Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2022 CSX Corporation Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-answer session. [Operator Instructions] Thank you. Matthew Korn, CSX Head of Investor Relations. You may begin your conference.

Thank you, Emma. Good afternoon, everyone and welcome. Joining me on today’s call are Jim Foote, President and Chief Executive Officer; Kevin Boone, Executive Vice President, Sales and Marketing; Jamie Boychuk, Executive Vice President of Operations; and Sean Pelkey, Executive Vice President and Chief Financial Officer. In our presentation, you will find our forward-looking disclosure on slide two, followed by our non-GAAP disclosure on slide three. And with that, it’s my pleasure to introduce our President and Chief Executive Officer, Jim Foote. Jim?

Great. Thank you, Matthew, and thank you to everyone for again joining us on our call today. I will begin by expressing my thanks to all of CSX employees, who continue to put in tremendous efforts to serve our customers effectively and above all safely. I’d also like to welcome today, Steve Fortune, who’s with us in the room here today in Jacksonville. Steve serves in a newly created role of Executive Vice President and Chief Digital and Technology Officer, and will focus on harnessing transformative technologies to further growth and enable continued efficiency across the business. His experience leading technology organizations at a global industrial company will be very helpful as we continue to transform CSX. Now moving to the quarter, we are pleased with our results this quarter, though we are not yet satisfied with our service performance. The effects of COVID and severe weather across much of our network clearly led to a tough start to the year. But as we moved into March, operating conditions began to gradually improve and we do see indications that this momentum is continuing. For over a year, we have communicated to you that the key to rebuilding our service to pre-pandemic levels is to hire more trained and engine service employees. I am pleased to say that our efforts there are progressing well and our active T&E count has moved steadily higher this year. The people and resources that we are putting in place today will allow us to provide reliable, efficient service to an expanding number of customers. The business environment remains very favorable for CSX, despite new uncertainties across global supply chains. We are dedicated to do our part to help our customers here in North America meet increasing demand, as business and consumers around the world look…

Thank you, Jim. Turning to slide five. First quarter revenue increased 21% year-over-year, with growth across all major lines of business. Merchandise revenue increased 6% on 2% lower volume as strong pricing gains and higher fuel surcharge revenue more than offset the volume decline. Current demand remains strong across most merchandise markets, with shippers prioritizing environmental benefits of rail and pursuing lower cost options to offset inflation. The ongoing semiconductor shortage impacted automotive volumes through the quarter. However, we did see sequential improvement as consumer demand remains strong with dealer inventory levels low. Our core chemical franchise saw strong demand that more than offset continued challenges in energy-related chemical markets. As we continue to add resources across the network, we expect to capture additional opportunities. Intermodal revenue increased 13% on 1% lower volumes, as truck conversions drove domestic growth. Offsetting declines in the international market that continues to be impacted by supply side constraints. Intermodal demand remains strong, but continues to be challenged by takeaway capacity and equipment shortages including chassis. Coal revenue increased 39% on 10% lower volume. Export coals revenue increase was driven by higher benchmark prices, partially offset by lower domestic and international thermal coal shipments. First coal -- first quarter coal volumes were impacted by several factors, including mine disruptions in an outage at our Curtis Bay export facility. Demand across all of our coal markets remains strong and we expect volumes to improve in the second quarter, as some of these headwinds subside and additional network capacity is added. Other revenue increased primarily due to higher intermodal storage and equipment usage, but was partially offset by lower payments from customers that did not meet volume commitments. As we exit the quarter, concerns around the Omicron variant have been replaced by broader global supply chain uncertainty…

