Good morning. My name is James, and I will be your conference operator today. At this time, I'd like to welcome everyone to CPKC's First Quarter 2021 Earnings Conference Call. The slides accompanying today's call are available at investor.cpkcr.com. [Operator Instructions] I'd now like to introduce Chris de Bruyn, Vice President, Capital Markets, to begin the conference.

Thank you, James. Good morning, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3. Please note, in addition to our regular quarterly financials, their supplemental Q1 combined revenue and operating performance will be available at investors.cpkcr.com. Which some of today's discussion will focus on. With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. In the interest of time, we'd appreciate if you limit your questions to one. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.

Good morning. Thanks, Chris. Listen, before we get to the results, think it's only appropriate on behalf of our CPKC family to extend our heartfelt prayers and condolences to Jim Foote's family and friends. As many of you know, we lost him last week, many of us in this industry have had the honor to serve the Jim during his multiple decades of service to this industry. I can tell you myself personally I'm going to cherish the memories and the experiences. He was a wonderful man, a dedicated man. Dedicated to this industry, dedicated to the railroads that he worked for and the people that we serve with. If you knew him, there are a couple of things that are undeniable about him. He loved his friends, he loved his family and he loved the companies that he served and have led this industry. It's a man lost too soon. I can tell you, he left it better. The memories and experiences will not be forgotten, nor will Jim, nor will his impact on this industry. So all the best, again, to his family. Payers and condolences. So with that said, let's -- I want to thank you for joining us on the call today. So we get to share our results. As I always will, I want to start my comments thinking -- the 20,000 strong family of railroaders that enable the results that we can share today. As you're all aware, we just celebrated our 1-year anniversary just last week of this historic combination. We're here to celebrate actually today in Calgary, another historic event. We're going to launch our final spike steam tour this afternoon. So super exciting day in Calgary after we get to share these results and do our AGM, we get to celebrate…

All right. So thank you, Keith, and good morning. I'm extremely proud of the operating team produced this quarter. I'd like to thank them for their continued hard work delivering safe or low for service. Throughout the quarter, I spent a great deal of time on the network, and I'm pleased with the level of talent and dedication here at CPKC. I'd like to recognize the Freeport terminal as well. They were named CPKC 2023 terminal of the year. This terminal has been executing at extremely high level. And having spent time earlier in my career at this terminal, I was very pleased to recognize this team for their outstanding achievement. Also spent time in Mexico this quarter. We have had a strong dedicated team experienced railroaders. And as Keith noted we're continuing to drive strong sustainable improvements. Now looking at the quarter, thanks to the team's collective efforts. We made a quick full recovery of extended cold weather in January, serving very strong volumes in the Western corridor and also an extreme high level record GTMs in Mexico, while posting strong year-over-year operating metrics. And looking at the metrics this morning, locomotive productivity up 8%, average train speed up 13% and our dwell is 10% down, all demonstrates a fluid network. Our fuel efficiency declined 2%, largely due to the weather earlier in the quarter -- in the quarter, but I expect this to improve throughout the year. So looking at safety this morning, the FRA personal injury is up 3% year-over-year at 1.15%. FRA train accident still leading the industry at the 0.89, up from 0.71, 1 year ago. While we strive for expected improvement each quarter, safety and the net ranging journey. Our focus remains on building an alliance safety culture, which is key to maintaining CPKC's…

All right. Thank you, Mark, and good morning, everyone. So with the full year as a combined company under our belt, I'm extremely pleased with the progress we've made so far and all the opportunities I still see ahead of us. We've built on our momentum from Q4. And despite some of the early weather challenges we had to start the year, we have started the year strong, and we are gaining momentum. Now looking at the results on a combined basis, we delivered freight revenue growth of 1%, on 1% RTM growth. This is slightly ahead of the flat to slightly down outlook for RTMs that we provided to the market in January. Since per RTM was flat year-over-year with strong pricing offset by a 3% fuel headwind, along with negative mix. Carloads on the quarter were down 3%, and I fully expect carloads to continue to lag RTMs. This is a result of our network unlocking longer length of haul as shippers take advantage of our seamless 3 country franchise, delivering RTM growth in average length of haul on the quarter up 8% versus last year. In addition, we've also seen lower margin short-haul intermodal business running between Mexico and the border, shift off our network opening up further capacity for growth in our strategic long-haul lanes. Now taking a -- closer look at our first quarter revenue performance, I'll speak to the FX adjusted results on a comparison versus CPKC had the combination occurred in 2023. Starting with bulk, grain revenues were up 2% on 1% RTM growth. U.S. grain volumes grew 19% and over prior year. Our franchise is benefiting from strong export corn shipments to the P&W and Alberta, along with more shipments of wheat and soybeans to Mexico, which is a new area of…

