Good afternoon. My name is Julianne and I will be your conference operator today. Welcome to CN's Fourth Quarter and Full Year 2023 Financial and Operating Results Conference Call. All participants are now in listen-only mode. After the speakers' remarks, there will be a question-and-answer session, during which we ask that you kindly limit yourself to one question. I would now like to turn the call over to Stacy Alderson, Assistant Vice President, Investor Relations. Ladies and gentlemen, Ms. Alderson.

Thank you, operator. [Foreign Language] Good afternoon, everyone, and thank you for joining us for CN's Fourth Quarter and Full Year 2023 Financial and Operating Results Conference Call. Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the US and Canadian securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. They are more fully described in our cautionary statement regarding forward-looking statements in our presentation. After the prepared remarks, we will conduct a Q&A session. I would ask that you please limit yourself to one question, so we can get to hear from as many of you as possible. The IR team will be available after the call for any follow-up questions. Joining us on the call today are Tracy Robinson, our President and CEO; Pat Whitehead, our Chief Network Operations Officer; Derek Taylor, our Chief Field Operations Officer; Doug MacDonald, our Chief Marketing Officer; and Ghislain Houle, our Chief Financial Officer. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

[Foreign Language] I want to start today by welcoming Derek and Pat to their first call. It's great to have you guys with us. And I also want to extend a warm welcome to Remi, who's out in the field today, immersing himself in the operation. You'll all have a chance to meet him over the next few months or so. Doug remains in charge of our commercial organization and our growth efforts and he is of course here today with us. Doug will be retiring this year and there'll be a little more to say on this at that time. But I very much appreciate Doug your presence and partnership over the last couple of years. And I know that Doug will do a great job in getting Remi set up with our commercial team. Now this transition later this year will be seamless to both our customers and our employees. We are railroading here for the long term. And we're fortunate to have a lot of very strong and experienced talent at CN and we're going to supplement that now and again with talent with different backgrounds and perspectives. And this is going to make us even stronger, which is important as we continue to refine our path forward and advance our growth mandate. And we're also taking a long-term approach when it comes to our network. We know that our network has always been core to the CN advantage and to our ability to provide our customers with solutions for their businesses, where it makes sense to add to our network, to position us to do more or better of this, we'll do so. Now in the fourth quarter, we closed on the CBNS, which will give us more opportunities to densify the eastern part of our…

[Foreign Language] It's great to be on the call today. I'll begin with safety. In the fourth quarter, our injury frequency ratio was down 14% and our accident rate was down 29%. These results capped a solid full-year performance, demonstrating our progress toward a commitment-based safety culture. For the full year, injury frequency ratio improved 13% and the accident rate improved 17%. This represents a record-low year for injuries at CN, but we know we can and that we must do better. I'm proud of the positive strides we're making on our safety metrics, but this is a journey and we won't be satisfied until all employees go home safely at the end of every shift. We are focused on our vision of a workplace that is free of accidents and injuries. We are committed to working as a team across all crafts and departments to achieve this vision. Training and development, technology, and behavior-based safety activities are essential to enhancing our safety culture. One of the keys supporting better safety outcomes is running a more predictable operation. Predictability is what underpins our velocity and our resiliency. CN's scheduled operating model has delivered seven consecutive quarters of operational and service excellence. Now, as we've said, the plan is dynamic and needs to adjust to our traffic. So with volumes rising, we have been refining our train package. For example, we added a train start out of Prince Rupert and we adjusted the Vancouver train plan to accommodate an uptick of volume in this corridor. Departing and arriving trains on time, what we call launch and land, continued to be a key focus of both the network operations and field teams. These are the basics of scheduled railroading. Fourth quarter origin train performance remained solid and in line with prior quarters…