Thanks, Kevin. The safety of our operations will always be our first priority. Our concern for all of our employees, customers and the communities in which we live and operate drives us to make sure that we maintain the demanding standards of our safety focused culture. The results that you see on slide seven show this clearly. Over the first quarter, we saw sequential and year-over-year improvements in the number of injuries and train accidents, which brought their frequency rates to a near record low levels for the first quarter. We are happy to see this improvement. We continue to push forward with the initiatives that we described to you last quarter, actively coaching, safety awareness among our employees, encouraging best practice sharing across teams and expanding our application of technology, and we put a very strong emphasis on our efforts with our new hires to ensure that they respect and demonstrate the principles that make CSX an industry safety leader. Moving on to slide eight. For the last several quarters, you have heard us discuss the efforts we are making to address our staffing levels. This is a critical point, because our networks, capacity and fluidity will improve when we have enough trained conductors and engineers. When we have these resources, it lifts our service performance in the near-term, while also ensuring that we are ready to meet the substantial demand growth we anticipate in the years ahead. This slide also shows several important positive train and engine employee trends that reflect the hard work done by our recruiting and training teams. We have made great progress here and importantly, we are set up to build on the momentum we have created. First, you can see a strong ramp up in the number of T&E employees we have in…

Thank you, Jamie, and good afternoon. Our focus is on profitable growth and despite the challenges we faced in the quarter, we delivered $600 million of revenue gains, with operating income of 16%. Interest expense and other income were a combined $11 million favorable and the effective tax rate for the quarter was 23.9%. Earnings per share of $0.39 reflects growth in core earnings, as well as the impact of our ongoing share repurchase program. Turning to the next slide. Total costs increased $419 million or 24% in the quarter, but we are in line with our expectations outside of the spike in fuel price. The acquisition of Quality Carriers represented approximately $215 million of expense. Higher fuel prices were also a significant factor, up about $110 million versus last year. All other expenses increased approximately $95 million, driven by inflation, as well as ongoing costs related to supply chain congestion and network fluidity. Turning to the specific line items, labor and fringe expense increased $72 million or 12% in the quarter. We invested $10 million more to onboard new train and engine employees, and we expect similar training costs next quarter, as we continue to convert our strong new hire pipeline. Quality Carriers drove about $35 million in additional labor expense. Incentive compensation increased $6 million, while inflation and other impacts drove just over $20 million of higher costs. Purchased services and other expense increased $203 million or 43% in the quarter. Quality Carriers represented approximately $140 million of PS and other expense. Costs incurred to maintain terminal and network fluidity added roughly $45 million of expense in the quarter similar to last quarter’s impact. These costs are likely to persist into the second quarter and we expect to see improvement in the back half of the year, corresponding…

Okay. So let’s conclude with our outlook for the year as shown on slide 13. We continue to benefit from strong markets and ample customer demand, and we are adding employs the needs that our network can capture more of the business opportunities that are right in front of us. At the same time, we are of course keeping a close eye on inflation, interest rates and the fed. With support from higher coal prices and a supportive market environment, we feel comfortable projecting double-digit growth for both revenue and operating income for the full year. In the near-term, we expect to continue to benefit from elevated export coal prices and higher fuel surcharge revenue. Full year CapEx is planned at approximately $2 billion, which is also unchanged. We have made progress since the beginning of the year and we still have a lot of work to do, but we are committed to supporting our customers by providing them with reliable, efficient, cost effective rail solutions for their changing transportation needs. By adding the necessary resources and lifting our service levels, we will be well-positioned for years of profitable growth. Thanks and I will turn it back to Matthew.

Thank you, Jim. Now in the interest of time, I’d ask that everyone please limit yourself to just one question. And with that, Emma, we will now be happy to take questions.

Thank you. [Operator Instructions] Your first question today comes from the line of Jon Chappell with Evercore. Your line is now open.

Thank you. Good afternoon, everyone. Jamie, you spent a fair amount of time talking about the important labor aspects and what -- and your optimism about what that will mean for service? Is it just a function of getting the people trained in the right spots or are there any other challenges that you are seeing, it’s related to service reliability? These are things that you can control yourself, are things outside of your control, like customers turning over equipment more quickly and how do you think that all of that translates into the important service metrics like velocity dwell and cars online in the next couple of quarters?