All right. Thanks, John, and good morning. So looking at the numbers. Our reported operating ratio was 67.4% and the core adjusted combined operating ratio came in at 64%. Earnings per share was $0.83, and core adjusted combined earnings per share was $0.93, up 3% year-over-year. As a reminder, these core adjusted earnings exclude the noncash impact of purchase accounting for the KCS merger, primarily related to D&A, along with interest expense and acquisition-related costs, which continue to gradually decline. Similar to what we shared last quarter, our combined operating expenses illustrate the effects of the acquisition for the first quarter, is that the acquisition closed on January 1, 2022. I will speak to FX adjusted combined operating results in these prepared remarks. Now taking a closer look at our income statement. Reported operating expense is provided on Slide 13 and combined operating expenses on Slide 14, where I will focus my comments. Excluding adjustments, Comp and benefits expense was [ $676 million ]. The increase was driven by wage and benefit inflation, along with a $23 million headwind from stock-based compensation. driven by the increase in share price over the course of the quarter. Stock comp amounted to a 70 basis point or $0.01 headwind on [indiscernible]. We also saw higher current service costs from our DB pension plan of $4 million due to a lower discount rate at year-end 2023. Looking to the rest of 2024, we continue to expect average head count to be roughly flat on a year-over-year basis. Fuel expense was $458 million, down 5%, the decline was primarily driven by $28 million or 6% decline in fuel price. Overall net fuel price was at $61 million drag to operating income in the quarter. Or about an 80 basis point impact to the OR. This…

Thanks, guys. Let's open it up, operator, for questions.

[Operator Instructions] Your first question comes from Ravi Shanker with Morgan Stanley.

All right, operator, we should go to the next question.

Let's go to the next question, operator, please.

Mr. Chappell your line is open.

I guess that's me. John Chappell from Apicore. Mark or John, we've seen a real acceleration of Chinese imports in New Mexico of late. The reasons, I guess, vary and we won't get into that. But as it relates to what it means to Lazaro and what it means to the new services that you've created, are you seeing any impact from those yet? Is that moving mostly on truck? And I guess is that a real big opportunity for you as you continue to see that new trade line open up?

Thanks, John. This is John. Yes. So we saw a steady growth platform at Lazaro really starting the back half of last year, and that trend has continued. I think I said we're up 40%. That was through February, but that's continued here in March and April. It is a pretty good mix, John, of truck and rail. And principally, that volume is, well, at least primarily right now, more intra-Mexico, then cross-border. But I can tell you, we do and we have a continued improving product out of Lazaro. I appreciate all the efforts of the state of Michoacán and the efforts at the port between Mark and the team down there to provide a good, safe product up into Mexico. So, I do believe you'll continue to see sort of that volume build on itself. And then we'll get into the exciting part of this chapter as we begin to see that density build into our cross-border business up into that Texas and Gulf market. Which, again, I believe we see a good opportunity there as we move into the second half of the year and into 2025 to grow that volume.

And John, I would just add that we stay pretty close to each other, me and John, and we've got capacity, we've got room to move locomotives and people in place, so we can move whatever business we need at Lazaro but certainly communication with each other. Thanks, Mark.

Your next question comes from Brian Ossenbeck with JPMorgan.

Keith, I just wanted to get your thoughts on the latest with the TCRC union negotiation. There are some comments made by CN last night. Just want to get your perspective on it because at least -- from our standpoint, it sounds like there's quite a few moving parts in terms of changing potentially to at least offering an hourly agreement and the unions, obviously, are I think pushing back on that at least from the time being. So I wanted to get your thoughts on that. And then, John, if you could just clarify what you meant about the Texas, Mexico into the Southeast pending STB approval. Is that related to the MB&R and through the Speedway?

