Canadian National Railway Co (CNI) 2009 Q2 法說會逐字稿

Welcome to the CN second quarter 2009 financial results conference call. I would now like to turn the meeting over to Mr. Robert Noorigian, Vice President Investor Relations. Ladies and gentlemen, Mr. Noorigian.

Good afternoon and thank you for joining us for CN's second quarter 2009 financial results. I'd like to remind you again about the comments that have already been made about our forward-looking statements. Joining us today is Hunter Harrison, our President and Chief Executive Officer; Claude Mongeau, Executive Vice President; Jim Foote, Executive Vice President of Sales and Marketing; and also joining us today for the first time will be Luc Jobin, our Chief Financial Officer and Executive Vice President. After the presentation, we'll take questions from those of you who are listening on the phone. You can identify yourself when you're asking the questions, and in order to be fair to everybody, can you limit the number of questions that you ask to two or three.

With that, it's my pleasure to introduce CN's President and Chief Executive Officer, Hunter Harrison.

Thank you. Thanks, Robert, and thanks to everyone for joining us this afternoon. Let me make a few overall comments about the quarter. I was pretty pleased with what I thought was pretty stellar performance when you consider the challenging environment that we experienced in the second quarter. Couple of highlights. Our revenues were down 15%. That's based on carloads being down 22% and our revenue ton miles being down 14%. And I would call to your attention, I know most of you are aware of it now, that we have started to publish on a weekly basis our revenue ton miles in addition to carload numbers from the AAR. I have never been a big believer that carloads were a great proxy for revenue performance and I have brought that to some of your attention and your response was, "Well if it's not a good proxy, give us something else." So we've now tried to provide you with revenue ton miles and you can see that in the second quarter, the difference between the carloads at 22% down but the revenue ton miles only being down 14%, and I think you will find over time that it's even a little broader spread there.

The operating ratio came in at 67.3. Once again, considering the down volumes that we experienced, pretty good performance there. Our EPS was at C$0.82, adjusted for the tax benefit that Claude will talk about further, came in at C$0.76.

But what I really wanted to talk to you about was and emphasize to you is slide number two, that panel. I think it would be these metrics are the keys to being able to produce this type of performance in this environment. Claude and Jim will have some comments and I'll have some comments at the end little bit about what we see in the future to the best of our ability. It's tough to call but these metrics will be extremely important as we enter that kind of environment. Let me just call a few to your attention.

Two that are not listed here was our road crew starts were down 23% year-over-year with ton miles being down 15%, and our yard crew starts, which surely indicates to you the impact of SmartYard and some of the rationalization that Keith and his team have driven, were down 32%. That is performance that you do not see very much. Our gross ton miles per train mile, effectively our train, size improved 3%. The cars per yard switching hour, which are one of the key metrics which allow the yard crew starts to be down, was down 20%. Our dwell time in the terminals improved 9%. Our gross ton miles per available horsepower was improved 2%. Car miles per car day made a nice move up of 17%. And to some degree, that was driven by the improvement in train velocity improving 14%, up to 29.2 miles an hour which I think is probably the best quarter that we've ever experienced.

So overall, outstanding performance, and I would bring to your attention that in trying to make these types of improvements, it's much easier when your volumes are rising and improving than it is when you're going through downward cycles that we are now. So you bring back, quote, normal volumes that we were experiencing prior to this recession that we've experienced, these would be even improved further.

So I'll have some additional comments at the end, as I mentioned to you. Let me ask Claude and Jim to go through some of the financials and the revenue experience. Claude?

Thank you, Hunter. As Bob said earlier, given that Luc stepped in as CFO in early June, I actually oversaw two months of the quarter and he did only one so I win and I get the opportunity to do this report, which will be my last one as the CFO. I'm very pleased indeed to give you this report because we turned in very, very good results, despite a very challenging economic environment. Indeed, our volume of business came down a full 22%, or 14% depending on whether you use carloads or RTMs as the proxy. Despite the headwinds facing us in a high fixed cost business, we came in with a reported EPS of C$0.82 which is only 14% below last year. If I exclude the C$0.06 of mainly non recurring tax benefits, our adjusted EPS was C$0.76, which is roughly 16% lower than Q2 2008. This performance was achieved by maintaining solid pricing in the face of much lower volume and also much reduced fuel surcharge revenues. As Jim will explain to you in a minute, adjusting for FX, our revenues were down 21%, but we were able to effectively match that with a 20% expense reduction on an FX adjusted basis. This performance drove a 67.3 operating ratio, only 1 percentage point higher than last year.

If you look at below the line, the only key item to note is the impact of the non-recurring tax benefit on our effective tax rate which came in at 20% on a book basis. The province of New Brunswick was the latest in Canada to enact a lower corporate income tax rate in Q2. And we still have the Province of Ontario which should enact its announced corporate income tax reduction in Q3 or Q4. If they do, this will give us a C$90 million to C$100 million deferred tax recovery which would also bring our full year effective tax rate to around 20%. After that, going forward, in 2010, pending no further changes, our tax rate should come back up to the 29%, 30% range as we've previously guided.

Turning to expenses, as I said, we were able to reduce our cost structure by a full 20% on an FX adjusted basis. Clearly, fuel expenses were the biggest driver with WTI at C$60 per barrel which was less than half of where oil was in the second quarter last year. This drove a 62% reduction in our expenses on an FX adjusted basis. But the team also delivered outstanding productivity improvement to match our operations to the business level that we had during the quarter. All the while, protecting service while they were doing that.

I want to repeat some of those key statistics because they are quite remarkable. On the productivity front, our yard throughput improved 20%. Our car velocity improved 17% to a record 210 miles per car date. Our train velocity improved by 14%. Train load improved by 3%, despite a reduction in GTM of basically 15%. And our locomotive utilization also improved 2% during the quarter. Looking at it from a resource angle, which is the other way, crew starts were down 25%, our locomotive fleet was down 25%. Our car fleet was down 20%. Our workforce, if you adjust for the acquisition of the Chemin de Fer du Quebec and EJ&E was down roughly 7.5% on a year-over-year basis, and our overtime expenses was down a whopping 50%.