Well, good evening or good afternoon, Jon. For us, it’s purely comes down to hiring numbers and getting more T&E folks where we need them. Kevin and I have been worked really closely with our customers to do everything we can to support those needs of our customers. And our customers are working with us in different areas with different solutions as we look at how we can turn cars quicker, whether it comes down to block loading by destination and other items that we have been working on for years and continuing to work with our customers that way, so we don’t have to handle cars as much. But definitely, when we are looking at that pure number with respect to our trainees out there, we talked about having 500 or 500 trainings out there right now. We have qualified up to 400 already this year since the start of the year. So we have come a long way in that area and we continue to pull whatever levers we can with respect to the design, if there’s cars we can move in different corridors that make more sense where our crew base has gotten healthier, we are doing that. But really as we continue to push forward here, the common theme that we know we will get our railroad back to where we need to is just continuing to train conductors.

Got it. Thanks, Jamie.

Your next question comes from the line of Brandon Oglenski with Barclays. Your line is now open.

Hey. Good afternoon and thank you for taking my question. I guess, if we go back to last quarter, you guys were, I think, the only guides you provide those like volume above GDP. But now it seems you have some confidence to guide to double-digit op income and revenue growth. Can you just talk to maybe the increased confidence as you have gone through the year here and what’s driving that guidance now?

Yeah. Brandon, look, there’s a lot of moving parts. Obviously, one, they get confidence and the hiring trajectory, and Jamie spoke to that, we are seeing good momentum as we get into April and we will move through the rest of the quarter. Obviously, some other factors have occurred. You have seen the export coal market remain really, really strong here and supportive, and we had assumed probably that market would tail off a little bit sooner than what is expected now. Also fuel surcharge has been a bigger factor going forward as well as oil prices have obviously moved up dramatically here with the Ukraine crisis going on. But the number of factors going, we still see the strong demand from all of our markets and we have competence that we are going to begin to capture more and more of that as we -- as fluidity picks up through the network.

Thank you.

Your next question comes from the line of Justin Long with Stephens. Your line is now open.

Thanks. And I guess to start with the follow up on that last question. Does the guidance still assume that volumes outpace GDP this year? And then, is there any color you can give on the OR excluding the Virginia real estate sale that’s embedded in that assumption for double-digit operating income growth?

Yeah. I will cover the first one. Look, that’s been our target. We want to outgrow the economy. There’s a lot of moving parts, as you know, the auto business -- automotive business is going to be a big factor as we get in the second half and that business on production needs to recover there to really hit those GDP plus targets. So that’s one market to look at. Coal, as well, we see strong demand there, but we will be watching that going forward. And then the intermodal market, particularly on the domestic side, we are assuming chassis and other drayage capacity comes back into the market and that will drive some incremental growth for us as well. So there’s a few moving parts, but that’s always our target and that’s why we came out at the beginning of the year as we expect to exceed GDP volume growth, but realizing that there’s a number of new moving parts going on right now.

And Justin, this is Sean. Just to add on with the OR question, I think it’s -- as we have always said, the -- we expect the incremental margins on the growth to be very strong and very healthy, and that will be supportive in terms of the OR for the year. But there are some things to keep in mind that will be offsets, obviously, the quality impact, which will have the full impact of it in the first half of the year, given that the acquisition occurred in Q3 of last year. Higher fuel prices are essentially neutral to op income, but they do have a negative impact on the operating ratio as well. And then, obviously intermodal storage as things normalize, that will have an impact on the OR, particularly in the second half of the year, given that the storage revenues were quite elevated in the second half of last year.

Okay. I will leave it there. I appreciate the time.