I'll start with that and that's exactly what it is, Brian, and as far as the application of the STB, we expect totally, we anticipate a favorable ruling based on the facts and the competition it represents and creates, hopefully, in the very near future. I don't know if it happens next month or the following month. But when it does come, when the decision comes, we are prepared and ready within a month's time of the notice to take over operation of that piece of railway and to start the work in just the partnership with CSX to create a new Class I alternative to the Speedway that it is today to complement the service that we provide NS over the Speedway today. So very, very excited about the future of that. The TCRC maybe I'll say tempered excitement or expectations. I'm a realist. I'm an optimist. I can tell you now that we've been negotiating with the TCRC for months, we were forced to file for conciliation. We were with the TCRC this week. We were with them not long ago. The way I see it, the positions have not changed a lot. We have 2 options on the table. We have a, what I call, a status quo deal with only one, what I would call, a pay relative to change, not a work rule change, [ tried to held ] away from home terminal pay. That's the only concession that we're asking for in exchange for fair and equitable wage increases, which other employees and other unions have realized the benefit of. The second is a progressive hourly deal. I can tell you that, that progressive hourly deal, in my assessment, addresses what our employees want and need. They want a better quality of life. They…

Your next question comes from Walter Spracklin with RBC Capital Markets.

I wanted to go back to your volume guidance. When I look at what's happening in Vancouver, obviously, a surge of containers coming into that part, you're poised to benefit significantly from that. John, you mentioned Mexico, the Lazaro Cardenas is up 40%. That's not a small number. it's catching its stride. Macro trends. In your prepared remarks, you indicated Q1 came in better than you expected. And I think many would say we're perhaps from a macro perspective and a little bit better outlook here in April going into May than we were in January. So just curious, when you look at your low single-digit volume guidance and so many kind of inflecting positive macro, but also more importantly, company-specific opportunity. Just curious as to where you frame that low single digit? Is it just kind of just being overly conservative? Or do you see upside to that guidance here for 2024?

Walter, you made some very good observations. And I think I'd frame it up as being responsibly conservative. There's some uncertainties out there. Certainly, we're in a good place. The network is running well. The demand is there, the synergies are coming. The new markets are being developed. We have a very unique story and a very unique opportunity. But we also have a responsibility to look ahead. We've got a potential union strike. I don't yet know what the macro is going to do in the second half. We've got some assumptions in that, which are conservative assumptions. So if it does better than what we assume, then sure, there's some upside. If the strike isn't as long as what we might think it'd be or if we don't have a strike at all, then sure, we've got some upside. Do we have a normal grain harvest is at a bumper crop, or do we have, again, a situation where we face a potential drought? Those are the levers that we're really looking at. And once those become clear, then I'd be in a position to responsibly tell you, yes. we have upside. And I guess I'll just close saying we're in a good place. We've worked hard to get to this place. This team is prepared for any of those outcomes we've talked about. And in the end, come this summer, come the end of the second quarter, I think we'll be in a better position to tell you, yes, Walter, what you're seeing the potential of that is true. It's exciting. And until then, we're going to stay responsibly conservative and make sure we do our jobs and prepare for these challenges we have ahead of us and come out in a very, very strong position on the other side.

Your next question comes from Fadi Chamoun with BMO Capital Markets.

Yes. Maybe just one follow-up question on the volume. In the second quarter, I mean, we're starting off strong I'm thinking grain potentially could wind down a little bit as we move into the quarter. Is there a way for you to kind of give us some gauge on what second quarter kind of the -- right framework for Q2 volume. And really, my main question on the pricing side, I mean, pricing environment is quite good, maybe unless you're competing with truck in some markets. But what are you thinking now with a year into this merger about the service-related pricing opportunity for CP? And is this something that will take time to kind of realize or are there triggered in terms of contract changes renewals that you can kind of use to drive price improvement on the basis of the service level that you're [indiscernible] ?