If I look at it by expense category, labor and fringe benefits, those expenses were down only 1%. But frankly, higher stock-based compensation and also pension expense brought in a roughly 6% headwind. If I exclude these items, which are largely uncontrollable, our labor expense would have been down 7% to 8%, very much in line with our workforce reduction adjusted for the close to 600 employees that we took on for the EJ&E and CSQ. Purchased services and material expenses were reduced by a full 17%, reflecting much lower third party costs, less outsourcing and also disciplined cost management across the board. Equipment rents were up only 3%, with the impact of lower lease expenses as a result of our velocity improvement being more than offset, unfortunately, by lower car income from the much reduced volumes that we have offline. Casualty and other expenses, finally, were up 2% but they would have been down double-digit if not for the legal claim credit which benefited us in 2008.

If I turn to cash flows, we also did very well with C$463 million of free cash flow generated year-to-date. This is an increase of C$238 million over 2008. This obviously includes the C$150 million of proceeds from the sale of the Weston Subdivision to GO Transit. But even if I exclude this transaction, our free cash flow was C$310 million, C$88 million higher than last year. This performance was achieved by pulling on all levers, in particular, strong working capital management. Just to give you one example, our collection cycle for receivables finished Q2 with a DSO of 24 days, and that is despite a number of high profile restructurings during the quarter. We continued to invest in support of our business, net CapEx is just under C$500 million. We are smartly targeting our CapEx expenditure on key projects, basically focusing on productivity, safety and service. With the strong cash generation, we built up our cash balance. At the end of the quarter, our cash balance was just slightly ahead of C$410 million, and the cash balance is there in anticipation of our upcoming August 1st bond maturity which will require C$365 million. Once this is repaid, our next maturity is only in October of 2011. Clearly, in the current environment, we are focused on prudent financial management and maintaining the flexibility of our strong balance sheet. We will be able to reassess our use of cash when the economy starts to recover.

Let me just wrap up with a few words on the current outlook. Clearly, we can be very proud of CN's performance during the first six months of the year. We delivered solid results on both an absolute and a relative basis, given what was arguably the worst downturn since the Great Depression. Looking forward, we see some emerging signs of improvement in the environment and we are cautiously optimistic that business volumes have bottomed out. Hopefully, we will start to see a gradual recovery in the coming quarters shaping up. In the meantime, our focus remains squarely on right-sizing our assets and running a fluid network. With the significant shock absorbers of a weaker Canadian dollar and lower oil prices behind us now, this is no time to let our guard down. We will remain steadfast in our disciplined approach, yet prepare ourselves to be able to profitably handle the rebound when it comes forward.

And with that, I will turn it over to Jim.

Great. Thanks a lot, Claude. I'd like to go through the second quarter revenues and as usual, I'll do that on an exchange adjusted basis. Total revenues were down 21%. Rail freight volume declined 14% on an RTM basis and 22% on a carload basis, which obviously had a significant impact on the results. But lower fuel surcharge revenues due to the lower fuel prices in the quarter had an almost equal negative impact. If you strip out the impacts from fuel and the lower other revenues which were down 24%, primarily due to lower business volumes in the non-rail transportation activity, especially the dock and vessel businesses, tied to iron ore, you get to an apples to apples freight revenue decline of about 10%.

Price increases in the quarter were again in the 4% to 5% range, consistent with our strategy of having a long-term view of reasonable, sustainable pricing that is tied to the value of our service we provide our customers. As I said in the past, we do not view transportation as a commodity but as a service and are not discounting our prices to attract or retain business. The merchandise business saw further declines this quarter as many producers continued to adjust operating rates to reflect reduced demand. Chemicals continued to be weak. However, petroleum products benefited from spot opportunities in the petroleum segment which helped offset lower volumes in plastics and sulfur. Metals and minerals business segment experienced the worst performance in the quarter as iron ore shipments dipped to record low levels during the weeks 18 to 23 period.

Forest products was also down again this quarter but seems to have stabilized as volumes have been steady on a weekly basis since the beginning of March. Automotive also remained very weak. The bulk franchise had a blend of both strength and weakness. Grain benefited from a large Canadian canola crop and a strong export wheat program. However, this was offset by slow US corn and soybean shipments. Fertilizers continues to be impacted by the farmer's decision to delay applications. On the coal side, US thermal coal continues to benefit from strong production from online mines and increased volumes related to the acquisition of the EJ&E. While our Canadian meth coal has been impacted by reduced export demand.

Reduced consumer demand continues to impact the imports for overseas intermodal. Improving volumes at the Port of Prince Rupert are being offset by ongoing significant year-over-year declines through both the ports of Vancouver and Halifax. On the domestic side, that business remains relatively stable.

A little bit about the next slide about going forward. I'm optimistic that volumes should be better in the second half than they were in the first half. The question is just how much better. The merchandise business segment appears to have bottomed. Steel production capacity is coming back online, as is auto production. New business is being brought on in the petroleum area and as I said earlier, we believe that forest products has stabilized. On the bulk side of the business, reasonable crop production combined with the strong carry-in will provide us with above average grain stocks to move out of our draw territory in both Canada and the US. Canadian metallurgical coal volumes are showing strength, especially with the strong export moves to China, and will be augmented by volumes from a new source. International intermodal volumes over Prince Rupert are doing very well and have continued to improve sequentially for the rest of the year. Domestic intermodal should remain near flat with last year.

Those factors combined give me a more optimistic view of the second half of the year, and with that, I'd like to turn it over to Hunter.

Thanks, Jim, Claude, for those presentations, and welcome, Luc. You'll be presenting next time, I hope. Let me wrap this up by making a few comments here. We obviously are going to continue to drive productivity and efficiency, but, first point, we're not going to do that and let our service or our safety falter, I can tell you that. Right now, our service levels, in spite of trying to deal with these downturns, are better than they've ever been. And I'm tapping on wood at the same time. Our year-over-year performance in the area of train accidents and personal injuries and casualty has done much better. And I think you can learn from Jim's comments that we're going to sustain our pricing disciplines that we have been able to achieve for some number of years now.

We're going to clearly focus on some additional structural growth opportunities and I think we are well positioned as the economy improves. Jim's point is just right on, is how much it's going to improve. From my personal standpoint, I think we've seen the bottom. I think we've seen for the first time starting in May, sequential run rates, not year-over-year but month over month, picking up modestly. I think that will continue into the second half and I'm talking more in the context of CN's business, not the overall economy in Canada or the US, but the business that affects us. So I am pretty optimistic that the second half will be better performance, given the revenues, than we've experienced in the first half and I'm excited to be able to see some of these volume increases and how they further impact some of the productivity metrics and improvements.

With that, Patrick, we would be happy to entertain questions from the audience.

Thank you. We will now take questions from the telephone lines. (Operator Instructions). The first question will be from William Greene from Morgan Stanley. Please go ahead.