Thanks, Pat, and good afternoon, everyone. The team finished the last quarter of 2023 with strong operational momentum and we started the New Year with a very fluid network. While we benefited from unseasonably mild weather and no major disruptions in the fourth quarter, I give full credit to the team for remaining focused and continuing to deliver excellent customer service. Finishing with positive momentum was key because, over the last two weeks, we've had more seasonal weather across the network with frigid temperatures, significant snow, and blizzard conditions. As we said before our Make The Plan, Run The Plan approach is not just about driving velocity and reliability, it also builds an operational resiliency allowing us to bounce back quicker after this kind of disruption. We're talking days instead of weeks. I'll now cover-off some of the key operating metrics. Starting with car velocity, what we view as the all-in metric of how well the railway is running, it averaged 215 miles per day in Q4. That is up 4% versus last year in one of our best Q4s ever. Importantly, we maintained this level of velocity right up to the end of the year, even as volumes were ramping up. Through dwell of 6.9 hours was a 4% improvement over last year. This is even more impressive given our traffic mix had less intermodal volume this year, which we know typically does not sit in a terminal for very long. Continued focus on terminal throughput and collaboration between yards and the operation centers enabled this further improvement. To give you a bit more color on our solid operating performance, network train speed of 19.6 miles per hour for Q4 is flat versus last year, but improved 5% on a full-year basis to 19.8 miles per hour versus 18.9 in 2022. Doug will talk about the customers perspective of our service in a minute, but the metric I keep a close eye on is our local service commitment performance or LSCP. This means getting the customers the right cars on the right day and in the right service window. Our fourth quarter LSCP was nearing all-time highs. I am confident the team will continue to execute and keep it at or above our 90% goal as we go through 2024. Incremental metric improvement is a continuous journey, looking for every gain we can through process and execution. The team is always looking for any types of operational efficiencies in everything they do. Some of our recent performance, as Ed used to say, has hit the sweet spot for this network. Our focus is to have balance in our metrics, not focus solely on one to the detriment of the other and always being mindful of cost versus benefits. Now, I will turn it over to Doug.

Thanks, Derek. Tracy already touched on the transition later this year with Remi, who is out in the field getting his boots dirty and seeing the operations up close. I got to hand it to Derek and Pat and the whole operating team who continue to deliver top-notch service. The feedback from customers is that we're continuing to hit the right spot and make adjustments where needed. We continue to deliver core pricing ahead of CN cost inflation. Turning to slide 11 now, fourth quarter revenues were down 2% versus last year on lower intermodal storage fees and a lower applicable fuel surcharge, partially offset by volumes and solid same-store pricing. RTMs, which we view as the best measure of volume were up 2% in the quarter, driven by record potash movements, strong propane, Canadian met coal exports, and refined petroleum products. We've seen sequential volume improvement since we hit the trowel in July, as we said on our last call. P&C volumes were up 12% in the quarter, with the exception of crude oil, all segments were up on a year-over-year basis. We are handling record propane exports and in line with the CN specific growth initiative laid out at Investor Day. We also saw increased gas and diesel shipments out of Alberta and a modest recovery for chemicals and plastics feedstocks. Metals and minerals RTMs were up 3% with positive growth across all segments, including frac sand, scrap steel, and aluminum except for iron ore where cars were up and RTMs were down due to a shift back to more short-haul domestic shipments. To finish off on merchandise, forest products volumes were down 5%, driven by softer market conditions. For bulk starting with fertilizers, RTMs were up 85%. We handled incremental domestic and record potash exports using our…

[Foreign Language] Turning to slide 14, volumes in terms of RTMs were higher by 2% on a year-over-year basis, while our revenues were down roughly 2%. We delivered operating income of around $1.8 billion, 5% lower than last year, with an operating ratio of 59.3%, a 140 basis points higher than last year. We had two non-recurring items below the line. During the quarter, we implemented a tax reorganization that produced around $700 million of one-time income. As a consequence of this, our overall tax status both in Canada and in the US has not materially changed and our effective tax rate for 2024 will be approximately 25%. So about 50 basis points higher than in 2023. Cash taxes will be around 80% of our overall effective tax, which is in line with prior years. We also monetize a surplus right of way in Ontario, amounting to approximately $130 million. On a reported basis, EPS was $3.29, up 57% versus last year. However, excluding these one-time items, adjusted EPS was $2.02, down 4% year-over-year. In terms of expenses, labor was 12% higher versus last year, driven by 5% higher average headcount and general wage increases. Fuel expense was more than $100 million lower than in the same period last year, mostly due to a 17% decrease in fuel prices. Turning to our full year results on slide 15, we delivered an adjusted EPS of 2% lower than last year, which is aligned with our revised guidance. Our full year operating ratio of 60.8% was up 90 basis points versus last year on an adjusted basis. Despite significant disruptions in Q2 and Q3 from forest fires, flooding, and the West Coast ports strike that negatively impacted EPS by roughly $0.17. We generated close to $3.9 billion of free cash flow for…

Thanks, Ghislain, and well said. Operator, we'll now go to questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Chris Wetherbee from Citi. Please go ahead. Your line is open.