Let me -- Fadi, I'm going to let John get into the color of the pricing. But let me tell you conceptually, when it comes to price of this company, we're selling a valued service. It's not a commodity. There's value in it. There's a value proposition for the customer. The level of service, the capacity we have on our railroad, the way we run the railroad, it's worth something in markets because it allows the reliability for our customers to win in their marketplace. So that's always going to be our story. It's a value proposition. And as long as we do our job well, we never have to apologize providing a very unique and valuable service. On the volume side, we're starting strong. We're -- this morning, I looked at it -- we're up over 9% on an RTM basis, and that's really what matters the most, not carloads, it's RTMs. But again, looking at what's ahead of potential strike, we're modeling again in a very responsible, conservative way. for the quarter, I think we're somewhere around 3% -- 2% to 3% for the quarter. And again, I've already talked about if some of those things don't happen, then that will change. But right now, that's where we're sticking our guidance to and we're well on track to be able to achieve that. So John, do you want to provide a little color on the price?

Yes. So that's exactly, Fadi, in terms of I'm looking at the quarter in terms of volume. Certainly, hopefully, there's upside in May and June. But with the strike and other things looming, we're going to stay responsibly cautious on that front. . The grain business, you're right. It definitely has been a little better the last 30 days or so. But we're going to get into seeding here in May and certainly expect that to fall off. I just met with all the grain companies the last couple of weeks. And they're pretty optimistic that we might see, particularly if we get some rains here in May and early June that we might actually see a pretty decent push this summer. So we're watching that closely. And certainly, that could provide some upside there. You asked about the pricing. I'm super pleased with the execution and discipline that we have performed with in Q1. I saw it coming. We held in there, and we delivered on the very top end our efforts the last half of '23. It's carried into the quarter in '24. And we'll continue to be disciplined as we move forward. I had previously said there were a number of maybe legacy KCS agreements that hadn't been repriced and we're coming up for renewal this first half of the year. So we've been focused on those. We've been focused on those in the context of what Keith said, making sure we're getting the value for the service and capacity that we provide. So I expect that to continue here in Q2. If I were to call out 1 area, where we've seen maybe softness versus others that would be in the domestic intermodal front. I think that's pretty obvious, though, relative to some of the overcapacity challenges in the truck market out there. But there also might be some signs of life there as we push towards the second half of the year. I'm really pleased with how we've seen our volumes grow on our Mexico Midwest express train. I fully expected a slugfest here to start the year in terms of building that volume, and we've had some really nice wins. So if we can keep that trajectory going. Again, there might be upside as we look to Q2 -- or the second half of the year, sorry.

Your next question comes from Scott Group with Wolfe Research. Please go ahead.

Operator please go to the next question.

Next question will come from Ken Hoexter with Bank of America.

Great. I'll take Scott's question as well. Keith and team, great thoughts on Jim always enjoyed our discussions. So thoughts there as well. John, you touched out there real quick. The intermodal noted some short-haul lanes left. Is that from increased competition? And then perhaps, Keith or Nadeem, can you talk about the progress on synergy targets? Are there -- can you talk about the dollars at this point? And does that set you up, I guess, normal sequential operating ratio performance would put you sub-60 into the second quarter? Can you talk to that level?

On the synergy -- the synergy question, Ken. We're exactly where we said we would be. We exited at $350 million. We said we're going to double it on the revenue side. So we're certainly on track in a good position. Same for the cost synergy side. So synergies are moving in line with what we said, if not a little bit ahead. So we're very pleased in that space.

On the short-haul stuff, Ken, honestly, it's stuff that we're completely fine with it exiting our railroad. To be quite candid with you, it's business that principally ran between stations in Mexico and the border. It consumed a lot of capacity at our terminals in Mexico and certainly our border crossing. So the fact that a lot of that traffic has moved over to the FXE has frankly just opened up the ability for us to grow the long haul. I talked about our average length of haul being up I think 8% year-over-year, our intermodal average length of haul is up 12%. And that's -- we're utilizing the capacity with our customers that want the premium ride and a seamless connection at the border up into the upper Midwest into Canada. So I expect that trend to continue.

He's right into that value proposition model, Ken, it's a good thing, not a bad thing.