Yes, Hunter, I just wanted to follow up on your comments here about we've seen perhaps the bottom in your business. How does a typical rebound look in the numbers? What are the first categories where you see the benefit and what moves first and then how does that follow through the rest of the business?

Bill, I'm looking at it from a more 40,000-foot level of overall RTMs. Our RTMs have improved, June over May, July over June. It appears that that trend will continue. Jim's comments about metals and minerals, I guess we could say it couldn't get worse. It was down as low as 40%, plus. To bounce back and be down 30% is not all bad. We've seen some positive signs in chemical. I think the bulk we're going to be fine with grain. The coal opportunity and all these are very -- these are modest gains, but gains. Jim's right, there's not been as much positive sign on lumber side but a little bit of bounceback there, some issues positive there. And I think the most positive sign to me has been the last six to seven weeks, intermodal has been pretty strong, particularly on the West Coast. We've made some operating changes there and I think that gives some indications, some support for the improvement in Asia and China with those business levels, which will only go to help us. So that's a little commentary, Bill, on what I see.

Okay. That's helpful. So given that we may be near a bottom and the cash flows that Claude outlined here were actually quite strong, shouldn't we think about having a buyback, a more regular one, back in place, given where the stock is?

I think, Bill, we have to wait to see that this economy does confirm itself and that at the end of the first quarter we had gone a little bit over where we want to be in terms of our balance sheet strength, so we've been replenishing our cash balance in anticipation of our debt maturity coming up here, and our short-term focus is on keeping that strong balance. When the economy is clearly on the recovery path and our cash will improve, that's when we will be in a position to reassess where we are in terms of use of cash.

One last question for Hunter. Any unfinished business before you leave at year end?

You might have to ask Claude that. I don't know. No, I'm trying to stay current on all my files and no, I think that we're positioned for a smooth transition and I don't think there's any trash I'm leaving behind.

Can tell you from my side, we haven't witnessed any letdown. We still get those phone calls and they're pretty intense.

I was getting at, there's no one big merger you want to do before you leave, huh?

Just time got me, Bill.

I got you, thanks for the help.

The next question is from Edward Wolfe from Wolfe Research. Please go ahead.

Hey, good afternoon. Can you talk a little bit about the recent announcement with Tech Cominco contract and maybe what the pricing is like relative to your other business and what you think the opportunity is here longer term?

Okay, sure, Ed. It's a topic that got a little bit of play. Be glad to talk about it. First of all, we're very happy to be moving the coal for Tech and we hope that we do a very good job for them. I think what people need to understand is if a customer or a potential customer comes to us and asks for a rate to move their product, we are obligated to quote a rate to them. And we did that with Tech at a rate that was very consistent with the other rates that we have in place to move coal. And apparently Tech liked our service, which is a direct move into the terminal on the West Coast, and the price, and chose us to move some incremental or tonnage for them, from Kamloops to the terminal. So we're very pleased that they chose us.

So when we start to see that reported, will we see a major change in the reported yields? Is there a mix change or price change or something for coal? Or will it be seamless to the way we see it, we won't be able to notice it?

The only thing that you will see is in our consolidated coal revenues would more likely than not -- and I haven't run this out pro forma but I'm attempting to answer your question -- our yield should increase because the Western Canadian metallurgical coal moves on a per car or a cents per RTM basis move at a higher rate clearly than some of the short haul interim line moves that we have in the US of PRB coal, as an example.

And is that starting to move already? When is this fully ramped up?

I believe that coal started to move, correct me if I'm wrong, July 10th. Within days after the announcement. And it's about a train a day and yes, it's moving.

Okay. And the first question I had asked also, what's the opportunity longer term? The way the announcement was released it said this is through I think the end of the coal year this year. Is there the opportunity to go beyond that?

The terms of the agreement that we have with Tech are confidential but I think that as with any business, we will try to do the best job we can of providing a good service to Tech. It's really up to the customer. It's not up to us.

Okay. Last question, I'll leave it off for somebody else. Claude, can you talk about, if I just look at compensation per employee, it looks like it's up 11%. I know there was something in the comp a year ago but even sequentially it's down quite a bit. What's going on with comp per employee, average comp?

I think for the most part, other than the normal wage inflation, we have reduced our workforce in line with what I said and we are reducing our overtime expenses quite significantly, almost 50% on a year-over-year basis. What is driving the comp per employee up a bit is the stock-based compensation. That is the movement of the stock price from beginning of the quarter in both years, and there's been a big swing on a year-over-year basis. That explains the roughly 5% increase in labor and fringe expenses. We've also reduced our overall capital expenditure and that reduces our capital credit. So that tends to impact a little bit the reported labor against the number of employees, because some of them are working out there but we're not getting the capital credits the way we did last year. Other than that, we're focused on every aspect. We're asking our employees to take additional vacations, which is reducing our vacation accrual. We're reducing overtime and adjusting our workforce the way you would expect in a well-run railroad.

Okay. Thank you so much for the time, everybody.

Thank you. The next question is from Walter Spracklin from RBC Capital Markets. Please go ahead.

Thanks very much. Good evening. Just on coming back to the coal agreement. Obviously this was an enactment of one of the regulatory changes that allows a customer to do an interchange. Taking away that one, Jim, if you were to look back on some of your other customers or lines, have you seen either coming to you more requests for quotes on interchange, all else equal, or would it have been consistent recently with what it's been in the past?

I'm not aware of -- there's no change in the regulations here that allowed this customer to decide to have an interchange rate at Kamloops. That ability's been there for forever, as far as I know. So no change in the regulations there. I have not seen any increase in any kind of activity from customers that are trying to do any kind of a rate shopping. We're very eager today to do anywhere Rule 11 rates, which would be gateway rates, and have always been open in that manner. Haven't seen any kind of increase. They haven't had an FOA around here for a couple of years and I personally handle all the FOAs and win them all. Maybe that's why we don't get them.

I'm hearing more and more pushback from customers, not about the freight rate or the base rate of 4% and 5% but rather the significant increase they're seeing in ancillary charges. How much of your 4% to 5% is built in in ancillary charges in that price number?

