ahead for CSX. Now, let's turn to Slide 5 to review the highlights for the third quarter. First, we moved over 1.5 million carloads this quarter, which was down just slightly from a year ago, with flat year-over-year performance in merchandise and 9% growth in coal.

Our operating ratio ticked up into the low 60s as we faced challenges that we have been talking about all year, with lower fuel recovery, reduced intermodal storage revenue, lower export coal prices, and higher costs from inflation, most notably with our labor contract. As in previous quarters, our margin does include the impact of the Quality Carriers trucking business. Second, we generated $3.6 billion in revenue, which was 8% lower than the previous year. The last year, we benefited from high diesel prices and record export coal benchmarks that were both much lower this quarter. Third, even with the year-over-year changes we faced, operating income still came in at $1.3 billion for the quarter, compared to a little under $1.6 billion last year, and our earnings per share were $0.42, down from $0.52.

While I'm proud of what we accomplished this quarter, given all the challenges, none of us here are satisfied with these results. We're not sitting back and simply waiting for markets to turn. We are looking throughout the entire network to see where we can operate more efficiently. We continue to work closely with our customers to build our business pipeline and drive more volume onto the railroad, and we are emphasizing the importance of cost discipline to every team in every one of our locations. One of the reasons I am so confident about what is ahead for CSX is the great leadership team that we have in place. As you all saw last month, we are very pleased to announce that Mike Cory has joined our railroad as Chief Operating Officer.

Mike brings great experience and a thorough understanding of scheduled railroading, and he also shares our deep dedication and appreciation for customer service and the employees who provide that service day in and day out. Mike arrived in Jacksonville a few weeks ago and is now here joining us on this call, and so I will now turn it over to Mike to say a few words and cover our operational performance over the quarter.

Mike Cory (EVP and COO)

Well, thank you very much, Joe, and I truly appreciate the words. I'm extremely thankful for the opportunity to work with such a committed team of people with so much potential to lead this industry with great customer service. Safety, service, efficiency, and along with engagement with each other, our customers, and stakeholders, is how we're gonna leverage this great franchise to be best-in-class. I've been here a short time, you know, pretty much less than a month, but I've been really busy. I visited major yards, coal export facilities, and I've spent time in headquarters meeting with an array of people from different functions of the railroad.

Well, in person, I've listened to and I've spoken with employees from all across the company, from people on the ground executing the plan, from people developing the plan, to sales and marketing, finance, field and network ops, IT facilities, and the list goes on. What really resonates with me is their collective desire to be the best they can be for our ONE CSX team and our customers. We've got great talent in all our functions, and our job is to connect the talent and maximize the value of their efforts. We're doing this in order for our team to be the best at providing what our customers need in the safest and most efficient way. We're doing this because decision-making, acting on what they see and know, must be quick and done as close to where the opportunity is taking place.

That said, I see opportunities, one of which, and to me, the most important at this stage, is to create and share a robust and visible flow of information that will derive improvement through the continuation of the lean principles that define scheduled railroading. We all need to see the effects of our collective decisions as fast as possible to be more nimble and responsive to our customers' needs. As well, collectively, we'll learn and share best practices throughout the organization from this and other available data, as it gives us a platform to learn as it happens. This will create the speed and the trust that we need to move together as one team. Let's go over to the slides, and we'll start looking at our safety metrics. Our third quarter injury and accident rates increased as we saw track-caused and human factor incidents trend upward.

These aren't acceptable outcomes for us, and we're taking action to continuously improve the environment our employees operate in, as well as the overall safety culture. Human factor incidents, especially with newly hired employees, have been one of the trends this year that have driven the increase. In Q3, the team added additional time for initial training for our new conductors at our REDI Center in Atlanta. We also looked at the length of training when new hires graduate from Atlanta and report back to their home terminals, and we increased the length of that training as well. Increased training gives us more time to develop skills with our new hires, but we also determined we needed to place resources to spend that time with them. We trained unionized mentors, and now we have them across the property with the new hires.

These mentors are available to teach and answer questions, reinforcing the ONE CSX culture by being part of developing and coaching their newly hired peers. Lastly, on safety, we're not taking our focus off life-changing events. We've partnered with DEKRA, a specialty risk management group, for rollout training to help employees self-identify risk in an ever-changing environment. Now, traditionally, railroads train on operating rules, but we can't write a rule for everything or test our way to a positive safety culture. Both identification of risk and eliminating that risk when possible is one of our major goals moving into Q4 and beyond. Let's go over to the next slide on our operating highlights. Our end-to-end turn velocity averaged 17.6 miles an hour in the third quarter, slightly lower than last quarter, but still up substantially from the same period in 2022.

Dwell averaged 9.6 hours, an improvement of nearly 20% compared to the same period last year. Intermodal trip plan performance was 94% and increased by 4 percentage points year-over-year, while carload trip plan performance was 82% and improved by 25 percentage points. Our service performance remains fluid, and though we did see a slight seasonal dip during the middle of the quarter during peak vacation and holiday season, our metrics are rebounding into the fourth quarter. We all know we will, and we're all working together to improve these results. Our ability to leverage this great franchise by connecting the people and the vast talent they bring will allow us to improve all key aspects of our business, with a strong focus on those lean management principles that drive reliable, consistent service.

I'm really confident that connecting all these dots together is gonna result in a strong team now, and more importantly, bench strength for the future. This is really our ONE CSX goal. With that, over to you, Kevin.

Kevin Boone (EVP and Chief Commercial Officer)

Thank you. Mike and I have been spending a lot of time together, and it is really great to have you on the team. To start, I'm pleased to say that our improving service levels are a key differentiator in the marketplace. I can't thank the entire team enough for all of the hard work. These improvements are being recognized by our customers and are leading to new initiatives and discussions around how CSX can partner with our customers for growth. Our ability to grow profitably requires us to be proactive, quickly adapt to changing markets, and think differently. I'm proud of how well we have been able to coordinate with operations to drive both growth and efficiencies. With Mike in his role, we have only seen these efforts accelerate.