Hey, thanks. Good afternoon. Maybe starting on the '24 guide, if you could maybe unpack some of the moving parts a little bit, so RTM guide mid-single-digits. And then I think, Ghislain, you talked about maybe $200 million of some cost headwinds there. You have about 5% coming below the line. So I just want to make sure I understand sort of the operating leverage of the business, is it mostly offset by the $200 million or maybe we can kind of think about how you should be able to generate incremental margins on that mid-single-digit RTM growth?

Okay, Chris, this is Tracy. Let me take a shot at this. So we've got a forecast of 10% EPS and on volume as you've noted, the forecast assumes a gentle kind of recovery economically as we go through the year, but it also assumes those customer-specific growth initiatives that you heard Doug talk about. On margin, as volumes come back, we should see the positive impact of our operating leverage. So as volumes went down, we saw it go down. As volumes come back up, we're going to lift, especially in the merchandise business, where we currently have capacity on our trains. And of course in the pricing environment, you know, as you've watched us over the last 18 months, we continue to both deliver and we continue to expect pricing above rail inflation. So that's all positive news. We do have the headwinds that Ghislain talked about, but that's going to be offset to the extent that will drive the 10% to the bottom line. Does that make sense?

It does. So just a way to think about it is there still is the sort of normal operating leverage on the revenue growth mostly offset by that -- by those incremental costs that kind of gets you to kind of core growth before the buyback in line with RTM growth. Is that roughly the right way to think about it?

Yeah. You got it, pretty much. Thanks. Next?

Okay. Thank you.

Our next question comes from Cherilyn Radbourne from TD Cowen. Please go ahead. Your line is open.

Thanks very much. Good afternoon. Just wanted to dig in a little bit in terms of international intermodal. And you did mention that the Canadian West Coast market share was back to pre-strike levels in December. Just curious, given what we're seeing in the Red Sea and on the Panama Canal. Just be curious whether you're seeing inquiries at this point that could be incremental to that market share and how likely those volumes might be to be sticky.

Thanks, Cherilyn. It's Doug. No, it's a great question. It's obviously an ever-changing environment out there. So we spent a lot of time talking with customers about it. We are seeing obviously some capacity come out of the vessel market with them having to go around Africa now. So we see some tightening overall. And with that, we're starting to hear with different problems at both the Panama and the Suez Canal that the West Coast is looking like a more viable option moving forward. We haven't seen those volumes come in yet, but we're expecting them to gradually ramp up if they do come forward, but so far so good. We've actually just been able to maintain our pre-COVID levels now for the last, I'll say almost eight weeks, and we see that continuing on, moving forward on both Prince Rupert and Vancouver.

That's my one. Thank you.

Thank you.

Our next question comes from Ken Hoexter from Bank of America. Please go ahead. Your line is open.

Great. Hey, good afternoon. Tracy, you're just saying, I guess, in the EPS target of 10%, you're looking at long-term going up to 10% to 15%. Just want to understand the acceleration, you talked about hiring, I guess, pre-hiring employees. Are you saying you're pre-resourced now because of the work rule changes or are you going to accelerate the hiring? I just want to understand the cost implications versus your growth targets? Thanks.

I'll start at that one, Ken. So we've been hiring through the year to offset attrition, and two, that's the lever we're using right now to manage our workforce size is hiring relative to attrition. And as we look forward, you'll see our hiring ramp up to match the volumes as we see them coming back. We've got a great line of sight on a number of the areas. Doug kind of took you through them, and so we're getting ready for those.

Our next question will come from Scott Group from Wolfe Research. Please go ahead. Your line is open.

Hey, thanks. Good afternoon. So, when you talk about price above inflation, I'm just wondering, do you see that spread widening or moderating this year? And then just near term, any way to quantify the weather impact we're seeing in Q1? And then any update you can give us on the labor front just with the conductors in Canada? Thank you.