That 4% to 5% that we talk about is a base rate increase on a same store sales basis. Our policy as it relates to ancillary charges is that we have fair, consistent rates in place for demurrage, et cetera, that are consistent with the industry practice. The only thing that we do is if we charge somebody for one of these services, we expect to collect on it. So we're aggressive in terms of collection. Because we are aggressive in our collection, and don't take these things as some bargaining ploy to trade back and forth with our customers, our asset utilization, our turn times, the dwell times with our cars sitting is improved and, therefore, that impacts on our service. So because those dwell times improve, the actual cost to the customers goes down. So our charges that the customers are talking about are going down. The revenue stream that we're collecting from that is going down. And that is exactly the behavior we're trying to foster in the marketplace, is to get the cars loaded and unloaded and moving on the railroad, which provides better quality service.

Okay. That makes a lot of sense. Okay. Last question here is four Claude. Claude, one of your competitors last week announced a casualty reserve adjustment or benefit there. They had their review in the second quarter. Are you having any reviews upcoming either on casualty reserves or any other what we could call lumpy, that might have an impact, other than the tax lift you're getting on the lower corporate tax rate?

We look at our cash flow reserve on an actuarial basis every year, at least once a year. As you know, over the last couple of years we had improvement in this area. We had significant reduction in our legal claims for occupational disease, for instance, asbestos claims. We will have another review in the second half of the year and hopefully we continue to have improvements. But nothing different than what we've had in the past few years.

Okay. That's all my questions. Thanks very much, guys.

Thank you. The next question is from Chris Ceraso from Credit Suisse. Please go ahead.

Thanks, good evening. A couple of things. On the decline in the yard crew starts, 32%, that sounds like a dramatic change. Can we just talk a little bit about how you do that? How is it down so much more than volume? Do you feel like maybe you run the risk of being too tight when volumes start to get better?

This is the result of some efforts that have taken place over the last three or four years that we have talked about ongoing. This is part of the SmartYard project. It's part of the justification for the investment in the Memphis yard where we put in a Mini Hump. We closed the Hump at Flat Rock sometime back. We've effectively closed Battle Creek terminal. We have close Bolton terminal. We have closed the Hump at Edmonton. And the list goes on and on.

So this has been planned for some time. It just so happened that from this standpoint, it happened to work when we needed it the most. Are we positioned to handle business as the economy improves? Just try us -- yes. These metrics will not suffer as a result. If you peel these back, what you'll find is remarkable. Basic raw productivity gains, I like to call it. If you go to our largest hump yard of the only effectively two remaining in Canada, Winnipeg and Mac Yard, Mac Yard productivity over the last five years is up like 75%. Their crew starts and all those things are dramatic changes. So this is a coming together of these strategies and plans that have been in the works for some period of time. And I would expect going forward as volume comes back to see this improve from a productivity standpoint, on a per basis improve further.

What was the change in yard crew headcount and how many of those people are just furloughed versus how many have been let go?

Most of them, the ones that are recently hired will get laid off, but we have been making a concerted effort to actually use the employees that are being released from transportation and encourage them to take on work in the engineering forces to help us address attrition. So I think as we speak, we have roughly 180 employees, for instance, which are transportation employees, working on engineering gangs, and we have a few that are laid off, waiting to return to work when the business comes back up. But we are managing this with a very close eye, trying to keep employees gainfully employed at the same time as we are effecting the productivity change.

Your headcount wasn't down 32%, right, just the crew starts. What was the headcount decline?

Our transportation employees are down about 1,000 on a year-over-year basis, so on a base of roughly -- correct me, Hunter -- 5,000, or just under 5,000 employees, that gives you an order of magnitude. Some of them are being used to fill in work on the engineering side, as I discussed, and others are being laid off or sit on furlough boards.

Let me add this. Depending on whether you're talking Canada and the US, as Claude talked to you, mentioned to you earlier, some of this productivity is a result of drastic reductions in overtime, for example. Some have gone to these other crafts, as Claude has mentioned. And some of this is simply a case that a crew person that was making C$120,000 last year might be making C$75,000 this year because of less work and less overtime but not directly related 32% to the headcount.

To add to Hunter's point, our overall overtime is down 48% so that just gives you an order of magnitude of the embedded productivity.

Okay. Just one last one. Do you think there's any risk of any kind of retaliation on the behalf of other railroads that might have lost some business to you?

I hope not. Look, this is a competitive world. It's our responsibility to be out there and be competitive, as its others' responsibility. I would imagine, I don't know that they're giving us any freebies. If they can come get some of our business and do a good job for the customer and compete, I would imagine they're going to do that, as we will do. That's what the free world's about is competition. That's what makes the world go around. So I'm not worried about retaliation. That's just part of the game we're in. We play it better than anybody.

Thank you very much.

Thank you. The next question is from Jacob Bout from CIBC World Markets. Please go ahead.

Hi, good evening. Maybe we can start off, can give us your thoughts on the Rockefeller Rail Bill. How much input have you had? How do you think it's going to impact CN and the industry going forward?

From CN's perspective, and let me qualify this, first of all, we have had our opportunities to have input with personnel we have in DC. I have not personally seen the, quote, final product. I don't think the final product is out. I have some ideas of some of the potential issues in the legislation, and I guess I would give you this comment. None of it I'm losing sleep over. I think it's things that are very manageable on our part. I hope it doesn't create a lot of bureaucracy and inability to do business effectively but I don't think we have trouble with some of the antitrust issues. We just want to be treated like everybody else. And the only thing down the line, and I don't think this is contemplated whatsoever in the Rockefeller bill, if we ever get into rate regulation, that's a different animal. But I think the Rockefeller bill, I think there are some compromises being discussed. I think there's some fine-tuning and I think it's something that we're comfortable with.

So at this point it doesn't feel like re-regulation to you?

No, not at all.

Okay. Turning to pricing, can you just walk us through your contracts that have been repriced for 2010 and what the pricing has been on those contracts?

We have about somewhere between 50% to 55% of the business for 2010 currently repriced in the range that we've been talking about, 4% to 5%.

And how did that change from last quarter?

We have contracts that are slightly -- the average length of our contract is slightly less than two years and we've got significantly more tariffs than we used to have, so the duration of our agreements is shorter in length. So as we move forward through the year, I think in the end of the quarter last time we probably said around 25%. So it's just going to progress and it's pretty smooth. There's no one big quarter where we have some big, large pricing activity.

Okay. And then just turning to intermodal, we saw freight revenue per RTM down about 13%. Just comment a little bit about what's happening there. The competition from the truckers, just what's happening there on the intermodal side.

First thing you've got to do is you've got to get -- as I try to do when I discuss these items -- you've got to get the noise associated with exchange and the fuel surcharge out of the numbers in order to do any kind of a freight on an RTM, cents per RTM basis or whatever that is. So if you strip out exchange and you strip out the C$200 million or so lesser revenues from fuel surcharge, our cents per RTM was actually up a total 3%. With all of the business units being positive. And you're right, the only one that was down was intermodal being down only 4%.