It's no surprise that overall economic conditions remain uncertain, but it has been encouraging to see gradually improving sequential trends across several of our end markets over this past quarter. We see many, many reasons to be optimistic as we continue to build our business pipeline with an eye toward 2024 and beyond. Turning to Slide 10 to look at our merchandise performance for the quarter, our revenues were down modestly compared to last year on flat carload volumes, as solid core pricing gains were offset by lower fuel surcharge and negative mix effects in certain markets. Our automotive business continued to show strength, with higher production and business wins, driving a 19% increase in volume year-over-year. Minerals continues to perform very well, sustained by infrastructure activity that is supporting new cement facilities and healthy demand for aggregates.

Metals performance has also benefited from our service levels, leading to competitive wins and solid demand. Our chemical franchise, while challenged, has begun to stabilize and even showed some promising improvement in domestic plastics over the quarter. Fertilizer revenue growth was strong in the quarter, despite volumes that were impacted by weaker short-haul movements, with production challenges in Florida. As we expected, the strong Southeastern corn crop meant less rail volume for grain, and forest products remains one of the most challenged areas, with many mills still taking meaningful downtime. As we start the fourth quarter, we are encouraged by the early October volume trends, with most markets showing sequential momentum. We anticipate a strong rebound for ag and food as a strong Midwest harvest kicks in.

Across other markets, we expect our service improvements to drive opportunities to win in the marketplace as we focus on modal conversion. Turning to Slide 11, third quarter coal revenue declined 5%, even though volumes were very strong, growing 9% compared to last year. Export demand continued to be a major volume driver, growing 26%, with the hot summer also supporting solid domestic demand. Strong coal volumes minimized the effects of lower international benchmark prices, which were setting all-time records this time last year. The key difference was met coal pricing, where global benchmarks were much lower than in the same period last year. Sequentially, our coal RPU declined 11% compared to our guidance of mid-teens decline, with stronger-than-expected shipments to longer length of haul southern utility customers driving the moderate outperformance.

Looking ahead to the last quarter of the year, we expect export markets to remain strong, and are pleased with the increases in international benchmarks that we've seen over the last several weeks. On the domestic side, we have seen stockpiles normalize, and demand into 2024 will be driven by winter weather and related demand needs. The increase in global benchmark prices should benefit our coal yields next quarter, though I would remind you that we have a diverse portfolio of met customers, and we have seen U.S.-based met coal benchmarks and those in other regions lag spot prices in Australia. Turning to intermodal on Slide 12. As a whole, the business remained challenged, with revenue declining by 14% and total volume decreasing by seven.

Overall, RPU declined by 8% year-over-year, with the impact of lower fuel surcharge accounting for the decline, partially offset by positive price. That said, we are seeing encouraging trends from our domestic business, where volume turned positive on a year-over-year basis early in the summer and has continued to improve since then. We offer a diverse mix of transportation solutions within domestic intermodal. We've seen great results from our strong channel partnerships and our direct relationships with major retailers. Our team has been successful in converting traffic off the highway in a market facing plentiful truck capacity, which is a testament to the team and the market-leading service product. Meanwhile, international intermodal activity has stabilized, but remains weak. We haven't seen any clear signs of a positive inflection yet.

Retailers remain concerned about the health of the consumer, and though destocking may have slowed, we haven't seen this turn into sustained increases in order rates or imports. For the rest of the year, we expect trends to largely continue as they were over the third quarter, with domestic gradually strengthening, supported by our team's strong sales efforts, while we prepare for the turning point for international. Recall that we saw meaningful drop-offs in our intermodal volume in the back half of the fourth quarter in 2022 as markets slowed substantially, which will benefit our reported growth rate for the current quarter. Slide 13 provides a clear illustration of the encouraging signs we're seeing within our intermodal business. On a year-over-year basis, domestic intermodal has shown a favorable trend since the beginning of 2023, turning positive around mid-year and steadily improving since.

While international volumes remain lower compared to 2022, we've seen stability in the past few months. Altogether, across all of our businesses, our team continues to push forward across multiple initiatives, aiming at winning wallet share, converting truck traffic, and bringing new customers to the railroad. We remain confident that our leading service performance will continue to provide opportunities to win business, and we know that we have the resources and capacity in place to deliver growth when the market environment inflects. I'm proud of what the collective CSX team has accomplished this quarter. I'm excited about all the potential ahead. Now I'll turn it over to Sean to discuss financials.

Sean Pelkey (EVP and CFO)

Thank you, Kevin, and good afternoon. Third quarter operating income of $1.3 billion was lower by 18% or $284 million. These results include nearly $350 million of year-over-year impacts from lower intermodal storage revenue, export coal benchmark prices, and fuel recovery, partly offset by $42 million of favorability related to last year's labor agreement adjustment. Suffice it to say, this quarter should represent the peak year-over-year impact from these discrete items. Revenue fell by 8%, or $323 million, despite strong pricing across the merchandise portfolio, along with positive volume trends across many merchandise markets, as well as domestic intermodal. The operating team also worked tirelessly to meet customer needs and deliver a 9% increase in coal volume.

Across merchandise, coal, and intermodal, revenue excluding fuel recovery increased 2% in the quarter and was up mid-single digits, excluding the impacts of coal RPU headwinds. Expenses were lower by 2%, and I will discuss the line items in more detail on the next slide. Interest and other expense was $13 million higher compared to the prior year. Income tax expense decreased $32 million as the impact of lower pre-tax earnings more than offset a prior year favorable state tax item, and this quarter's effective tax rate came in at 24.9%. As a result, earnings per share fell by $0.10, including nearly $0.12 of impact from the previously mentioned discrete items. Let's now turn to the next slide and take a closer look at expenses. Total third quarter expense decreased by $39 million.

Lower fuel prices and cycling the prior year labor true-up were mostly offset by the impacts of inflation and higher depreciation. Turning to the individual line items, labor and fringe expense decreased $7 million, as the prior year union labor adjustment was largely offset by inflation and increased headcount. Heightened attention to overtime benefited cost per employee, particularly in our mechanical workforce, where overtime ratios are now running at multiyear lows. Purchase services and other expense increased $25 million versus last year, including $16 million associated with higher casualty expense. Turning to sequential performance versus Q2, on the right-hand side of the page, network performance and numerous cost control initiatives in the quarter drove a nearly $20 million reduction in PS&O across our operating departments. We expect these savings to remain in the fourth quarter, aside from normal seasonality.