And Ken, we'll obviously see sequential improvement in the OR and year-over-year improvements. So giving you a Q2 number, I'd say that it's going to be somewhat depends -- depends on what happens at the labor situation. We talked about some of the grain impact in Q2 that we might see that the grain volumes start to decline in Canada as seeding takes place, and we start running out of grain in Canada. But -- so it depends. I'm not going to give you a number, I'd just say that we'll continue to see improvements and year-over-year improvement.

Your next question comes from Steve Hansen with Raymond James.

I wanted to circle back on the length of haul issue because it's been quite market of an increase, not just in intermodal, but in ECP as well. And John, do you want to maybe just comment on the longevity of that trend? I presume it's the Edmonton to the Gulf volumes that are helping extend that length. But just any broader commentary around the durability of these this broader length of haul being?

Yes, Steve. So the mix was quite interesting in Q1. I spoke about the -- certainly, the short haul domestic Intermodal that shifted away from the railroad. We definitely saw volumes decline in our U.S. coal business, with also a very short-haul business. But on top of that, we layered on strength in international, strength in grain, strength in potash, some of those longer-haul plus the synergies, the growth in the MMX and the ECP area that you alluded to, which is largely Alberta down to the Gulf and even into Mexico. I do believe this is -- we're just seeing a natural progression of what this railroad looks like in the future. It just maybe got a little accented in Q1 more than we anticipated. I expect that to moderate and normalize. The other thing I will point out, because I think it's important as you guys think about mix is, we have really forecasted a strong automotive Q1 with all the business wins and some of the pent-up demand. And certainly, we outperformed, and we set a record in that quarter. But I'll just remind you, it did fall very short of our expectations. So there was a lot of good length of haul there and high sense per RTM traffic that didn't materialize in Q1 that certainly we're seeing ramp up here in Q2.

I think I'll add a little bit of color to that, John, because I see it a little bit differently. When you say normalized, I don't think we're going to normalize until we've fully built out our closed-loop automotive supply chain. We've got Wylie terminal opening up end of the quarter June. In June, that's going to allow vehicles that are produced and shipped out of Ontario today that currently linked to haul into Chicago. That length of the haul is going to end in Dallas, Texas for CPKC. It's going to create empty supply to go down to Mexico and links St. Paul today, perhaps stop at Laredo or Robstown are going to be going to Minneapolis, St. Paul and we'll be going to Canada. So again, this thing is a multiple chapter story. We're not going to get it built out overnight. It's a 2-, 3-, 4-, 5-year plan, that in and of itself, that one business unit offers significant, I think, accretive incremental improvements to driving that length of fall.

Your next question comes from Scott Group with Wolfe Research.

Sorry about that earlier. Can you guys hear me?

Absolutely.

So you guys keep referring to a potential strike. It almost feels as if like your guidance assumes that we are going to have a strike or said differently, if we do have sort of a normal short-lived strike, do you still feel confident about doing double-digit earnings growth this year? . And then maybe just bigger picture, Keith, when I look at Q1, revenues up 2%, operating income is flat. Like do you think -- I guess -- I know we get some strike uncertainty, but going forward, like -- it feels like we're at the point now where like the story is going to really start showing up in the model in terms of better revenue growth, meaningful margin improvements and significant earnings growth. Is that the right way to think about it that we're sort of we're there now and it's going to all start showing up in the model?

I think we're at an inflection point. So as this thing starts to play out, Scott, I think you've got that captured accurately.

And Scott, if we have kind of a strike that's not extended. I'm comfortable that we can still hit our double-digit EPS guidance for the year.

Your next question comes from Tom Wadewitz with UBS.

Yes. I guess a lot of things to -- you get asked about in the growth drivers, you've got a lot of things going on. How do you think about -- you mentioned on kind of a new service that when you get the approval from SDB with Schneider, would you think of that as being kind of new origination points or kind of new connectivity that gives you new volume? Or do you think some of it is service goes from Norfolk to CSX? Or I guess how do we think about -- obviously, there's some noise going on with the agreement you have or the concessions that you got related to John Orr leaving. So I don't know if you can give some broader comments on kind of the opportunity and how much is new business? And how much do you think might end up being shifting on that kind of Mexico and Meridian Speedway opportunity?