And the reason for that is is -- and Hunter's going to kick me here when I say this because he says it's my coverup answer -- it's a mix issue and it really is in this case. The volume growth that we're seeing is coming through Prince Rupert. And as I've said before, as we have priced the services out of Prince Rupert, we always said it was a premium service at a premium price relative to the other terminals. But the length of haul on that traffic is longer. So it has a lower cents per revenue ton mile because even though slightly premium priced, not totally commensurate with the length of haul which is borne out by -- short answer is if you don't believe me, the average revenue per load in intermodal is up 4%. So it's truly is a mix question there. But everything else is positive.

Then just maybe comment on the competition of truckers in Vancouver.

There is no really truck competition for the international import. Nobody's going to truck that business from the West Coast to Chicago, Memphis, Toronto or Chicago, so that's rail. The domestic intermodal, a lot of people are talking about the fact that truckers clearly have not maintained their pricing discipline like the rails have, but we are not chasing freight out there with price, as I said earlier. Truck rates are traditionally higher than rail rates. Customers at this point in time want to find the low cost alternative, which is rail, so we're not having a -- we're growing share, industry-wide, in the domestic intermodal business and we're no different.

All right. Thank you very much.

Thank you. The next question is from Tom Wadewitz from JPMorgan. Please go ahead.

Yes, good afternoon. Wanted to see if you could give a little bit of some parameters for third quarter year-over-year volumes. You did provide some comments about why you think volumes may get a bit better in third versus second. If you're down 22% year-over-year in second quarter, do you think third is down 15% or down 10%, or any kind of broad parameters you can give to help us with your thoughts on the third quarter volumes.

I think what we have said, Tom, I think what we've said is about all we can say at this point in time, is that we expect that the volumes in the second half will be better than they were in the first half. And as I said, the question is how much. And there are certainly signs out there of why we come to that conclusion, but don't feel comfortable giving any more information than that.

Your typical seasonal pattern, volumes would be quite a bit better in second half than first half, so it's possible that your year-over-year doesn't improve? Is that a fair way to look at it?

I don't think so, Tom. I think my comment earlier was if we're looking at June over May and July over June, and you take the seasonal factor out of there, we are right now seeing sequential increases, as modest as they may be. To take the whole second half and try to predict what those numbers are going to exactly be and compare them year-over-year in this kind of environment is kind of like a stab in the dark and I just don't think it would be helpful.

Right. Okay. That's fair enough.

Look, we have said this all along. As the smoke clears, we'll share with you what we see and what we think we can do out there, and if you all get some insight, you've got some information, share it with us.

Okay. Fair enough. A question on the pricing side. It seems that your 4% to 5% that you're able to achieve on pricing is pretty immune to what the volume growth has been or the volume decline has been. And I'm wondering when you see stronger volumes eventually, do you think that that pricing that you're able to achieve ramps up and instead of seeing 4% to 5% you see 5% to 6% or even beyond that? Or is it the type of thing that you're just pretty much insulated to volumes but the pricing is not going to be that sensitive to a cyclical recovery in terms of getting stronger?

I will try to take the criticism that I took two or three years ago, when everybody told me that 4% to 5% should be 6% to 8% then, and I think we're trying to have long-term, sustainable pricing, and it benefits you. It benefits you in times like this, if you're reasonable, and maybe you leave a little bit on the table in the peak years. But that's the strategy that we're employing and that's I think what we'll do.

Okay. And one last one, I'll pass it along to someone else. But the improvement, I think you said train length was 3% higher maybe in this environment so that's highly impressive. We would expect train length to be down when volumes are down so much. But then when volumes come back, is there still room for further improvement in train length so you could see some operating leverage to volumes coming back, or is that tough to do, given how well you sustained train lengths in the downturn?

There can be some modest improvement there and it's all, Tom, I'm sure you're aware, it's kind of lane sensitive and where are we. We have gone in certain lanes where we have maybe two markets within 150 miles of each other and we've got one train serving both markets, so before we had two trains. So as things come back, there will clearly be a period of time when we will have to add a train start, and the train start we add won't be back up to the productivity level that we achieve now but we will quickly achieve that and then take another step up. And the biggest issue there that maybe some of you are not aware of is that we are running more DC trains now than we have ever run before and we're still in the learning curve. We're running trains very cautiously. But much, much bigger than I thought we could achieve successfully, and that will continue and that gives you a lot of leverage of the train size.

Right. Okay. Great. Thank you for the time. Appreciate it.

Thank you. The next question is from Jason Seidl from Dahlman Rose. Please go ahead.

Thank you. Afternoon, gentlemen. Could you give us an update on your mid-American corridor initiative that you announced in February, where are you guys at for that? What do you see heading into 2010 with a hopeful uptick in volumes?

There was an agreement there to provide capacity to the Norfolk Southern over our premier route there in the Midwest. The concept is still very, very solid but the volumes have been slow to materialize because just about the time we announced it, both of us got whacked with the economy. We're still very optimistic about it. We are in some pretty intense discussions currently about finding new business opportunities. As an example, maybe some grain. Again, the whole deal here is matching our origins with the NS destinations and matching up some of our grain origins with their destinations. Maybe some ethanol traffic. We're still looking optimistic about some coal business over that route. And I believe that we will be starting to see some real volumes moving on that route by the end of the year.

Okay. That's good. Thanks. If we could stick on to looking out here, if we look at Prince Rupert, can you give us an update on any potential discussions to add another ship. And other than the economy, are there any impediments there? And also can you talk a little bit about some of the export developments out of Prince Rupert, as well?

I wish I could tell you there was another boat going in there but people would think I'm smoking something. Things are pretty bad on the Trans Pacific right now. And despite all that, our business there with COSCO and their alliance partners has been growing very, very well and the reason for that is our service offering there is just superior to anything else that's available out there, especially down into Chicago and Memphis, which is our largest destination for that terminal right now. So nothing's going to change about the fact that the Port of Prince Rupert is the closest and best service route into the Midwest and I would expect when the volumes come back from a change in the economic environment and more imports into North America, that our volumes there would take off, and I have no reason to believe that we wouldn't be able to get back talking about the date when we'll have that sold out. But I think that's a little premature for me to do that right now. On the export side, as the vessel configurations have changed in the first quarter I think our ratio of export container volume to imports was around 35% of them were loaded and that number is up significantly from where it was in the first quarter.