Your next question comes from the line of Chris Wetherbee with Citigroup. Your line is now open

Hey. Great. Thanks and good afternoon. I guess I wanted to come back a little bit to the sort of bigger picture, freight demand comment that you made earlier in the call, Jim, I just maybe if you could talk a little bit about what you are seeing either on the consumer or the industrial side, we can kind of see what’s happening on the commodity side, but maybe those two end markets? And then maybe just sort of weave that into the market share potential opportunity? Congestion has probably kept some business off the rail and on other modes of transportation. How does that factor in? So, I guess, generally speaking, you see a slowdown in consumer driven freight and is there enough upside potential in industrial commodity to offset that?

Well, I think, we have been going through since really the middle of 2018 divergence between the consumer economy and the industrial economy, whether it was driven by going back to the tariff issues that began to create concern amongst the industrial producers, and at the same time, you had a consumer economy that was going gangbusters. And that kind of carried forward into the pandemic years, let’s call it, the plague years of 2020 and 2021 and industrial really got hammered, especially in still -- there’s still lingering effects from that and it’s a -- look at the automotive sector and the consumer economy went nuts. So, now, I think, you are starting to see those two divergent economies come back more in line and industrial demand is very good. Is it -- I think it’s clear in our comments. We have not met the demand and as the railroad on the industrial side and the bulk side of the business, we have done a very -- I think we have done an amazing job in handling the consumer side of the business in the intermodal sector throughout the last couple of years. So the demand is there, as the railroad begins to continue to improve as we go forward, we see a lot of opportunity and there could be changes, while there are obviously -- obviously, there are going to be changes in various supply chains, whether it’s import/export grain, whether it’s continued demand for U.S. coal, steel, plastics, chemicals, you name it, everything is going to be moving around a little bit. But we see all of these sectors being assuming that everything in the world stays relatively sane, where we are today, if you don’t want to call the sanity, a great environment for us to excel and the only reason we haven’t achieved it in the last, nine months ago, I said that the numbers that we are talking about today, in terms of where we would be with hiring, that’s where we thought we would be nine months ago. The extremely tight labor market and the higher -- somewhat higher attrition rates that we went through have held us back and so we have figured it out. We have done everything we could possibly do to take advantage of the situation. And I think the economy on both, especially so on the industrial side of the economy, where traditionally railroads have excelled looks favorable as we look forward.

Okay. That’s helpful. Appreciate it. Thank you.

Your next question comes from the line of Tom Wadewitz with UBS. Your line is now open.

Hi. Thanks. This is Mike Toran [ph] on for Tom. You have made really good progress on adding the T&E employees. Is there -- do you have an idea of or which point this year you think you are going to be all kind of trued up from a T&E crew perspective? And also, is there a way to quantify how much volume you have left on the table because of the crew constraints that you will be able to capture once you are kind of fully trued up on cruise?

Well, in terms of what we left behind, I will use a term that Tom uses quite often lots and I will leave it at that. In terms of where we are going to be, from a timing standpoint, where we will get, but I will say, what Jamie mentioned earlier, we are going to continue to hire. We are going to manage this employee pipeline differently than we have in the past. We are going to make sure that lessons learned here that we are going to make sure that this doesn’t happen to us again. And so that’s why we are doing everything we can from an employee relations standpoint to work closer with our employees, because they are critical and key to what we want to do here and that is provide a reliable truck like product across all of our, well, truck likes reliability to all of our customers, because that’s the key to the future for the company’s growth. Jamie, do you want any color about timing.

Our timing is, we are really shooting in towards the third quarter. As we push the number of employees, we have training right now, if those qualified and we continue to do our hiring of 30 to 40 every single week, puts us in a good position at some point in the third quarter, it might be towards the tail end of the third quarter. And then -- and to Jim’s point, we are continuing to hire for attrition as attrition moves forward. We have seen attrition climb up and we got to make sure that we stay ahead of that throughout this year and then into next year and we have got many different programs that we want to continue to train locomotive engineers and other pieces. So we are not going to be stopping at any point in time here soon. But we feel pretty confident as long as the world doesn’t throw us some type of a curveball again. Q3 is going to be a much better quarter for us.

Just yeah and a little more color on that.