Sounded like an awful lot of questions, but I'm going to take a quick run over them, if I can remember them, and the guys can come in behind me, but we want one question. The first one was on price. So, I mean, I think it depends, clearly, it's not as a -- is a little tighter pricing environment than we've seen in the past, but we have for the guys have given Doug a pretty solid customer service product to sell. And so we are achieving pricing we continue to achieve pricing that's above inflation. The margin above inflation is going to be different in different commodities in different areas, but we see no reason to believe that, that's not going to continue. What was the next one?

It's on the weather.

The winter weather and I can take that one. So we had a very cold snap of minus 40 to minus 50 Celsius for about a week. We did see some disruption during that period of time as we had difficulty moving throughout that period. But I will say this to speak to the strength, the resiliency of our disciplined scheduled operating plan. Just as we saw as we recovered from the ILWU strike, the wildfires, and the flooding last year in 2023. The way we run the network and we're always working back to the plan, but that's our North Star. We were able to get our legs back under us, get the operation moving again, and we're regaining our momentum, getting our speed and our velocity back. Metrics are improving already.

Okay, thanks for that, Scott. David or who's next?

Our next question comes from David Vernon from Bernstein. Please go ahead. Your line is open.

Hey, good afternoon. Thanks for taking the question. So, Doug, you know the RTM, the mid-single-digit RTM expectations, can you give us some sense of visibility into some of the bigger chunks and when they should start coming in? And we're off to a little bit of a weaker start on the year. And I'm just trying to get a sense for -- as you think of the ramp that you've got much more detail on if you could share with us any color on when we expect to see the inflection in the sequential volumes?

Thanks, David. So, you know, I guess like the slide 12 is a great indicator, but we're expecting a gradual ramp-up over the year and things like forest products, which we expect to see a gradual recovery in. It's not going to be anything, it's not going to be a straight-up arrow or anything. So we know that's going to happen. Same with most of the products that are on there and a lot of those are going to tie right into the economy. That gradual recovery, that Tracy talked about, that's what we're expecting. So we're going to see that. So you're going to see more come in the back half than the front half, but we're working with the customers to do that as quickly as possible. We talked about the two coal mines that are coming on, and those are both in H2 as well. But with the international intermodal [Technical Difficulty] we're seeing that perk up as of last December, which we just talked about. So we're going to see that start to pull right away. And we're expecting a gradual recovery in the domestic market.

All right. Thank you. And then the labor costs for accommodating the work rule changes, has that been sort of seasoned now or are we kind of running it at the right level as far as kind of staffing and resourcing? Or are we still kind of figuring out how to make the schedules work with the new hours of service regulations?

Sorry, David, we're only taking one per person.

I thought I'd give it a shot. Thanks, guys.

Thank you.

Our next question comes from Fadi Chamoun from BMO. Please go ahead. Your line is open.

Yes. Thank you. Just one clarification. First, the comment around volume back to 2019 level, is that for total RTM or are you talking about intermodal specifically as well? And then my main question is really if you can extend kind of the outlook that you talked about, mid-single-digit RTM, like if we take that into revenues, what are the moving parts? Like from a mix perspective, I'm guessing pricing incremental to that five, that gets you high single digit. But what's your thought on mix and how should we think about all these moving pieces from a revenue perspective?

Well, those are long two questions, but I'll just. So really the second one is the critical one, so we don't forecast on the revenues, Fadi. But on the mid-single digits we expect that to carry out in our usual fashion. We expect the average car -- dollars per car to apply. And I think you guys can do the math from there. But, yeah, we're pretty happy with the forecast.

And with respect to the comment around 2019 level or pre-COVID level, is that an intermodal forecast for volume to be back to 2019 or is that total RPM?

Yeah, I think that was your one question. And you can go to the investor relations team after the call for the other one.

Thanks.

Thank you.

Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open.

Thanks, everyone. Tracy or Doug, can you give us an update on the Falcon service, please? What's the operational rollout been like after the first few months? What's had been like selling the product to customers, et cetera?

Okay, well, that's a good question. We'll have Derek start off on the operational side.

Yeah. Hey, good afternoon. No, it's been a very exciting product we've had with our partners at the FXE and the Union Pacific. It is acting as one seamless service. We're consistently delivering on the published transit time with our customers. And we look forward to continuing to grow that here in 2024. So solid momentum in 2023 and I see that partnership between the three of us only continuing to grow in '24.