And what specific commodity is up?

On the export side we move a lot of different products. We move DDGs, we move scrap paper. We move just about everything. We're hustling like dogs to find business to get it out of there. Pulp, logs to Asia. So it's not a matter of us finding the opportunity, it's finding capacity on the vessel going back to be able to move that. And as they have changed their ports of call and the strings of service that they provide when coming into Prince Rupert, it has freed up more capacity on the vessel, the Trans-Pacific westbound for us, and we've been able to fill it up.

Okay. Thank you for the update. I appreciate it.

Thank you. The next question is from Bill MacKenzie from TD Newcrest. Please go ahead.

Thank you. Just going back to the developments with respect to coal in Western Canada, Jim, some of the concerns I've heard from investors with respect to the FOA decision that came for your competitor out there, is that there's some concerns that that could result in increased FOAs across Canada in general. And I'm just curious to see what your response is to that, what the counter argument as to whether that might happen or not.

It's not for me to get involved in the workings of the relationships between Tech and CP so I'm really not going to comment on that, other than I think it was well-publicized that this dispute about those rates were out there for a long, long time. I don't have any information about what it was, other than they disagreed upon what they should pay. And as I said earlier, I said I don't expect this to spill over in any way, shape or form. The FOA process has been there for a long period of time. There's nothing unusual about any kind of change in circumstance that would lead me to believe that I should see any kind of increase in FOAs. I have not seen any increase in FOAs and I don't expect to see any increase in FOAs.

Okay. Great. Thanks. And then just in terms of the other revenue line, Jim, you talked about what was driving that part of the business down in the quarter. Just curious on the outlook for that part of the business. Do you feel we're at the bottom for those types of non-rail services or will that lag the freight lines coming back up?

No, that should increase, just as we talked about, the significant decline in our iron ore volumes associated with the shutdown of steel production. As steel producing facilities have come back on-line, the demand for iron ore has come back on-line and our car carloadings of iron ore are moving up. Those carloads of iron ore move over our dock, and then on to our Great Lakes vessels, and then onto destination. And where we account for the revenues on our docks and our Great Lakes vessels is in this other revenue line. So as ore came down, other revenue came down. As ore comes back, other revenue will come back. And I would expect to see that in the third quarter.

Okay. Great. Thank you.

Thank you. The next question is from Matt Troy from Citigroup. Please go ahead.

Yes. Jim, I was wondering if you could talk about the peak shipping season. Was wondering if you could just refresh memory. We should be at the point where if shippers are already making requests or inquiries, they will shortly. Are you hearing -- I know there's conceptual hope for a pickup but are you hearing tactically, directly from customers that they're trying to arrange capacity for the peak shipping season? What are your expectations for that and how should we expect that to ramp in the coming weeks and months?

We are certainly not expecting what anyone would consider a peak in shipping, and anybody that wants to buy capacity on a eastbound steamship right now to move product from Asia into the US can do it at a cost of about 25% of what it used to be. So the capacity is available out there. And what we're looking at is, as I said, some kind of a sequential, gradual increase in our volumes, somewhat in international and intermodal, somewhat seasonally adjusted for the traditional Christmas season. But we are not anticipating any kind of a traditional Christmas shopping season, so our expectations there are tempered.

What about on the automotive side? Obviously, coming off a very depressed level. You've had some plant shutdowns. You've had obviously the financial morass as in the US. Expectations are that production levels could accelerate or pick up into the back half of the year off volume levels which were down 40%, 50%, 60%. Automotive -- I think finished vehicle traffic is about 4% of your base. But can you just frame what other percentage of your business, be it plastics or metals, might relate to auto? And two, how those might improve or how you're positioning for what could be a sequential recovery in automotive. Are you hearing it from customers and how do you plan for it?

Obviously as Chrysler and General Motors start back up their plants which were idled during their financial and legal proceedings, we'll start to see some volumes. Chrysler's not a customer of ours but General Motors clearly is. We have tried to in the past quantify how much aluminum, chemicals, et cetera, import container traffic, et cetera, is tied to that. It's been difficult for us to do. But clearly, as I said earlier, as auto production now comes back online, we are seeing iron ore traffic begin to move, as the steel manufacturers begin to ramp up and start to get some sheet steel and some coil steel products available. Aluminum has been relatively strong. So obviously we expect finished vehicle shipments, as I said earlier, to be stronger than they were in the second half of the year than they were in the first, and the products associated with auto manufacturing should also be up.

Okay. And the last question real quick for Claude. In terms of capital budget, could you give us an update if it hasn't changed or if it has changed for full year 2009 and what kind of hurdles or metrics are you looking for before you can potentially adjust upward capital expenditures in perhaps 2010, 2011? What are the hurdles you've got to clear?

Our hurdles never change. We want to make sure we create value and we actually have projects that provide a return well above our cost of capital. In terms of sizing the envelope, at the moment we have not been increasing and we've done the reverse over the last couple quarters, making sure that we are targeting our CapEx while we continue to invest, that we are targeting it on productivity, safety and service, things that are short-term benefit, and we've deferred a few growth related type investments because the business demand is not there. Overall, for the year, our CapEx envelope should be in or around C$1.5 billion, maybe a little bit less than that, as we've previously indicated.

Okay. Thank you for the time.

Thank you. The next question is from David Newman from National Bank Financial. Please go ahead.

Good afternoon, gentlemen. Just noticing on the repricing, you did about 4% to 5% in Q1 and about 4% to 5% in Q2. Have you seen any sequential softening at all in the repricing or has it been fairly consistent?

Very consistent.

Okay. Very good. And Claude, just on the purchase services and casualty and other, is there a run rate that we should anticipate for Q3 and Q4? Is this the level that we should expect?

Again, short of exchange playing havoc to the numbers, our focus on containing expenses and reducing our reliance on outsourced services continues unabated. So you should expect that we will continue to make progress in this regard. Exchange obviously is the only thing that has an impact on a quarter-to-quarter basis as you translate our US dollar denominated expenses into Canadian dollars.

And on headcount, looks like you've got about, I think you had 700, if I'm not mistaken, on furlough last quarter, and looks like that would imply that you have just slightly less, about 900 on natural attrition. Are those numbers around what we're at? After EJ&E of course.

Our year-over-year headcount on an average basis is down 1,100 and I've indicated that we took on roughly 600 employees as a result of our acquisitions, so year-over-year our headcount is down 1,700 or thereabouts. And you should expect that we will continue to make efforts to keep our headcount in line with our business levels. We will be at some point lapping those acquisitions in the coming quarters.