Depreciation was up $21 million as a result of last year's equipment study, as well as a larger asset base. Fuel cost was down $89 million, mostly driven by a lower gallon price. This was partially offset by higher consumption, including approximately 2.5 million gallons recognized from prior periods. Adjusting for this, fuel efficiency was still unfavorable versus the prior year, and Mike has brought an increased focus on this critical measure. While seasonality will impact fuel efficiency in Q4, we fully expect to get back on trend. Equipment and rents was $10 million favorable, driven by faster freight car cycle times across all markets. These benefits were partly offset by costs related to higher automotive volumes. Finally, property gains were $21 million unfavorable in the quarter.

As a reminder, we are cycling over $50 million of prior-year gains in Q4 and expect sales this year to be minimal. Now, turning to cash flow and distributions on Slide 17. Reflecting the discrete factors I discussed earlier, free cash flow is down from the prior year, but remains strong, supporting investments in the safety and reliability of our network, as well as an increased level of high-return strategic investments. Robust cash flow has also supported over $3.5 billion in shareholder returns so far this year, including $2.9 billion in share repurchases and over $650 million of dividends. Economic profit, as measured by CSX cash earnings, is about $160 million lower year-to-date, impacted again by intermodal storage revenue and export coal pricing.

Nevertheless, the focus on economic profit is helping to incent a pipeline of high-return initiatives that will deliver growth and ongoing efficiency gains. Now, with that, let me turn it back to Joe for his closing remarks.

Joseph Hinrichs (President and CEO)

All right. Thank you, Sean. Now, as shown on Slide 19 we will finish with some updated comments on our outlook as we approach the final quarter of 2023. We continue to expect low single-digit growth in revenue ton miles for the full year, supported by our consistent performance in merchandise and export coal. Automotive and minerals remain important growth areas, though obviously, we're watching developments with the Detroit 3 automakers and UAW very closely. As Kevin mentioned, we also look for a substantial rebound in our ag and food business over the fourth quarter. Export coal volumes remain strong as global demand stays high for U.S. met and thermal coal. For domestic coal, we anticipate some slowdown from the third quarter, which benefited from hot summer weather. So far this quarter, we continue to be pleased with our shipment levels.

For intermodal, as we mentioned, we expect domestic activity to keep gaining modest momentum through the fourth quarter, while for now, our international business looks largely stable. Overall, our volume growth rate in intermodal will reflect favorable year-over-year comparisons. As we've said all year, the pricing environment remains supportive, and we have been encouraged by the agreements that we've already reached for 2024. Note that with the slowdown in intermodal storage revenue that we have seen over the course of this year, we are now expecting supplemental revenue, excluding trucking, to decline by $325 million for the full year. Our commitment to efficiency and cost control remains in place as we keep our eye on service performance, not just in the near term, but also as we look ahead to improved market conditions and greater demand for rail capacity.

Finally, our estimate of $2.3 billion in capital expenditures remains unchanged, along with our strong focus on innovation and growth. I will close by saying that I'm very proud of what we've accomplished as ONE CSX team as I finish my first year with CSX. When I spoke to all of you last fall, we talked about our belief that CSX could accomplish great things and create so much value by working better together as one team to serve our customers. We have made very good progress, and all of us know that there remains so much more we can do. I'm even more enthusiastic about our opportunities than I was last year. We all appreciate your support and interest in our company as we keep moving forward. All right, thank you. Matthew, we're now ready for questions.

Matthew Korn (Head of Investor Relations)

Thank you, Joe. We'll now move to our question and answer session. Now, in the interest of time, and to make sure that everyone on this call has an opportunity, we ask you to please limit yourselves to one question. Krista, we're ready to start the process.

Operator (participant)

As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Chris Wetherbee from Citigroup. Please go ahead.

Chris Wetherbee (Senior Equity Research Analyst)

Hey, hey, thanks. Good afternoon, guys. Maybe Joe or Mike, kind of wanted to start with your sense of where you are in terms of resources and services relative to the volume environment. Headcount moved up again. If you can give us a sense of where you think you need to take that or if you're at reasonable staffing levels and maybe how we think about, like I said, that resource base relative to the volume environment. Do you have the ability to do more at these current levels, or are we still in a little bit of the recovery phase?

Mike Cory (EVP and COO)

Oh, hey, Chris, it's Mike. Look, and again, I'm gonna preface probably most of my answers with I've been here less than a month, but we still have a training pipeline. We still have people that we need to get into position that I spoke of earlier. Overall, you know, I'm comfortable that we have enough to improve.

The size of train, the amount of trains, the velocity with the people we have. However, there are areas where we're probably getting affected somewhat on the flow of the goods, and so it's constant. You know, we're working, not just Kevin and I, but our teams together, so they really get the ground floor view of what we can do. Not having been here for that long, I haven't really stretched the opportunities out there yet. I'd say, to answer your question, we're where we need to be. We have people that are being trained, that are gonna be positioned. Remember, we have attrition, whether it's retirement or whatever the case, so we're filling that. With the people we have, we're in good shape.

We have to, we have to get in better shape, and a lot of that's gonna come from self-help and how we utilize the assets.

Joseph Hinrichs (President and CEO)

Yeah, Chris, the last thing I'll add is, as Mike mentioned, we're still hiring in a few key locations. That's down to, you know, a little more than a handful. Largely, we're in pretty good shape in most other spots. With the natural attrition we have, we're still hiring to replace some of that. You know, our merchandise volume is up this year, so we're still seeing some growth in volume. We feel pretty good about our ability to manage that.

Mike's really challenged the team to come up with a fresh new set of eyes to look at how we can do some self-help to free up some of our crews to help us, you know, even be more efficient. Thanks.

Operator (participant)

Your next question comes from the line of Brian Ossenbeck from JPMorgan. Please go ahead.