Yeah. And on the revenues, listen, that we told everyone it's going to be very slow growth of the truck market, and that's what it is. But that's okay, right? We're expecting it, where both the UP and FXE and us are working hand in hand to grow that. The big bid cycle is really only starting up in Q1, where we'll be going after truck business that's out there. And we hope to see some solid growth moving into the rest of the year. Thanks for your question.

Thank you.

Our next question comes from Walter Spracklin from RBC Capital Markets. Please go ahead. Your line is open.

Yeah. Thanks very much. Good afternoon, everyone. So I wanted to zero in here on the first quarter, and I know you don't typically give quarterly guidance, but I think it's important given last year was such a tough compare and now you've come off to a tough start here due to the weather. Is it possible, do you think, when we frame the 10% over a quarterly basis, is it possible that you can see any growth in the first quarter given how tough the compare is and the weather to start, and therefore is most of it all kind of back end loaded for the 10%.

Thanks, Walter. Maybe I'll just start, I'll hand it over to Ghislain, but I'll start by saying it is going to be a tough compare. We had a big quarter last year and some very different weather than the way we've started off this year. But Ghis, did you want to make any comments on that?

No, I think that's right. I think we told the market on many conferences that Q1 was going to be a very tough comp. If you remember last year our EPS was up 38% and our OR was 61%, which is not kind of winter like type of OR. So we know that we've baked that in, into our forecast and into our 10%, but we have accounted for regular winter. We did start and as Pat said, we had seven days of deep freeze in the west, hopefully, that's behind us. It's behind us for now. And hopefully, as we get into February, then we don't get that sustained cold. But yeah, I mean, we know that Q1 was going to be a tough comp, but that's all factored in, into our 10% EPS growth for the year. Thanks, Walter, for the question.

Thank you. Thanks.

Our next question comes from Konark Gupta from Scotiabank. Please go ahead. Your line is open.

Good evening, everyone, and best wishes to Doug and Remi for their respective roles. The question is for Pat, you said destination performance is improving. But what's your realistic target there, Pat, and what's required from your interchange partners to get to that level?

So, Konark, thank you for the question. And we desire to continue to squeeze that delta between launch and land. We look to get another few percentage points out of that squeeze, that gap between how we launch trains and how we arrive them into terminals. We originate, terminate the majority of our traffic on our own line, so we're not as dependent on the other carriers for that metric. And that's where I talked a bit about reducing train meet delays online, which is a product of getting trains out on time. Train schedules make the train meets and making timely crew swaps. So that's really our focus, to continue to squeeze that delta between launch and land. Thank you very much for the question.

Thank you.

Our next question comes from Brandon Oglenski from Barclays. Please go ahead. Your line is open.

Hey, good afternoon, everyone, and thanks for taking my one question. Ghislain, I was hoping you could update us here on the change in the dividend. And obviously, if you were to go to that full repurchase this year, that'd be quite a bit of cash flow out the door. So where are you seeing leverage in the near term and especially in the context of that 10% to 15% plan over the next three years? Would you be willing to take it up higher right now?

Yeah. So, as we said, we're looking at the targeted leverage over time of 2.5. I mean, if you look at this year, we finished at 2.25. We typically grow our dividends in line with earnings growth. You'll see that we're slightly below because we do that over time. And if you remember, in 2023, our dividends were up 8% and our earnings are down 2%. So we have a long-term view, we have a long-term view on these two things. I think that, as we said in the Investor Day, our leverage will be 2.5 over time if economic conditions warrant. So that's why we went back and toned back a little bit of our share buyback to 4 billion. Last year, we wanted to be opportunistic due to the stock price and where it was. And again, I think, in terms of dividend, I'm very proud to say that it's the 28th year that we've increased our dividend and that's very good. So that's what we're thinking, and we're thinking long-term and without any jerky reaction. Thanks for the question, Brandon.

Thank you.

Our next question comes from Tom Wadewitz from UBS. Please go ahead. Your line is open.

Yeah. Good afternoon. Wanted to ask you a little bit about trained lengths and how you view that opportunity. I think where you're running now is a little bit below where you've achieved in the past. And so would you expect to see that expand? I don't know if you can get to 8,200, 8,300 feet, something like that. And is that, if you realize that, is that a potential driver of upside on what the margin might be relative to your guidance?