You had another 1,000, I believe, I think you had 2,000 for the year natural attrition so maybe another 1,000 to go in the back half. I assume that you still have a hiring freeze in place?

We have a targeted approach to our hiring and we are hiring only where we need to, and even those employees that we have that are surplus at the moment, we are trying to redirect to handle the work that we have. So we're trying to be smart about it. I'll just give you an example. We've been trying to increase our IT workforce here at the headquarters in CN. We faced for a number of years, we were only able to recruit consultants to do work in the most modern technology platform. Now, with today's downturn, all of a sudden we are able to hire them on an ongoing basis as a permanent employee and we're doing just that. Similarly, to the extent that we've been outsourcing some of the work that we do for our basic capital envelope, today we're not doing any of that. So we have more of our employees doing the work. That shows up in reduced outsource services for purchased services and material, but it employs our workforce and increases our labor expense versus what it would otherwise have been in the past. That is just smart business to try to contain our expenses and work with our workforce in a smart manner in tough times.

Last one from me, switching gears, obviously I think a couple years ago, seems like an eon ago, when volumes were surging, I believe at the time, Hunter, you mentioned there was 20% to 25% extra capacity at the time. You've done a few acquisitions in the interim. Obviously EJ&E will help out. What do you think your capability or your capacity is at right now and how will you scale that back up if volumes do return? It looks to me like you could be running around 60% of normal capacity or so.

Are you speaking of physical plant capacity?

Yes, how much can you scale it up? And obviously the EJ&E will help operationally in terms of freeing up more capacity. What do you think you can handle?

Look, we can obviously handle and go back to 2006 kind of levels, which I hope we see before I leave. We're not. But capacity's not an issue. And what I would point out, let me give you a direct answer. We could pick up 30% capacity tomorrow and it would be a non-event. Now, to go further, we can add capacity incrementally as we need it. If we need to add a controlled signing out here -- we don't have a lot of double track railroad. Virtually none. If we need to add some capacity between Winnipeg and Edmonton, we can do it pretty cheaply. In fact,we've got a lot of 6,000 foot signings out there that are kind of an antiquated, not used very much, because of the train size, and we could use that material if we need to to put it together. So capacity is something that we can deal with that Claude and my colleagues here are not going to have to worry about for sometime.

I know a couple years ago, one of your initiatives was to look to the train speed, and it's obviously improved dramatically. Where do you think you can take that and what sort of CapEx would be required?

What we have gained so far this year, year-over-year, we're up about four miles an hour over last year. Has basically just been achieved through execution. The horsepower per trailing ton has not increased. We have not basically increased any infrastructure and right now there are not plans to do that. We're not going to hurry up and wait. We don't need to do that. And -- and I say this strictly from a labor standpoint -- it's much more important in the US than it is in Canada, from a labor cost standpoint, because I'm paying by the hour in the US and I'm paying by the mile in Canada. If somebody gets there in four hours instead of six hours, then the cost is no different for me. So we can add capacity or speed pretty quickly if there's a need there and there's a market there for it.

Excellent. Thanks, gentlemen.

Thank you. The next question is from Cherilyn Radbourne from Scotia Capital. Please go ahead.

Thanks very much. Good afternoon. I wondered if you could comment to the extent that you can, the way that the auto bankruptcies are shaking out in terms of assembly plant closures, parts plant closures, can you just speak a little bit about how you think your franchise has fared in that process and also the auto port franchise?

I'll mention Michigan and Jim can talk a little bit about Canada. I think effectively with Ford in Flat Rock, we're not going to be adversely impacted from that standpoint. We are going to be impacted by Pontiac closing, but the Pontiac closing, that production will all move to Lansing, which will then actually be more efficient for us so we'll have Lansing and Flint more up to capacity and we'll not have Pontiac. Pontiac will effectively close. So from a Michigan standpoint, we're in pretty good shape and Jim's more up to speed on the Canadian impact than I am.

From a net-net standpoint, it has had minimal impact on us, and we expect that to be the case going forward for the reasons Hunter has just described. We've been lucky enough to have the facilities that we serve be retained and be viewed as critical assets to the manufacturers. From an auto port standpoint, which is the internal operation for handling the finished vehicles, that business has been growing and will continue to grow and is not only handling that, doing those activities on our railroad, but beginning to take those activities offline to other locations for the manufacturers.

Okay. Thank you. Second question from me is just with respect to the EJ&E, and at the time you bought that franchise you talked about the potential to use the yards that came with that acquisition to reconfigure your US yard network. And I just wondered if you could speak about whether you've initiated that process, whether you've started to use Kirk Yard?

At the moment, really we're, with the business down, especially in the steel sector, which is the predominant customer base that we have on the J proper, we are not in need of ramping up Kirk Yard at the current moment. But we are making plans to phase in as we build the connections which will take place over the next two to three years, as we build the connections, allowing us to move our train, then we will have to make sure that Kirk Yard is ready to handle the business that we will move there.

We have effectively closed the hump at Kirk Yard also because of the cost of that operation and through some issues with collective bargaining agreement. And Claude's point is very well taken. What this effectively does is gives us time to plan and to see exactly what we want to do at Kirk Yard, how large a complex do we need to put there, what improvements we need to make, which will then free up the assets at Markum and Joliet much more so for industrial development, customer development, business opportunities that Jim can put together and particularly could even involve some of the other facilities in Chicago.

Okay. Thank you. That's all from me.

Thank you. The next question is from Randy Cousins from BMO Capital Markets. Please go ahead.

Good afternoon. Hunter, one question for you. If we take a look at the cost and when volumes are collapsing, it's kind of tough to get the costs out at the same rate that the volumes are coming down, so assuming we've got stabilization of volumes and some recovery, and if we looked at the second quarter numbers in terms of cost and took out the fuel, so that's like 1024, is there another C$50 million or C$25 million of costs that can come out, given that you've got these initiatives but you've been chasing declining volume? How should we think about the second half from a cost perspective?

I wish it was but I don't think there will be enough impact in the second quarter pickup that we could see numbers like that, Randy. I do think that once again, when the economy really improves, when we can see the smoke is cleared and things are picking back up, then I think that's when you can hone in on some really pretty outstanding numbers, if we can maintain these metrics and I'm sure this group can.

So the short version is that basically you've been matching the cost cutting as the volumes come off and there is no lag phenomenon for CNR..