Brian Ossenbeck (Managing Director and Senior Equity Research Analyst of Transportation)

Hey, thanks for taking the question. Mike, welcome back to the industry. Congrats. Just wanted to ask more about the, excuse me, on the service side, maybe for Kevin. You're seeing some conversion, and you mentioned off of areas that have excess truck capacity. Is this stuff that you thought you lost before and was gonna come back, or has the service been so good for so long that people are actually going to convert and stay there? Just trying to get a sense of the stickiness of that. Sean, if you can just give us some comments on the cost per employee for the fourth quarter. It looks like overtime is coming down quite a bit. There's always mix and trainings involved, so any color on that would be helpful. Thank you.

Kevin Boone (EVP and Chief Commercial Officer)

Yeah, I would say on the truck conversion side, we're really, really early into this thing. The good news is customers are willing to start to have those conversations that, quite frankly, we just couldn't have a year ago, given where we were. So we're, you know, building momentum. I expect this to build on itself into next year. The great thing is, I think, as an industry, we're starting to become aligned in terms of going after growth, going after some of the opportunities that exist out there, collectively as an industry, and I think that's very encouraging as well. But it's a mixture. It's a mixture of going after new customers.

Clearly, you pointed out the trucking market's not very supportive right now, but even in this market, we're finding customers that, with ESG and with other things, are wanting to have that discussion. There's still value that we can drive, but I only expect as that trucking market firms up in the next year and the years ahead, that this will accelerate on itself and see a lot of momentum coming.

Sean Pelkey (EVP and CFO)

Brian, on your follow-up question around cost per employee, we made a lot of progress on the overtime front in the third quarter. You know, that's an area that Mike's been focused on right from the very beginning, trying to figure out ways we can restructure the work and eliminate waste in certain locations. That's gonna help. I will say, though, sequentially, Q3-Q4, you probably will see still an uptick in cost per employee like we normally do. That's driven by some capital work, labor, that'll go over to OE in the fourth quarter. We also have some seasonal vacation and some accruals that'll hit in the fourth quarter. I would say, sequentially, Q3-Q4, you'll probably see cost per employee up a few percent.

Operator (participant)

Your next question comes from the line of Brandon Oglenski from Barclays. Please go ahead.

Brandon Oglenski (Director and Senior Equity Analyst)

Hey, good evening, and thanks for taking my question. Mike, welcome back as well. I guess, Mike, can I just ask you, you know, the U.S. roads historically just haven't had a great track record of organic growth, and we know things like coal have been a long-term headwind. What have you seen in your first month or so, you know, that you like to see at the CSX plan or, you know, changes you want to make that, you know, will help with this idea that CSX can outgrow the market looking ahead?

Mike Cory (EVP and COO)

Yeah. Hey, Brandon. Thank you. Wow, you know, I mentioned in my remarks the visibility of information, and it just, it creates this connection where people see. You know, we have people that manage terminals, that, you know, manage the dispatch on the road. We have people that manage people from a crew management perspective. We manage locomotive. We do all these things individually, and to see that all together, and then again, back to being understanding of what it is you can do, whether it's from a capacity or a service perspective, but then cutting in with Kevin's team, we can get sticky because we can really understand all the work we're doing is really to get that business, is to keep that business.

I see that here. The opportunity here is, you know, look, where the railway I came from, you got the business, you went 1,200, 1,500 mi, and then, you know, there was more business. Here, it's everywhere. It's competitive, but there's lots of it. Kevin, we're not talking so much about the truck. Obviously, we're gonna grow with the market and what it gives us, but I just think the opportunity here when we connect our people, we are everywhere. We service, you know, what is it? Two-thirds of the U.S. market, and that's just opportunity in itself. You know, I don't know if I'm answering your question again. I've been here a month, but I see that that's really what our goal is. We wanna grow properly.

We want it to be ratable. We wanna make sure that we're in position for it. We're gonna make sure that we rid ourselves of waste, so we're not getting rid of the assets that we need when it does come.

Operator (participant)

Your next question.

Brandon Oglenski (Director and Senior Equity Analyst)

Thank you.

Operator (participant)

Comes from the line of Jonathan Chappell from Evercore ISI. Please go ahead.

Jonathan Chappell (Senior Managing Director of Transporation Equity Research)

Thank you. Good afternoon. Mike, I kind of wanted to build on that, and you kind of brought up your former role as well. You transitioned there from a PSR railroad to a growth railroad, and maybe that didn't go as smoothly as you would have hoped. You're not joining a fixer-upper here. CSX's service metrics have improved vastly over the last year or two, and now you're pivoting to growth. What are some of the lessons that you've learned from that transition at the last role, and some of the dangers to avoid, and how you manage capacity as you're trying to build a network without clogging up the network and causing service issues?

Mike Cory (EVP and COO)

Well, thanks, Jonathan. One of the wounds just opened up. Look, it's no different. We have to, we have to be really aligned. First of all, we have to understand what our assets and our people can do for us and expand on that, obviously. I just don't see the market, the commodities we move being the same as the growth as where I came from. Again, I have a long way to go to understand the market, and I'm working extremely hard with Kevin to understand it. Look, the principles are the same.

We sell a service, we deliver a service, and how fast we recover from, you know, any service disruptions, is key to keeping the customer knowing that our goal is to be the reliable provider for them. I don't see any difference. You can go back and take a look at, you know, the hockey stick recovery and all that great history, but I'm looking forward, and I don't think anything changes, in my view, as to how we approach this. We know what we can do, and we continue to really stay close, and again, the teams being together from the ground floor up, there shouldn't be surprises.

If there are, you know, we're gonna build our resiliency so that we can attack it again and again, be reliable for the customer. I don't see that big of a difference in terms of the model that we have here or what I had before. It's sell the service, deliver the service, and Kevin is really working hard with his team on reliability, so there shouldn't be surprises.

Operator (participant)

Your next question comes from the line of Scott Group from Wolfe Research. Please go ahead.

Scott Group (Managing Director and Senior Analyst)

Hey, thanks. Good afternoon. Maybe, Kevin, any color on how much of a uptick in the coal yield we should expect in Q4 and into Q1? Maybe just, Sean, help us think about some of the puts and takes for Q4. It just sounds like better volume, less of the fuel headwind, maybe some net uplift, but maybe some continued cost pressure. You put it all together, do you think operating ratio gets better or worse from Q3? Any directional call you want to give us?