Hey, Tom, it's Derek. Good afternoon. I think when you look at it, you know, right now we can grow at a lower incremental cost with our manifest business, because we can add the traffic on existing trains. Part of a scheduled operation is remaining balanced and turning and splitting the assets. Now, when you look at it from an intermodal point of view, that is something that's been down, that's coming back, that will actually help our train length out as that grows throughout the year. So, overall, we're well positioned to grow at a low incremental cost, and that's the key as we look at it going forward.

Thanks for the question.

Our next question comes from Amit Mehrotra from Deutsche Bank. Please go ahead. Your line is open.

Thanks. Hi, everyone. I guess my one question would just be on yield, obviously, there is a pricing component to yield. There's a mix component. There's a fuel component. I think fuel was a pretty nice benefit, at least on a lag basis, in the fourth quarter. And Ghislain, can you just talk about like -- does yield take a step down when you adjust for that fuel and when do we actually see like the pricing benefit in the yield number? Obviously mix adjusted or not adjusted for mix, because the concern, I guess, I have at least, is that yield comes down in the first quarter as these fuel surcharges lag. And I'm just trying to understand what the outlook of cadence of that yield improvement is as you progress through the year.

So I can open up and then I can let Doug talk more, a little bit about the yield. But on fuel, I mean, I think when you look at the lag in the fourth quarter, it was around $0.04 to $0.05 favorable in the quarter and on a year-over-year basis it was as well. So it wasn't a big deal. And I can turn it over to you, Doug, for the mix piece.

Yeah, our traffic is relatively stable, but there is always going to be a mix component. So depending upon which product line you're talking about, it's going to have a very different impact. I mean, I'm not going to get on all of them on the call here, Amit, so but it's -- we can always sit down with -- we'll go and do it after. The other thing that I want to just highlight is, we did -- we should not see any impact on the container storage fees moving forward into Q1 and beyond. That will have a big impact. Thanks for the question.

Our next question comes from Brian Ossenbeck from JPMorgan. Please go ahead. Your line is open.

Hey, thanks for taking the question. Doug, just wanted to ask, if you can give us an update on the CN-specific projects, which you quantified at the Investor Day. It sounds like maybe some of them are moving a little bit forward faster than you thought. But how does that shape look like in 2024? Is it back half weighted like some of the broader economy stuff that you've been highlighting? And I think in the past you'd also given some visibility as to how much of that is sort of contracted or spoken for in terms of those carloads. So an update there would be helpful. Thanks.

Thanks, Brian. I actually have the presentation in front of me. I know, I get this question too often, right? So when you're talking about some of the bulk commodities, a lot of that's going to be in the new canola crush and as well as the new mines coming online. So an example is like, obviously, BHP, we're expecting to see some volumes there, but that won't be till 2026. And the canola crush plants look like they've been pushed back a little, so it will be more back-end weighted towards 2026. When you look at the renewables, right, we're starting to see some of that with respect to the crush plants as well, but we're starting to see some of the renewable projects come on and some of the ethanol. But once again, that will be a little bit more back-ended, except we would -- we should see some ethanol synergies this year. The big one that we've managed to move forward with, obviously, is the announcement we did with AltaGas on the export of LPG. So I'll be honest, we've actually hit our target already with respect, but it will be going forward. But on the going-forward basis, we've hit the 40,000 carloads that we had at the bottom end of the forecast just with that one contract. So that's a huge, huge win for us. Now, the Toronto fuel facility, that's also almost done well, it's actually done construction in Phase 1, but we actually delayed start-up, because we sold out Phase 2 now. And we're actually integrating the Phase 2 construction before it starts up. So that will be starting up in Q1. But that's phenomenal that we've actually got it sold. So we're actually at the high end of that one by the end…

Yeah, no need for a second. Thanks.

Our next question comes from Justin Long from Stephens. Please go ahead. Your line is open.

Thanks and good afternoon. You mentioned earlier the $200 million of cost headwinds this year, but could you break that out in a little bit more detail across the three different buckets that you mentioned? And does the guidance assume that you can improve the OR year-over-year despite these cost headwinds or will that be challenging?

Yeah. Thanks, Justin. So the $200 million, if you wanted -- breaking it out is about $100 million on depreciation. And I would say the other half, the other $100 million, call it half and half on incentive compensation and pension. And absolutely I think that having these cost headwinds, we still believe that we will improve our margins. And Tracy made the point actually that it's tough on margins when actually volumes is down and then volume pick up. We do have space, as we've mentioned before, to add the traffic on some of our trains, including and especially the merchandise train. So we are -- definitely believe, you know, that we will improve margins in 2024.