Yeah.

It is easy for us to manage now. We have an attrition rate of around 7%. So we are not concerned with getting fat, because we can always manage down. What we have learned over the last year, year and a half is, it is extremely difficult. It is a completely different environment to try and add to the workforce. So we just have to look at it a little differently. That doesn’t mean we are going to get fat and happy and have a bunch of employees that we don’t need. That means that we are going to manage the workforce differently to make sure with the ebbs and flows of this business, which is always the case that we do it in a more -- in a different manner. So we don’t get caught short like we just did.

Thanks, Jim. Thanks, Jamie. Appreciate it.

Your next question comes from the line of Scott Group with Wolfe Research. Your line is now open.

Hey. Thanks. Good afternoon. So I want to maybe think about the back half of the years, sounds like that’s when you think you will have the headcount where you want it to be in the network where you want it to be? Do you still think that you will have volume growth in excess of headcount in the back half of the year? And then maybe, Sean, how much is the -- how much are you spending in 1Q and 2Q on hiring and network and efficiencies that may be potentially starts to go away in the back half of the year?

Yeah. Scott, to your -- first part of your question, I mean, remember, we are -- with all we are doing in hiring, we are netting up roughly 1% a quarter on a sequential basis. So that that -- the cumulative impact of that is a couple of percent year-over-year in headcount by the time we get to the second half of the year, and yeah, I think we ought to be able to grow in excess of that. We have got capacity on trains and in the network. We have got locomotives to move the freight. So we should be able to outpace it in terms of growth. And then in terms of your question on the cost side, those training costs are -- it’s up $10 million versus last year, so call it, roughly $15 million a quarter that we are spending on training right now. I don’t see that going away. Like, Jim just said, we are going to continue to hire. So that’s probably pretty reasonable across the balance of the year. The piece that is probably more variable is the $45 million or so that we mentioned in purchase services and others. Most of which is really related to supply chain congestion, whether it be costs related to intermodal container yards and terminal labor, outsource labor or whether it be related to having more locomotives than we would otherwise need if the network were running faster, there’s also an impact to rent. So think about it in terms of that roughly $45 million is the opportunity to kind of get back to where we were once we get this thing spinning.

Okay. And if I can just sneak in one more quickly for Kevin. The coal RPU, is this -- are we seeing the full benefit at this point of the net prices and everything or is there one more potential leg up here?

No. I think this is largely -- some of our -- on the met side, some of the contracts are capped. So they don’t fully to participate in these extreme prices. So this is probably a good run rate, assuming that core prices stay at those current levels they are today.

Okay. Thank you, guys. Appreciate.

Your next question comes from the line of Brian Ossenbeck with JPMorgan Chase. Your line is now open.

Good afternoon. Thanks for taking the question. Just coming back to labor, and Jim, maybe if you can elaborate on how you expect to manage the workforce a bit differently. I know it’s challenging especially right now to manage everything, all the different moving parts. But is this more technology, are these different types of rules that you expect to put into place? And on that line if you got the $600 incentive -- up to $600 incentives that you announced yesterday, do you feel like you have done everything you can at this point to really get the people where you need and the amount you need them in place?

Well, I think, anybody that’s followed the railroad business for a long time, like you have and everybody else on the call knows that the relationships between the railroads and the union workforce is not necessarily been one of mutual admiration and we need to fix that and we are working extremely hard. And throughout this process, we have, I mean, these guys were out there for two years in the middle of a pandemic working every single day and night in a chaotic operating environment caused by surges in traffic and you name it. And at the same time didn’t get a raise. That’s wrong in my opinion. And that’s why we decided to do something about it unilaterally without asking for some kind of get back in the labor agreement. We just thought it was the right thing to do and so we made the offer and that’s a change. It’s not technology. It’s relationship building with your unionized workforce and we need to change that and we are going to -- we are dedicated to changing that. And it is an ongoing long-term process, but CSX is committed to trying to do everything we can possibly do to change decades if not centuries of the somewhat dysfunctional relationship with our human workforce, that’s the key and that’s what this is all about.