Kevin Boone (EVP and Chief Commercial Officer)

Yeah, you know, Scott, there can be a lot of mix issues within our coal business. You know, when you think about southern utilities, longer length of haul, higher RPU versus northern utilities, export coal, very, very good business, can be shorter haul, so it can sometimes be a little bit lower RPU as well. On average, you know, given some of the benchmark strength that we've seen, you know, I would look for something in the low, low, low single digits, maybe mid-single digits, depending on mix.

Sean Pelkey (EVP and CFO)

Yeah, Scott, on your question around Q4, I think you did a good job of kind of summarizing the factors. We're off to a good start in terms of the volume, and that's obviously one of the most important factors in terms of not only seeing OR, you know, stay stable to improve, but also more importantly, growing our earnings. As you mentioned, fuel should be a little bit less of a negative here in Q4 than it was in Q3. We'll see what the direction of fuel prices is, but we had $30 million lag in the third quarter that we don't expect to repeat. You know, in terms of the cost seasonally, we typically do see higher costs in Q4 than Q3.

If you were to look over the last 5 years, each and every one of those years, the OR has been worse in Q4 than Q3, and everything except for 2020, the COVID year, operating income has been down sequentially from the third quarter. Now we're off to a good start, like I said, and, you know, we've got our eyes fixed on places that we can eliminate waste and control costs. I think we've got a good shot of bucking that seasonal trend and doing a little bit better than that.

Operator (participant)

Your next question comes from the line of Justin Long from Stephens. Please go ahead.

Justin Long (Managing Director and Equity Research Analyst of Transportation)

Thanks, and good afternoon. Kevin, it sounds like you've recently had some early success with market share gains, both truck and rail, but could you expand a little bit more on the commodity groups where you're seeing the most meaningful tailwinds on that front? As we move into 2024, where you see the most opportunity to keep that momentum going?

Kevin Boone (EVP and Chief Commercial Officer)

Yeah, I think it's really within our merchandise portfolio, and it's broad-based. There's different initiatives across the board, you know, from our metals side of the business, which I highlighted. Automotive has been a good strength for us, and it's all on the back of, you know, service that's differentiated in the market, and we've really been able to capitalize on that with the customer. The customers are looking for a reliable service, and I think we've been a standout in the market here year-to-date, and our team has been selling it, and it's been incredibly helpful on that side.

I will say, you know, you're gonna start to see some benefits of the industrial development side, you know, more in probably 2025, 2026, but you'll start to see that layer in in late 2024. Got a lot of momentum there. Again, it goes back to the service product that we've been able to deliver and getting the confidence as these industries build new plants that they're locating on our railroad. I actually just sat down with Christina this afternoon, and we were going through all the industrial projects that have been taking place throughout the U.S., and it's interesting, you look at a map holistically throughout the U.S., and it's all focused in the East, and that's our railroad.

That's where we operate, and that's where our team is really going after it today, and very, very optimistic on what's happening in that side. A lot of, a lot of opportunities. They're mixed across different industries, and every industry's created a little bit different, but we are being able to lean into those conversations, you know, quite, quite different environment than what was occurring last year, but, you know, very, very optimistic here.

Operator (participant)

Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Please go ahead.

Amit Mehrotra (Managing Director and Airfreight and Surface Transportation and Shipping Analyst)

Thanks a lot. Hi, everyone. Sean, I wanted to just follow up on that question around 3Q-4Q, but maybe ask it as it relates to 2024. I mean, obviously, we're moving from a very inflationary environment to a less inflationary environment. You've got a little bit of labor, another uptick in labor in the middle of next year. Then I also look at, like, PS&O, you know, is that, you know, 19% of revenue several years ago, it was as low as 14%-15% of revenue. There's obviously some opportunity to get more leverage on the cost structure, especially on that big PS&O item. I don't know if you can kind of help us enter your brain a little bit and think what is the cost structure look like in 2024?

Because obviously, we're still in an inflationary environment, but you've still got maybe these chunky, idiosyncratic opportunities to kind of leverage some parts of the cost structure.

Sean Pelkey (EVP and CFO)

Yeah, Amit, obviously, we're still in the planning phases for 2024, so I don't want to get too far ahead of ourselves here. You know the story on labor, and just to make sure everybody understands and it's level set, we're going to have a 4.5% wage increase midyear next year. That's the last year of the contract with the union employees. That's a step up from the 4% increase that we had midyear this year. In terms of PS&O, at least on the inflationary side, it's early, but I think it's fair to say that we'll start to see some normalization of the inflationary pressures from this year. We had mid-single-digit inflation this year.

It will probably be a little bit less than that. But certainly higher than the 5-year average as some of those outside service contracts are based on lagging indicators or labor indices that are going to reset. So, suffice it to say, I do think we've got fewer headwinds overall going into next year than we did going into this year, and that sets us up well. We've got cost inefficiency opportunities, but I think more importantly, Kevin and the team are building a really nice pipeline of growth that really stems from the way that we've been serving the customer over the last year and that sustained service level as well as some of the initiatives the team has been working on. That's really what's going to drive growth as we get into next year and beyond.

Operator (participant)

Your next question comes from the line of Tom Wadewitz from UBS. Please go ahead.

Tom Wadewitz (Senior Equity Research Analyst)

Yeah, good afternoon. Wanted to see. I guess it's kind of staying in the same topic, Sean, but if you think about 2024 and volume sensitivity in terms of how the OR performs, do you think that there's a chance that you could see improvement in the OR if you don't see volume growth? Perhaps related to that, from a pricing perspective, I think sometimes people think that there is a time delay on some of the pricing with multi-year contracts, and there might be catch-up on pricing related to inflation. I guess, you know, it's kind of two things within that, just, you know, OR sensitivity to volume and also potential catch-up on pricing. Thank you.

Sean Pelkey (EVP and CFO)

Yeah, Tom. I mean, our plan is going to be to grow volume ahead of the economy. That's what we're going to shoot for. That's what we're going to plan for. I think if we were to have no growth next year, I think it would be tough to improve the OR with the continued inflationary pressures that we're seeing. You know, you're cycling. We had that insurance settlement earlier in the year, so there's a few things there. Depreciation will continue to go up, things like that. We need growth. That's what the model requires, and that's what we're building into the plan. Kevin, I don't know if you want to address the price piece.