Let me just add to that, Justin. I have to say that, I have been really pleased with our operational cost performance over the past two years, especially in light of some of the headwinds that we've had over that time. I think our record speaks pretty positively there. And it just spoke to you around you know how we think it'll play out this year. But we'll be managing costs closely and we expect that our margin leverage is going to continue to grow over time, as the volume strengthens. So that would be the way to think about it.

Thanks for the question.

Understood. That's helpful. Thanks.

Our next question comes from Jon Chappell from Evercore ISI. Please go ahead. Your line is open.

Thank you. Doug, I want to go back to Rupert, you noted back to pre-COVID levels, but you also mentioned a little bit later you're continuing to work to fill Rupert. So is there any way to quantify what capacity is available in Rupert right now and how much international intermodal can grow if the economy dodges a hard landing and maybe Rupert gets up to the full capacity you envision?

It's a good question, so you know, Rupert is one of our -- it's the crown jewel we have up there, right? So I would sit there and say, not only are we growing the intermodal, but we're growing our propane franchise for export out there. We're growing the coal still going out there. So there is -- and the wood pellets as well. So not just that, but is really hitting on the intermodal. I'll say the international probably dipped down to the lowest at just over 0.5 million TEUs that we're running through the terminal. It's got a capacity just over 1. So 1, 1.2, really, that we can go up too easily. And then you start to stretch the terminal a little bit, but that's great. That's where we'd love to get to with our partner, DP World. So we're working with our customers on how we fill that out. So we're being very structured about it. And with the changes that are going on, obviously, with the Red Sea and the Suez Canal and the Panama Canal, we're seeing some -- a lot of interest come to try and fill that up. So we just want to be very diligent, we want to match it to our operation with both Pat and Derek, and we want to oversell it. We've got to make sure if we're going to contract it out with their customers that we're going to be able to move it as efficiently as we have been and keep that terminal dwell down under three days, which is really what our goal is.

Thank you, Doug.

Our last question will come from Michael Kypreos from Desjardins Capital Markets. Please go ahead. Your line is open.

Good afternoon, and thanks for taking my question. Your fourth quarter grain volumes were down 13%, and you had mentioned earlier that maybe some of the grain farmers decide to hold back on some volume through the end of the year. Do you have an idea what percentage of this grain you expect to be carried over and recouped in the first half? And maybe an update on the discussion with the farmers and the current grain dynamics, I believe. Thank you.

Sure. I'll talk specifically about Canadian grain first, and then the US grain is a little bit. Well, I'll just go Canadian grain first, how's that? So listen, the prices farmers have had great pricing in the last couple of years. So they're used to getting a very good price on the market. So this year, the world market actually, there is a lot of surplus from other countries out there. They've had good crops. It's driven the price down. So the Canadian farmer is sitting there saying, I'm going to hold on to grain until I get a better price. So we've had probably one of the lowest Q4 demands I've seen in my history at the company, but they still have to sell, right? So they're sitting on a farm that inventory is there anything that we didn't move in Q4 will shift into Q1 and Q2. So that's great. Now I think you can just really take what we did last year, say what didn't move, and it just moves further out. So I won't give specific numbers. At the same time, I do believe we've had a fairly good crop. The StatCan brought it up to 67 million metric tons in their forecast, finally. And that is actually a good size crop, not as good as last year, but a really great crop. And I think a lot of it was really good on our network. So I think we have a lot of grain to move. We're going to be very busy for the rest of Q1 with Pat and Derek, and I think we're going to have a really good tail into Q2. Thanks for your question.

Thank you. Appreciate it.

This concludes the question-and-answer session. I would like to turn the call back over to Tracy Robinson.

Thanks, Julianne. So a strong finish to 2023, by capping off seven quarters now of operational and service excellence and a great setup as we start into 2024. So our plan is working. Our Make The Plan, Run The Plan, Sell The Plan approach is driving the right results. And this railroad right now is running as well as ever, and I like the team that we have. Our growth initiatives are ramping up. I'm really excited about the momentum and the opportunities we have over the next quarters. I want to thank you all for being here with us today and we look forward to talking again very soon. Thank you.

The conference call has now ended. Thank you for your participation. You may now disconnect your line.