Kevin Chiang: Thank you.
Doug MacDonald: Thanks for the question.
Operator: Our next question comes from Scott Group from Wolfe Research. Please go ahead. Your line is open.
Scott Group: Hey, thanks. Good afternoon. So Ghislain, it looks like we can often see a 4 to 5 points of OR improvement from 1Q to 2Q. Is that right that we should be sub-60% this quarter? And then I guess, I’m just wondering how the labor negotiation impacts how you’re thinking about Q2 in the year? Maybe, Tracy, just some thoughts like on the scenarios, what’s the upside potential if we get hourly deals? What’s the risk that inflation ends up higher than what you’re thinking? Just any thoughts there. Thank you, guys.
Tracy Robinson: Ghis, why don’t you start off and I’ll take it from there.
Ghislain Houle: So thanks, Scott. Listen, we don’t give guidance on OR on a quarterly basis. But as you know, if you look historically, from a seasonality standpoint, Q1 has been the quarter that has the highest OR. Q3 has been typically the that has the lowest and then Q2 is in between, and Q2 and Q4 is more or less in between depending on how you finished Q1 getting into the spring and in Q4 is how you get into the winter in October, November and December. So definitely, from an historical standpoint, you would assume that, that OR in Q2 would be better than Q1.
Tracy Robinson: And from a labor perspective, we’re working very hard at — and still in discussions with the TCRCs. We would like a negotiated agreement with them and we believe that, that is possible. The proposal that we have in front of them now is an hourly agreement. We don’t yet have an agreement with them, but it’s an hourly agreement. It would have economic benefits, of course, for both of us. For our employees, that would be predictable scheduling, two consecutive days off and increased earnings for the company. The benefits would fall largely in improvements in availability and productivity. So I think trains awaiting crews, recruits, deadheads, those types of things. So we’re in discussion with them. And I think given that we are in discussion with them right now, until negotiations, it would be inappropriate to comment much further than that, Scott. Thanks for the question.
Operator: Our next question comes from Tom Wadewitz from UBS. Please go ahead. Your line is open.
Thomas Wadewitz: Yeah. Good afternoon and Doug, congratulations. I hope you enjoy the retirement as well. I guess two questions for you. I think you talked about some new or — I don’t know, I’ll call it Part A, Part B. Just on the bulk side, you said, I think, some new business on crude by rail. I don’t know if you have any color on how big that is or what that is? And then coal, you were kind of one is getting — Canadian is getting better. U.S. stays weak. What’s the kind of net coal view within that? Is coal going to be — overall volume is going to be flat or still down, but down less? Thank you for the comments on those two.
Doug MacDonald: Okay. Well, thanks, Tom. So on the crude by rail, so we have a natural crude heavy oil franchise that moves down to the U.S. We’ve been working with a couple of our customers to create a new terminal that’s on CN. So rather than having to worry about moving this product offline to other railways, we’ve been able to work with our customer base to create a new crude receiving terminal for heavy oil down in the Baton Rouge market and that is great. We’re able to cycle those sets from the Alberta market down there and back a lot faster. So we were able to turn our customers’ assets and move Canadian oil to the U.S. market as fast as anybody has ever been able to do. So we expect that to continue on moving forward with other opportunities there as well.
On the coal market, we’re expecting obviously Canadian coal to pick up only because we had a couple of mines that were down earlier in Q1. Those mines are now back running properly. So we expect to see very comparable numbers moving forward on the Canadian coal side. The U.S. coal side is more market dependent. So our U.S. coal franchise is mostly export through the Gulf Coast, that coal moves typically over to Europe. And that market is tough right now because they use it for blending with Russian coal and they’re not taking Russian coal. So it’s a complex, I’ll say, a blending operation. But our customers, at the same time, are looking at new opportunities in different countries around Asia as well as in Europe. So we’ll see what happens there, and we’ll only be able to give an update once they’re able to convince their customers to take that coal market.
So I think that covers both topics. Thanks for the question.
Thomas Wadewitz: Is the crude new volume or extended length of haul?
Doug MacDonald: Some of it — most of it is extended length of haul, but there will be some new volume in there.
Thomas Wadewitz: Okay. Thank you very much.
Operator: Our next question comes from David Zazula from Barclays. Please go ahead. Your line is open.
David Zazula: Hey, thanks for taking question. Doug, congrats on a great period of service. I guess any time I’ve left anywhere I’ve always had some undone items. I was wondering what your undone items that you never really got to and would you be excited to turn it over to Remi for him to get started on?
Doug MacDonald: Well, thanks very much. So there’s always lots of undone items like you’ve said. But listen, my key goal was to help find a great replacement, and that’s one goal heavily accomplished. So there’s nothing much we can say about that. You’re going to love having Remi on these calls, and the rest of the team will straighten them out if it’s not really working. So — but it’s not like he’s a stranger. He’s been doing this in some of his other jobs. So he is going to be awesome. With respect to that, there’s always tons of work to do, and I work with the team around that. You always want to be able to grow and help your customers grow. So we’re always trying to find new ways to work with our customers to create either new products or even get deeper into their supply chains.
And we accomplish that on a regular basis, but there’s always the next one and the next one and the next one. And that’s really what I haven’t been able to get done. You can’t get them all done. It’s just impossible because there’s always something else to do. So I’m looking forward to turning that over to Remi and he’ll be able to do that and work with the team here on creating those products that the customers, who really need to drive additional growth at CN. Thanks for your question.
David Zazula: Thanks, Doug.