Okay. Thanks. Let me say this. All this noise about the agreement over the Meridian Speedway is just that. It's much to do about nothing. At the end of the day, all we've done is take issues that were right for dispute off the table. We're going to have unfettered opportunity to compete in partnership with NS to compete partnership CSX. This isn't about share shift. If there's any, it might be nominal. There's some overlapping markets in the Southeast that perhaps they both serve. But what this is about growth. It opens up competition in new markets for CSX's customers and lanes that NS can offer them that opportunity. And conversely, within NS, they're no worse off. We've got 2 situations here where we can uniquely partner with both railroads. It's enabling investment to create an alternative route. The customer has a choice, competition wins, service wins. The only true threat in this unless you're afraid to compete is truly the truck. That's where the competition is. That's where the growth is going to come from. It's that I-20 that runs parallel to that Meridian Speedway that we're going to be competing against. This is truck competitive business. So any -- and again, it's much to do about nothing. I think this is a win-win situation. And again, I'll close saying the only other loser in this perhaps are the lorries that would have been fighting on our behalf and the dispute with NS over some of those very ripe for dispute considerations that were eliminated with our agreement. And listen, if anybody wants to see the truth and see the facts we filed with the STB, the agreement, Go look at it. you'll see for yourself that exactly what we're saying. And in fact, exactly what NS has said is exactly what the truth is. It's much to do about nothing. Let's get over this, and let's get to competing and being great partners with NS and being great partners with the CSX. That's what our intention is to be.

Tom, I just would add to Keith's comments, I don't see shift. It's a truck lane either out of Mexico or Texas that we're focused on. And frankly, there is a significant -- with the terminal development we've got going on at Wylie, that is non-intermodal focus. The automotive, the transload development, we've got going on in Dallas market, the carload business opportunity in that lane that I think is untapped, is a great growth story. And that -- those markets are open up to both NS and CSX. There's just never been for whatever reason, the intense level that we will bring to the sales approach of growing that lane. And frankly, we've had so many other irons in the fire and areas of focus. We're now kind of shifting to how we grow that as part of this portfolio. And I see it all as additive.

And I would say we're partnering right folks too. We're super excited about the partnership with Schneider, the same partnership that's allowing us to grow that great MMX services, I think, going to meet or exceed this opportunity when we talk about this new gateway we're creating.

Maybe just one brief follow-up. Do you think it's more volume is Dallas origination or Texas origination? Or is more of the new business with CSX going to be Mexico origination?

Well, there is a lot of -- certainly Texas, Atlanta type traffic, Tom, it's truck. And as you know, that market is extremely tough right now with the truck capacity and spot rates. So it's hard for me to put a percentage on it. I would say, maybe broadly speaking, that might be a slightly bigger intermodal type market, but it's highly competitive, and we're going to have to find those customers and those commodities that fit our model and are willing to pay for that servicing capacity. I can tell you my team's focus and my focus with NS and CSX is going to be in Mexico. That's where we can generate a length of haul. We can leverage the great service Mark and team are providing down in that marketplace. And with all the industrial development going on down in Mexico. We've got over 40 projects kind of active right now that will represent significant volume growth opportunities in intermodal over the next 2 to 3 years that will sort of fit right into that wheelhouse of that service into the Southeast U.S.

I think the other complementary piece of that book is all the automotive development, the plants that are being developed and that we'll soon open on specifically, in this case, the CSX. So as those supply chains get established, those parts that get moved from Mexico to the Southeast and parts from the Southeast of Mexico, that ecosystem for us to be able to have a competitive lane, that takes right now. The finished vehicles that are being produced today. There are thousands of carloads , potential railcar loads of finished vehicles that are on that highway. That are moving between the Southeast markets where they're produced for Glovis perhaps going into the Dallas markets. Those are ripe for opportunities, rail wins, the environment wins competition wins. This is all a good story. .

Your next question will come from Benoit Poirier with Desjardins Bank Securities.

Just to come back on the previous question with respect to, obviously, there's a lot of momentum at Lazaro with a 40% increase in volume. It looks like that there's China that is also bypassing the U.S. sending stuff in Mexico. I'm just wondering, how much is it the driver with respect to the overall volume increase. We've seen not too long ago that the Mexican government announced that it would apply some tariffs on some imported goods. So they want to protect kind of the Mexican and the U.S. economy. Just wondering whether it's the kind of something to keep in mind. And just in terms of cargo diversion, have you seen some on the back of the labor issues? And if you could give an update on St. John, that would be great.