I think we've been ahead of the curve. We anticipated this. We got out ahead of the curve. We've continually challenged ourself. We have changed the operation significantly. We've done some things that we didn't think we could do, and I think when you look at RTMs down 14% and you see some of these metrics that are improving 25%, 30%, we're well ahead of the cost curve.

Second question has to do with derailment in the Chicago area. It got a lot of press. Has there been a reserve put in place in the Q2 or did it get more press than it justified in terms of cost impact? And secondarily, do you see any fallout in terms of the oversight with reference to the EJ&E coming out of that derailment? Because I know it wasn't on the EJ&E track but it's within spitting distance at some level.

I don't think there is any follow-up. We are continuing to make improvement. If you look at our safety statistics our RFA number of accidents is down significantly and it has been a very unfortunate derailment but we're doing everything to prevent them on a go-forward basis. It's too early to make any assessment as to the cause of the derailment and any responsibility that CN would have.

And what about costs? Have you already reserved for it or is it going to come at some point later in the year?

We've reserved for the cost we incurred due to the derailment and we're very early in the process of assessing responsibility. So that's where we stand at the moment.

Just on the grain side, because the grain numbers looked pretty impressive, I'm looking at a 5% increase in yield, a 12% increase in average revenues per carload. RTMs just down 6 and carloads down 12. Is that just canola or what else? Is there something else going on here to translate into why you're doing so well in terms of the grain business? And then lastly could you comment on the impact that the CTA, in terms of setting the grain rate for this crop year, is going to have on Q3 revenues for, or unit pricing in the grain category?

Big question. Yes, I think the answer to your first question is right. There's nothing unusual, nothing significant that has changed in order to drive yield or pricing, other than mostly canola and the strength of the export moves. In terms of the number, top of my head I don't recollect what the statutory number is at this point in time.

I think it's a reduction, is it not?

A small reduction, 4%. That will fold into -- largely as a result of lower fuel costs and that will fold into our results starting August first.

I'll throw one other for the grain. I know the Canadian Wheat Board was cautious on their outlook and Viterra has come out and given some indication that they seem to be much more bullish. How are you feeling about the state of the crop within your attachment area? I guess the issue is it's been very cool and the crop has not developed as nicely as everybody would have liked.

Yes, the crop, there's some issue about the crop first of all because of the coolness, because of the dryness, now there is some rain, will that be enough. This is the kind of dance we go through at the end of every crop year. I think it's safe to say that most people have a consensus that it will be down from last year but more in line with the five year average, five to ten year average. And so that's what we always use going into a period is an average crop. We never try and pick in advance what the crop is going to be. And that's what we had planned for and that looks like about what it will be. And we'll just have to wait and see.

So from a volume perspective in terms of your thinking for Q4, is your sense then flat volumes in the grain category, down or up?

As I said earlier, the big wild card here is the fact that there's this large carry-forward from the prior year's crop, so we will have a lot of grain available for us to move. The question is, if the world economic conditions changed to the extent that a lot of people start to buy Canadian grain at the levels they have historically bought them, we will probably move grain at the historical level. And we saw that getting close to that earlier in the year, prior to the slowdown as they focused on the harvest, and we're hoping that those levels return later in the year.

That's it from me. Thank you.

Randy, let me clarify one thing here. I want to be sure. The derailment here, the NTSB is working with us closely to investigate this derailment. And we're going to be very cautious coming up with a cause, because all indications were this was not a, quote, normal type derailment. We had had tremendous rainfall and flooding and this has all indications, nothing to do with the infrastructure of the equipment. It's beyond that. So I don't want -- this is not a case that the people on the EJ&E should get alarmed about some deficiency in our system. This was, we think at least, we think, weather related.

Okay. Good. Thank you.

Thank you. The last question will be from Ken Hoexter from Banc of America. Please go ahead.

Good afternoon or good evening. Just a couple of numerical questions, if I can. Jim, the metals yield was up. Is that solely because of the addition of EJ&E or is that because of the volumes being down so much?

It relates to the change in the iron ore move which is a very high volume, short distance move.

Okay. So it's a length of haul switch based on the volumes changing?

Correct.

Just on the EJ&E, you talked a little bit about it before. Are we starting to see some of the benefits come in from that on the cost side or is that going to take a while until you completely get that network operational?

Let me answer it two ways. As far as the EJ&E operation, we have stripped a lot of cost out. We can never get it all, but we are far ahead of the curve of what we thought we could do with EJ&E cost. Number one. Number two, the benefits that we see going down the road with our investment in the infrastructure, is more of a timing issue as we get those projects and connections completed, so we have not seen only just a faint drop of the benefits there from the acquisition.

Hunter, as we start to hear more and more about the Create Investments that could potentially be made with the next bill, with the next service transportation bill, what are your thoughts on that? Does that then remove some of the benefits that you could get from the EJ&E or are you still encouraged that if that goes through there are more operational benefits that you can derive from that?

We have been a support of Create. We're still a supporter of Create. There's no projects that are going to have an impact on us that says we wouldn't have done this project if we would have known what Create was going to do. Look, I'll believe it when I see it. Okay? I've been hearing about this since I think '97 or '98. So more power to Create. There's a lot of things in the Create project that's not directly rail related. So I hope it happens. Anything that relieves congestion in Chicago will help all railroads, in my view.

Great. Claude, what's in the recapitalization of foreign investment number on the C$0.03 gain?

That's a couple pennies that we gained from the recapitalization of a foreign investment. So we're crystallizing this investment in Canadian income tax benefit.

What was the investment?

Sorry?

What was the investment that you got the gain from?

This is one of our foreign investments out of Europe.

Okay. And Jim, did you go over what the FX impact was on yields?

Yes. Yes, I did at the very beginning.

Stripped out the fuel surcharge and FX.

Yes.

Okay. Just the fuel surcharge and the rest is FX?

Right. Our volumes are -- trying to think off the top of my head here. Volumes are down 14%. Our pricing is up 4%. And total, so the difference is the fuel, which is about equal to that, 10%.

Okay. Hunter, thank you very much. Appreciate all your time over the past years. Good luck.

Thanks, Jim, appreciate it.

And Patrick?

Thank you. This concludes today's question-and-answer session. I would like to turn the meeting back over to Mr. Harrison.

Thanks. I'm sorry we overran a little bit today and we'll try to be a little more timely next time, if Bob can arrange that. But I appreciate everybody joining us and I look forward to the next Earnings Release which will be my last one. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.