Operator: Our next question comes from Jon Chappell from Evercore. Please go ahead. Your line is open.
Jonathan Chappell: Thank you. Good afternoon. On the productivity front, there’s a lot of focus on headcount, but your purchase services down 4% year-over-year in a flat volume environment. Is that — and with the winter that you actually had this year versus last year. Is that all kind of productivity? And as we think about that major cost line item, we kind of extrapolate a much lower run rate going forward or is there something kind of out of the ordinary in the first quarter that made that cost item come down despite the flat volumes?
Tracy Robinson: I’ll hand that one over to Ghislain.
Ghislain Houle: Yeah. I mean, when you look at the year-over-year, you’re right, our purchasing services material were down 4%. A lot of it was a little bit of less snow clearing, a little bit of less outsourced services and a little bit of less maintenance. I mean, but these are not big variants. But you’re right, when you add them up, we’re down 4%. And those are mainly the items that make it up. Thanks for the question, Jon.
Jonathan Chappell: Any reason to extrapolate that as a lower run rate then going forward or are you saying it’s basically just kind of a one tiny decline?
Ghislain Houle: I would not assume that this would — that will deliver a lower run rate in the following quarters.
Jonathan Chappell: Got it. Thank you, Ghislain.
Ghislain Houle: Thank you.
Operator: Our next question comes from Brian Ossenbeck from JPMorgan. Please go ahead. Your line is open.
Brian Ossenbeck: Hey. Thanks for taking the question. Doug, two quick ones for you. One on the Canadian grain pricing on the regulated side. You had, think two 12% in a row. I don’t know if you’d expect something similar just based on how that formula works, but we’re going to get that any day now. So any way to level set what we should expect for the coming year? And then just maybe some brief thoughts on the pipeline as you look further out from the CN specific growth opportunities. Obviously, you outlined it at the Investor Day, a little while ago, I have been a few moving pieces, but any other themes you’ve seen since then in terms of what’s come in, come out or maybe accelerated or slowed down as you look on a multiyear view? Thanks.
Doug MacDonald: Okay. So thanks, Brian. So on the Canadian grain pricing, it’s been one year at 12%. And so that’s the current year we’re in. The prior year of memory serves me right, it was more than that 4% to 5%. So, but it’s still all good numbers. So we’re going to do very well on Canadian grain this year. So we continue to have a strong grain market even into the spring. So it’s going extremely well. And we expect that to continue on moving forward actually through Q2 for at least the next month or so. So we’re very happy with the overall grain this year. Now we’ve also been able to get the pricing with there. So we should finish very well on grain pricing. For next year, we — listen, it’s a little bit of a black box within the CTA and Transport Canada.
So when they come back, they consider a lot of different things. And then out comes the number. So we usually budget just in that 3% range and just try and move forward from there. If we’re surprised on the upside grade, if we’re surprised on the downside, we’ll adjust accordingly. So we’ll all be surprised when the number comes out in a week or two. Now with respect to some of the other pipeline of growth opportunities, we’ve done obviously very well of what you’ve seen. Some of the things we’ve really been delivering on is on the refined products and on the LPGs. So that’s one that’s really started to add up. We obviously got the long-term agreement with AltaGas, which we announced before, but we’re seeing additional growth head towards both the West Coast for export as well as we’re still servicing the domestic market really, really well.
So we continue to see that and refined products has actually been the surprise this year. The number is up quite a bit. Now we’re moving up to different markets. It was moving export during the winter, and we’re expecting to see more and more domestic market during the rest of this year. So we’re very happy with all that. And then that ties in nicely with our new facility in Mac Yard as well, which would be above and beyond that. Thanks for your question, Brian.
Brian Ossenbeck: Thank you, Doug.
Operator: Our last question will come from Justin Long from Stephens. Please go ahead. Your line is open.
Justin Long : Thanks and good afternoon. So I know the CapEx guidance didn’t change overall, but I was wondering if you could provide any update on your locomotive plans for this year as it relates to both new locomotives and modernizations? And in addition to that, the CARB has proposed some regulations in the U.S. I know the EPA is looking at those currently. Just curious if you have any thoughts around what’s been proposed and how that could potentially impact your locomotive strategy going forward if passed?
Patrick Whitehead: So I’ll take that one. This is Pat Whitehead. So our plan is that we continue to modernize our fleet. We will continue to work with Wabtec and we have some progress rail modernization as well, that’s been our chosen path, that’s the most reliable locomotive in the industry currently, and we will continue to invest in that. We are working with both OEMs and exploring other technologies for the locomotive of the future. And we’ll continue down that path, and we’ll continue to have — we purchased donors last year that we could convert for our modernization program, and we will be converting those between this year and next.
Tracy Robinson: And just let me add a little bit to that, as we finish up today. We are watching car very closely and where that is going to go with the rest of the industry. As an industry, this is something that we’ve got to get our head around. We have made some investments ourselves on electric battery, electric locomotive and on a hybrid locomotive. But clearly, as we go forward, this is something the industry will collaborate on more fully and decide on the ultimate path. It’s an important effort for us and for the industry, and we’ll keep you guys in the loop as we go along. Thanks so much for the question. So we’ll wrap it up today. And as we do that, I’ll reiterate the plan is working clearly. You guys’ mind is on growth. Thanks for giving Doug such a good workout on his last call. Our minds on growth as well, and we’re feeling very optimistic around what we see ahead of us. We look forward to talking again with you in a few months. Thank you.
Operator: The conference call has now ended. Thank you for your participation. You may now disconnect your lines.