Yes. So Benoit, I'm not going to speculate on whether or not the Mexican government does something in terms of managing Chinese imports versus their own production. I do believe we have seen some of the surge relative to some of that business coming into Mexico today. But the fact of the matter is Lazaro has capacity has low undocked well. And frankly, I think the steamship lines and beyond just -- maybe Transpacific freight, South American freight are recognizing Lazaro as an alternative. And -- is that because a looming East Coast and looking at that as an alternative to going through the Panama Canal? I think all that's part of the story. . And frankly, Benoit, we're out selling it hard. We believe it can become a complement to Vancouver in the West Coast of California and give shippers another option. And frankly, our partner, Hapag-Lloyd, and in their announcement with Maersk and the formation of Gemini as you look to 2025, with Maersk's relationship and doubling the capacity at Lazaro, I think, presents again, CPKC a tremendous opportunity with those companies. I'd say our St. John volumes have sort of settled in and actually moderated here lately. I think we are seeing some impacts in East Coast imports relative to some of the trade challenges I guess, that the world is facing in that port. Now that being said, we're watching close what's going to take place at the Port of Montreal in terms of a potential strike there. And if, in fact, we get a fall labor disruption on the U.S. East Coast, I think both of those were keeping -- both of those stories topical with the steamship lines as St. John being an alternative if, in fact, we do have disruptions in that area.

Your next question comes from Ravi Shanker with Morgan Stanley.

This is Christine on for Ravi. Apologies for earlier. Can you guys hear me now?

Yes, we can.

Great. Maybe taking a step back, I want to talk about the longer-term guidance and particularly kind of conversion of the $5 billion pipeline you guys have outlined. At the Investor Day, it definitely felt very idiosyncratic still does, but it does feel like the macro may be disguising some of the success you guys are having around converting that pipeline. So maybe you can just remind us and parse out kind of the long-term guidance, how much you feel is idiosyncratic versus maybe meeting the macro backdrop to be more supportive in terms of unlocking the full potential of that pipeline?

Maybe just a couple of comments on there. In terms of what we laid out in Investor Day, I would say we're ahead of plan in terms of my expectations on delivering on -- frankly, all those categories. Certainly, some may be a little quicker than others. As a primary example is just talking about Lazaro. I do see that being maybe a little bit more back half of this year and 2025 story in terms of cross-border opportunities. But that being said, I would say the area of automotive has really maybe presented itself as more of a pull-ahead opportunity for this network in the development of that closed-loop model that Keith spoke about and the benefits that the franchise provides the OEMs in that area. I would say we were pretty adamant and clear around finishing 2023 at a $350 million revenue run rate. I remain very confident in that. We'll double that exiting 2024. And frankly, that will put us right in line or maybe even a little ahead of what we laid out at Investor Day with those areas. I think your call out around the macro, not being very supportive particularly maybe if you think about some of the intermodal and truck conducive type products is right. We're trying not to worry about that. Control what we can control, create the product. And if we get a macro tailwind, it's just going to provide more upside to the story.

We have reached our allotted time for Q&A. I would now like to turn the call back over to Mr. Keith Creel.

Thank you. Listen, thank you for joining us again today and give us a chance to just give you an update. And I hope what you take away from this is, this company is in a strong position. We're in a strong position to achieve the guidance that we laid out in our multiyear plan. We're in a strong position to achieve the guidance that we've laid out for this year. We've got to get through this potential work outage that's ahead of us. We've got to see what the macro does, but I can tell you, this is a very unique story. It's a unique network that's been created that's unparalleled in this industry. We're 1 year old on a journey of our forever story, creating the most relevant rail network in North America. . I couldn't be more proud to work here and serve with these fine men and women that make this happen day in and day out, and we'll continue to work hard to meet and exceed our investors' expectations, our employees, commitments we made to them as well as our customers' commitments. I think that's a recipe for success, and I'm confident this team will achieve that, if not exceed that. Have a great day, and we'll talk to everyone soon.

This concludes today's conference call. You may now disconnect.