All right. Thank you, Jim.

Your next question comes from the line of Ken Hoexter with Bank of America. Your line is now open.

Hey. Great. Good afternoon. So you gave the double-digit operating income targets and the cost. I just want understand what’s built in for the timing of the fluidity, is that just simply the second half? And in the past we have seen, I guess, rails throw a lot of assets to get the fluidity moving, is that something you -- we need to do to get things moving aside from the employees? And then, I guess to follow that, Jim, into next week hearing as to what you are doing to fix the service, is just the focus here, the key on employees or again is there equipment need or anything to kind of throw at these backlogs to get the fluidity moving up the rail network? Thanks.

So we are not short of locomotives. We are not short of any physical infrastructure in order to be able to perform and that we continue to still have excess capacity across the railroad. There is one thing and one thing only that we are short of that is hampering us from doing the job that we want to do and to get back to the service levels where we were in 2019 and to get even better from that point on is we need more people in the engineer and conductor ranks. That’s it. We don’t need them anywhere else in the organization. We don’t need more management people. We don’t need a lot -- we don’t need more people fixing the track and laying rail. They are doing a great job out there. We need more engineers and conductors, and that’s it and that’s what we are dedicated to do and that is why we will continue to focus on these numbers. And it is a lengthy process from the time we finally get someone, it is an extremely lengthy process from the time we start looking for somebody that in this day and age might want to be a railroad conductor until the time they have gone through the classroom. First of all, the pre-employment screening, then by the time they go through the month or more of classroom instruction and then six months on the job training and then we have to make sure at that point in time, they are equipped and ready to go out and work in a railroad operating environment and not get hurt and not hurt somebody else. It’s a long, long process and that’s why it has taken so long. As I said earlier, nine months longer, because of the…

And just to clarify there, the timing for the fluidity returned, is that by the third quarter year end?

Well, I would hope, again, I hate to give projections, because I was already off by nine months on the last one. We will -- yeah, you will see Mr. Boychuk always gets nervous when I start making projections. I wonder railroad is going to start running better. The railroad will start running better in this quarter and it will get better in the third quarter and it will get better in the fourth quarter. And the operating performance of the company I hope then will continue to get better and better and better and better all the time. 2019 was not nirvana. 2019 is the base camp we want to get back to where we were which was record level of performance, but there was not where we were satisfied being the way we wanted to run the company and run the railroad. We wanted to get even better from there and we hopefully will be able to do that. But it’s going to be a gradual improvement as we go through the remainder of this year.

Jim and team, I appreciate the time. Thanks.

Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Your line is now open.

Thanks very much, Operator. Good afternoon, everyone. I just want to ask a little bit on yields and there’s a lot of moving parts there with fuel surcharges and accessorial charges. Just curious how you would point investors to how your yield might develop over on a year-over-year basis going forward, particularly we are -- if we were to assume fuel prices remain constant. Are we going to see yields come down as some of these accessorial charges come off as fluidity improves, and therefore, should we be more looking at negative yield as opposed to our natural inclination in the rail sector to see pricing levels generally move higher. Could we see some noise in the near-term as a result of some of the rollover of -- as you are fluidity improves and some of those charges come off?

Hey. This is Kevin. I -- when you look at what’s happening right now, certainly I think Sean spoke to it. We would expect some of the storage fees and those things that come down to more normalized level. But that’s a good thing. That means that supply chain is becoming more fluid. I mean we are moving more freight with the rail network that’s exactly what we want to happen and so from that perspective that’s all good. When we looked at where we are today versus where we were last quarter when we had this call, inflation is gone up even more and we are having to have those conversations with our customer. We re-price about 50% to 60% of our business every year and we are having those conversations, because our customers are having those conversations with their customers. And so that’s the environment we are in, so there is a bit of a lag when you think about pricing and realization of that we are have to realize through the year and we fully expect that those things will start to deliver as we move through the year.