Kevin Boone (EVP and Chief Commercial Officer)

Yes. On the pricing, roughly 60% of our business reprices every year, and 30% of that is kind of carryover of what we've already touched this year. So we'll touch the other half going into next year. And the environment is still supportive. And it certainly helps when the service product is vastly improved, and we'll continue to price to our service levels and those are up. And so it's a conversation that customers expect. Our labor inflation is very visible to the world, and we have those discussions. They don't, they're not unexpected from the customer.

Operator (participant)

Your next question comes from the line of Allison Poliniak from Wells Fargo. Please go ahead.

Allison Poliniak (Director and Senior Analyst)

Hi, thanks for taking the question. Just want to go back to the domestic intermodal side. You know, you're starting to see some conversion from truck here. When you're talking to customers, what's really holding them back from converting at this point? Is there something in the service product that you have to evolve, or is it just simply building that trust with the reliability that you guys have had over the past few months? Just any thoughts there.

Kevin Boone (EVP and Chief Commercial Officer)

Yeah, you know, to reflect on, you know, the pandemic, and that's, you know, the domestic intermodal and our intermodal franchise performed very, very well. It really was outshined the industry in a lot of ways. What minimized our growth opportunity was really the chassis and some of the equipment limitations that existed.

Obviously, we're in a very, very different world today, and so those limitations don't exist on a year-over-year basis, and we're really seeing the team able to capitalize on that. The strength of our service product is really coming through when you see what we talked about in the chart that we mentioned previously is, I think all those things are coming together. Service leading in the East, and then allowing our customers to grow with us with our service product.

Operator (participant)

Your next question comes from the line of Ken Hoexter from Bank of America. Please go ahead.

Ken Hoexter (Managing Director and Airfreight and Surface Transportation and Shipping Equity Research Analyst)

Hey, great. Good afternoon. Mike, welcome back to the sector and happy to have you here. Joe or Mike, I guess just operations seem pretty solid, right? In terms of how well you're operating and obviously you still wanna improve. Maybe Mike, just talk about what, I know you've been there for a month, but what do you see as, I don't know if it's low-hanging fruit or opportunities on operations? You know, it sounds like Sean saying or Kevin saying you need the volumes in order to get that operating leverage, but are there things you can do on the cost side from what you see that can aid that leverage opportunity?

Mike Cory (EVP and COO)

Yeah, hi, Ken. Thanks. Look, visibility of waste and getting it and collating that information so that I can, you know, what I do is I try to teach and learn. Learn and teach, that's really what it's about. We have a good group of people, many of them, you know, younger, haven't been experienced in the positions they're in. That's really where I've been focusing. First of all, to get a temperature read, but really start to share with them how to go about getting it that way. It's not easy in a network like this, and, you know, it's something that we'll do as a team, but I'm not big on, you know, the next day looking at a report. I want it visible right away, so they see their actions.

I see great opportunity in that. They're hungry to do it, they're more than motivated, and it's up to me to, you know, teach them and help them get there. I have all the confidence in the world that's where we'll get. We'll see just through the waste exercise at first, and then it starts to allow you to get into understanding how to devise the network, to Kevin's point, to keep and even get better service and get the businesses out there.

Joseph Hinrichs (President and CEO)

Yeah, Ken, I just want to add a little thing. I think the timing of Mike joining us is, you know, perfect because we've had a year of taking advantage of the operating model that we have, engaging with our employees, you know, through a lot of things around culture and our ONE CSX. We've made tremendous progress, especially on the service metrics, as you've seen, and we have, you know, close industry-leading metrics across the board on the operating side. Now, we have Mike coming in with his experience, fresh set of eyes, and all the opportunities that can now allow us to now step back and say, "Okay, we've come this far. Great work. Proud of the team's work. Now, here's the opportunity that we have to advance even further." The timing is perfect, I think, for us.

Works out very nicely. Our team's excited and motivated. You've seen now, as Kevin has highlighted many times in his comments tonight, regarding the customers have acknowledged, and they acknowledge that with me all the time, the service levels that we've sustained, you know, almost reliably now and repeatedly for 12 months. Now we have the opportunity to get more efficient and to get even better. Mike's come in with a great attitude and excited about how we can take it to the next level and still focus, of course, on improving our service metrics, but also teaching our team, which is a relatively young team, to understand what it takes now to take a next step forward. We're excited about it.

I'm excited about it, and I think we can continue to outpace the industry when it comes to progress on our efficiency metrics.

Operator (participant)

Your next question comes from the line of Bascome Majors from Susquehanna. Please go ahead.

Bascome Majors (Industrials Equity Research Analyst)

Thank you. To follow up on that earlier question, can you roll that out a little bit further? Not just on the service side, but Mike, your role and the mandate you've been given to focus on culture, sales, the integration of Kevin's department with yours, you know, what would we see different from CSX over the next 3-5 years versus what we've seen over the last 3-5? Thank you.

Mike Cory (EVP and COO)

That's a tough one, Bascome. I'm still out there trying to learn, and that's important to me because I don't wanna block anybody or make them feel they can't come forward with an idea. That's number one. You know, going forward, I wanna share the experience I have so that they're incorporating that into the things they do today. You know, to me, we'll see improvements in all our metrics. A bigger focus on, you know, when I say velocity, I'm talking both trains and cars, but fluidity. We run a pretty condensed network here. Everything is really close. We don't have, in many cases, a lot of time to recover. It's the plan we put into effect and then the discipline about executing it.

What I'm trying to share with them is the availability of data and how to use it. I don't see that they've had, you know, enough time. They've gone through a pretty tough period here over the last couple of years. They've rebounded extremely nicely. To Joe's point, this is to get to the next level, so where they're self-sufficient. I know they can be, they know they can be, but I'm here to show them that way. Maybe, Kevin, if you have something to add?

Kevin Boone (EVP and Chief Commercial Officer)

Yeah, I would just highlight that the teams, Mike's team and my team, they coordinate daily. They're speaking better than they ever have to each other. It's important from a sales and marketing perspective. You talked about, can we handle a surge in volume demand? Well, it's up to us to communicate that real time so the team can work, you know, make sure we're prepared for that volume, communicate with the customer, and, you know, make sure it's ratable and that we have the people in place to handle it. I think a lot of the discussions we're having right now are around that, and you know, I don't think it's rocket science to figure out where things could come back very, very quickly.

We're having those discussions around, you know, creating resiliency in this network. We're gonna get together in a couple of weeks, our teams again, go through it market by market. What do we see for next year? What do we see over the next three years, and how are we gonna prepare for that? Those conversations are better than they ever have been.

Sean Pelkey (EVP and CFO)

Yeah, yeah, I'll just finish it up Bascome because, like, I've been, like I said, pretty much, well, not pretty much everywhere, but a lot of locations, and I really focus on bringing everybody that has a role in servicing the customer. You know, I was up in Baltimore, Curtis Bay. I had everybody from facilities to Kevin and his marketing team, to the people that run the plant, you know, to our engineering, mechanical.

Everybody has a role to play, and when they see their actions actually doing it together, they become more than customer advocates. They know and can, you know, respond to the customer much faster because they know exactly what they can offer. Going forward, this is not operations and marketing. No, this is CSX. This is how we approach this. This is how we build the business and keep it and drive it even better for the customer. That's what I see in three to five years.

Joseph Hinrichs (President and CEO)

You guys can't see it, but Mike has the shirt on. It's ONE CSX. That's what we're talking about here, and that's the vision, that our teams are seamless enough that people see CSX as one entity, not a bunch of different functions and silos. All focused on, of course, safety first of our employees and the communities we live in and serve, but ultimately, the service we provide our customers, which leads to the growth potential that we've all talked about. It doesn't take a rocket scientist to figure out in this business what incremental margins come with growth in this business.

From my, you know, year-plus experience here now, we will realize the most potential when we have operations and marketing sales, as described by both Kevin and Mike, as one team, looking at every opportunity together with a can-do, let's find a way to make sure it's profitable. Let's find a way to be able to serve the customer and do it efficiently. That's the spirit of ONE CSX, focused on teaching and training our employees to be part of that team, and to get excited by that opportunity, and do it in a way that we're proud of how we work together in service of the customer. That's ONE CSX, is what everyone's talking about.

Operator (participant)

Your next question comes from the line of Jason Seidel from TD Cowen. Please go ahead.

Jason Seidl (Managing Director of Industrial Transportation Research)

Thank you, operator. Joe and the team, good afternoon. Mike, welcome back. It must be pretty exciting coming, hitting the ground running in a railroad, showing improving service numbers. We look forward to seeing what you can do in 2024. My question actually is gonna be to Kevin. Kevin, you know, you had some comments. You said you had many, many reasons to be optimistic, so noted the two manys there. You sort of touched on domestic plastics improving. I'd like to get some meat on the bone there with those commentaries. Then you talked a little bit about some industrial development project with Christina. Can you give us some numbers on what you're seeing now in terms of total projects and maybe what you had a year ago and maybe pre-pandemic?

Kevin Boone (EVP and Chief Commercial Officer)

Yeah, you know, we're exposed to a lot of cyclical businesses and, you know, we're talking about, everybody's talking about a looming recession. Well, in my opinion, you know, a lot of the businesses we touched have been in recession for the last year, and many of them are at cyclical lows. Maybe we went beyond that with the destocking that occurred. When we talk about, you know, some of the plastics, when we talk about forest products and some of these other markets, there's significant destocking headwinds that we've been dealing with for the past three-four quarters. Just based on that, you know, obviously, the comparisons get much easier from here as we look into 2024.

Hopefully in a world where demand is relatively stable, that would implies, hopefully, some growth beyond just having the economy snap back a bit here. That gives me a little bit of optimism. Obviously, if you turn the TV on right now, it can make you a little bit hesitant to be bullish. But, you know, the things that we can control, as I mentioned before, that pipeline has never been bigger. I don't think... You know, I've only been here for about 6-7 years, but, you know, talking to my colleagues that have been around a lot longer, the things that we're doing from an industrial development side, the things we're doing, working with other Class Is, the things, you know. You have the Western Class Is going after the Mexico business. We can participate in that.

We're really happy to work with them. There's a lot of things, a lot of momentum just around us all working together to create opportunities for ourselves, where I think for decades, we've been pushing volume, quite frankly, off the railroad onto truck, and now we're all gonna work collectively to really change that trend, and that's exciting. I forget the second part of that question. The industrial projects, you know, we did highlight a number of those. We'll come back probably at the end of, as we look into next year and kind of put more numbers around that, but the activity levels are just tremendous, and we haven't seen any slowdown. Like I said before...

The biggest challenge is to create the inventory of, you know, readily available industrial sites that are shovel-ready tomorrow, basically. As these companies, as we're seeing more onshoring, we're seeing more industrial development, they want to go quickly, and we've got to be ready to serve their needs. That's the focus of this team, is how can we create more opportunities throughout our network to react to where they need to go and create a service so they can reach their customers. We'll put up some more numbers around that as we develop it. The team's done a great job, and we've got a lot of momentum there.

Operator (participant)

Your next question comes from the line of Jordan Alliger from Goldman Sachs. Please go ahead.

Jordan Alliger (VP and Transportation and Logistics Equity Research Analyst)

Yeah, hi. I was wondering if you could maybe give some color or thoughts around the auto sector. Obviously, it's been an area of a lot of strength. The strikes, work stoppages are going on. How much cushion do you guys have relative to, you know, the inventory that's out there versus how long this drags on before it really starts to impact carloads? Thanks.

Kevin Boone (EVP and Chief Commercial Officer)

Yeah, I mean, obviously, we want it a quick resolution. The quicker, the better. As you're probably aware of, the industry as a whole has been short on car supply, so to some degree, that's probably helping us or helping the industry to a certain degree. There's certainly some impacts to us. We're seeing strong demand in other areas where we have a diverse portfolio, so we're able to, you know, probably supply more cars to those customers that have been wanting more cars here recently and diverting some of those as we've seen some impact. You know, my boss here knows that industry more than anybody else, and I keep on asking him every day what his thoughts are, but we'll manage through it.