That’s great color. Appreciate it. Thank you.

Yeah.

Your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Your line is now open.

Hey. Thank you. Maybe the question is to Kevin. I think you mentioned in your remark something about the supply chain changes that we are experiencing now and maybe trade flows and you mentioned that you see an opportunity for CSX’s network and specifically at the port. I am wondering if you can elaborate a little bit on that. And the second kind of point attached to that is, what do you would like to accomplish with the Pan Am specifically in terms of commercial and what carriers of traffic you think you have commercial opportunities to go after as you close on that transaction?

Sure. In terms of trade flows, what I was referring to there is, probably two issues. One I touched on the second slide that I covered we are seeing a lot more activity in terms of industrial re-shoring, more appetite for companies look at their supply chain. And quite frankly, supply chain resiliency is a competitive advantage now and companies are re-evaluating, do I want my production in Asia or do I wanted to overseas or would it be more appropriate to have an onshore closer to the consumers that are going to be buying the products and I am hopeful and we are seeing early signs, that’s the case that they are making those decisions and spending capital behind it. The second one and this is extremely early and we are having a lot of conversations with customers, and Jim talked about this a little bit is, when you think about things like grain, which have largely huge amounts of supply of come out of the Ukraine and Russia and the Europe and other commodities and steel products and other things that are largely gone in the European market. Well, all of a sudden doesn’t look like that’s going to happen and some of those things that we had traditionally moved out of the West Coast to supply Asia. Now maybe that’s going to come out of the East Coast and benefit the ports that we serve. And again it’s really, really early. We have to have conversations. We have to make sure that the capabilities are there to be able to deliver those products when that demand happens. So we are staying very, very close to the customer. Understanding what could potentially move from the West Coast potentially into the East Coast and working with them and being really dynamic in terms of how we think about it. That’s what I am thinking about. We are looking at everything that’s going out the ports today and how that could change over the next few months and it’s probably, it’s not a next month phenomenon, it’s probably six months, nine months, 12 months from now, we are going to really start to see some impact if it happens.

Okay. And let me… JB How we see on the Pan Am…

Yeah. Sorry. JB You want me to cover Pan Am?

Yeah. Please. JB Yeah. And then on Pan Am, look, it’s a very good consumer market. There is a lot of paper packaging customers that want more access to markets that we serve. The waste business in that market is going to continue to grow. We see great opportunities there. And we think with a better rail service, that’s going to open up many more markets that quite frankly, just from a transit time or reliability standpoint just we were unable to serve previously. So we are really excited, we are gearing up now that the approval has gone through and going to work closely to really capture those opportunities.

Okay. Thanks. I appreciate it.

Your next question comes from the line of David Vernon with Bernstein. Your line is now open.

Hey. Good afternoon guys. I have a question for you on the appetite to grow sort of the intermodal business generally. I mean I think trimming some of the intermodal network as part of PSR was the first step and we are, obviously, dealing with some of these service issues. But I am curious to get your help on reconciling kind of where market rates are, how attractive the margin that growth could be and what do you make of the third-party industry sort of adding something like 50,000 boxes to the fleet this year and coming out with a even bigger number for the next couple of years. I mean is this a market that you guys really want to lever into or are you going to remain a little bit more balanced between intermodal and merchandise growth? I am just trying to square the circle with what we are seeing in the container order book for the domestic players and your appetite to actually accommodate some of that growth?