I think more of this is deferred revenue, and we think the demand still remains out there. As we move in the next year, we expect to capture all the demand that exists.

Operator (participant)

Your next question comes from the line of David Vernon from Bernstein. Please go ahead.

David Vernon (Managing Director and Senior Analyst)

Hey, good afternoon, guys. Kevin, I wanted to ask you about the drivers of that domestic intermodal growth from a channel perspective. You know, the numbers sort of turned around in week 17, and it's been pretty straight and up to the right. Is this just general stuff you're getting through traditional IMCs, or is it, you know, a parcel company that's doing a little bit more over the rails? Is it a retailer that you've got a direct relationship with? Is there any one single driver of what's looking like a pretty big divergence from industry intermodal performance that we should be thinking about there in domestic intermodal?

Kevin Boone (EVP and Chief Commercial Officer)

Well, I think there's not one single driver. It's the teams working together on the operating side and the sales and marketing side. They're going after every opportunity there is. Whether it's identifying new lanes, other things that are profitable, we're going after it right now and really being able to lean in. I have to commend the team for their creativity, their ability to work with our partners in operations, and really go after things and adapt quickly and react quickly to market demand out there. We still have a significant value proposition, even with the truck as weak as it is today, and that will only accelerate once the truck firms up a little bit here in the next year.

Really, really proud of what they've been able to accomplish, and we've got a lot of momentum around it.

Operator (participant)

Your next question comes from the line of Walter Spracklin from RBC Capital Markets. Please go ahead.

James McGarragle (Equity Research Analyst)

Hey, this is James McGarragle. I'm on for Walter today. Thanks for having me on. I wanted to ask a question on U.S. port share shift toward the U.S. East Coast and away from the U.S. West Coast over the past number of years. Given the agreements with the unions on the West Coast, do you expect this share shift to trend towards the East Coast to continue? Any early indication you can share from your conversations with the shipping lines and your strategy to capitalize on these trends longer term? Thanks.

Kevin Boone (EVP and Chief Commercial Officer)

I think, you know, you've heard it over and over again. The West Coast are challenged in terms of being able to add capacity, and so there's been tremendous investments that continue to be made on the East Coast, and we're the beneficiary of that. We'll continue to work with our East Coast ports and expect that trend to continue going forward. You also see a migration, you know, out of China and other markets, and that's also helpful for what we're seeing in terms of imports coming out from the new locations that are more likely to go to the East Coast than maybe the West Coast previously. A lot of good momentum, a lot of significant investments being made.

We're making investments alongside of them to make sure we're prepared for the growth, but it's been a great story that I don't see any reason that that won't continue going forward.

Operator (participant)

Your next question comes from the line of Ravi Shanker from Morgan Stanley. Please go ahead.

Ravi Shanker (Managing Director)

Thanks. Good evening, everyone. Just a couple of questions here. One follow-up. Sorry if I missed this, but I was a little surprised to see the headwind on the accessorials get a little bit worse because it felt like you guys had a pretty good handle on that. Can you just kind of unpack that for us and kind of if that's now a final number? Also maybe for Joe, bigger picture, I know the rails are all trying to pivot very heavily towards growth, which has historically been challenging to come by. What do you think about inorganic growth potential opportunities, maybe short lines, maybe trucking? Like, is that something you guys are looking at as well? Thank you.

Sean Pelkey (EVP and CFO)

Ravi, this is Sean. I'll start with the question around the accessorial. It's been trending down all year long. I would say we took our kinda last sequential step down from Q2 to Q3. A little bit more than we expected, but it wasn't just intermodal storage. There were some other components of other revenue that were down slightly. There's a lot of different things in there, from subsidiary revenue to switching charges, to lots of, lots of different factors. This is probably a good run rate to use going forward. It is also impacted by volume to a degree, so it'll trend to a little bit higher when the intermodal volumes recover, likely.

The level that we're at right now, we do think is kind of the bottom, and that's why we wanted to make sure everybody understood where we were headed for the fourth quarter on that line.

Mike Cory (EVP and COO)

Thanks, Sean, and Ravi, just a couple of other comments from your second part of your question. I mean, at the highest level, I wouldn't think that, you know, trucking is where we would see growth. We're proud of the acquisition of Quality Carriers and how that's progressed with us at CSX, where that was very specialized, you know, to serve our chemical customers. We're very strong franchise and very important business to us. We'll always be opportunistic, but I wouldn't say that trucking is where the growth comes from. Just a couple of areas to highlight that we haven't been highlighted so far tonight.

First and foremost, I'll start with the fact that, you know, I think you get the sense from this team that we firmly believe that the best way to provide opportunity for growth is to continue to provide best industry-leading service to our customers. When we do that, it gives us more and more opportunities to win business with customers. That is the foundation of where we see growth. You have to remember, we've been investing in the New England region, which is the old Pan Am network that we purchased, and that's going to be an opportunity for growth. We're excited about that. We're going to start a new interchange point with CPKC in Myrtlewood, Alabama. We're very excited about that opportunity. Kevin referenced it, but I want to highlight it.

You know, in order for this industry to see significant growth, we have to work better together to be motivated to serve customers in new and better ways. We're starting to have some of those good conversations with other Class I railroads to be able to talk and think differently about how do we serve the customer and how do we get excited about that opportunity. There are a number of incremental steps we can take to grow the business beyond just getting better and all the work that we're doing and the cyclical nature of our business, which will be some things that should help us going into 2024, as both Kevin and Sean mentioned. Those are some incremental areas that we have opportunities.

As our intermodal product continues to get better and we continue to be in the 95%+ trip plan compliance reliably, repeatedly, and get to the high 90s, as the truck market starts to, you know, rebound and as costs continue to increase there, we can be even more competitive versus truck and get some more business off the road there. Lots of opportunity for us. We have to continue down the path we're on of continuing to provide that reliable service, but there's some exciting developments going on in addition to all the projects that are going on industrial development side, that Kevin referenced earlier. We'll provide maybe some more information on that, not guidance, but information on the context of that.

There are hundreds and hundreds of projects in the works in that space, so a lot to be excited about and really excited about the capability of our network to take advantage of that.

Operator (participant)

This concludes today's conference call. Thank you for your participation, and you may now disconnect.