Well, I think, we are leading the industry in intermodal growth. So it is not in terms of volume. I think if not this year, next year for sure. In terms of volume, intermodal is going to be our biggest piece of business. That being said, so we want to -- we spent a lot of time and effort in 2017 and 2018 in re-engineering the way the intermodal network operated for reasons, so that we could have a good return on that business when we began to focus more intently on working in the key lanes where it makes sense for us to grow. We are beginning to I think have a better understanding of leveraging the East Coast ports, which have gone through a dramatic transformation in terms of growth versus the West Coast and have the much greater opportunity to expand that footprint in the East than they do in the West. And we are also working more and more and more at how we can participate in the Mexican intermodal market, which to-date we do basically nothing in. So whether it’s international or domestic, the more players put asset towards the intermodal market, the more these markets further develop, we see great potential for us to continue to grow our intermodal franchise. That’s not to say that we are in any way shape or form favoring that over the merchandise business. The merchandise business is a core part of our franchise. So we intend to grow both of these businesses. We see both of them as equal opportunity. Any business has a divergent book of business and so we don’t -- we look at them both as exciting areas of opportunity.

And Jim, and maybe just a quick follow-up, as you think about the UMAX fleet, do you look into add boxes to that, are you going to let the third-party sort of private fleet handle the investment in the actual boxes?

Again that’s a different book of business. Personally I am more in favor of us being more involved on an asset ownership basis, because we see great opportunity there for potential and whether it’s UMAX or whether it’s every place else, I don’t like the model where 95% of the work and get 75% of the money. So to the extent that we can turn some of this business around and make it more favorable to our bottomline, I can guarantee you that any kind of an investment in asset in that area would have a great return.

Thanks very much.

Thanks.

Your next question comes from the line of Cherilyn Radbourne with TD Securities. Your line is now open.

Thanks very much. Good afternoon. In terms of the outlook for coal, you had touched on RPU already, but I wonder if you could comment on what you think the prospect is for increased coal volume this year? And within that, could you touch on whether it’s primarily export coal that has influenced your outlook on both domestic and export?

Yeah. I think when you look at some of the discrete items that I pointed out in the first quarter, we think some of those obviously are going to go away as we get through the year and then Jamie talked a lot about the additional resources we are adding and I think there are opportunities as the mines reinvest and they are making a lot of money right now and that allows them to reinvest in probably some deferred capital that they have had over the years. You would see some -- probably some better production coming out of those as well. So all else equal, if the market stays strong, we would anticipate some volume upside through the year.

And is it primarily export coal that’s influence your outlook or is that to look at next…

No. No. When you look at Southern utilities, oh, sorry, yeah, I didn’t address that when you look at our Southern utilities and even our Northern Utilities right now they are at low levels. And so there is an inventory replenishment that needs to happen that we are working diligently on and working closely with them the -- and with the mines to make sure that happens into the summer peak season. And then on the export side, that is then obviously very, very robust in terms of the demand. You are now seeing some -- probably some thermal opportunities with supply not there coming out of Russia and so we will see how that materializes. Right now, it’s not a lack of demand, it’s a supply constrained market and you have seen the coal producers probably favor that export met business rather than the thermal business. And Curtis Bay, you will see that. Jamie, just remind me that will come on in the third quarter and I will offer some additional opportunity as that comes back on the full capacity.

Thank you for the time.

Your last question today comes from the line of Jordan Alliger with Goldman Sachs. Your line is now open.

Yeah. Hi. Good afternoon. Just curious on the auto sector, if you give a little color around that, what you are hearing from the OEMs, maybe how the parts business is doing and any update on the chip situation? Thanks.

Yeah. We certainly saw some improvement in the March and that’s continued into April, when we started shipping cars without chips, I guess that helps. So some of that inventory that was sitting on the ground, waiting for chip to come in, they just decided to go ahead and ship it in maybe you don’t have a sea warmer right now, but you will get it in maybe in six months from now. But -- so that we seeing a lot more finished good inventory on the ground and we are ramping up to deliver those products in the market. So that’s -- but we will see what some of the impacts in China with some of the disruption there having over there with that, the variant running through there and Shanghai shutting down and some other areas, so it’s a watch item, but we are seeing some favorability at least in the near-term.

Thank you.

There are no further questions at this time. This concludes today’s conference call. Thank you for attending. You may now disconnect.