Operator: Ladies and gentlemen, CN’s Fourth Quarter and Full Year 2020 Financial Results Conference Call will begin momentarily. I would like to remind you that today’s remarks contain forward-looking statements within the meaning of applicable securities laws. Such statements are based on assumptions that may not materialize and are subject to risks described in CN’s fourth quarter and full year 2020 financial results press release and analyst presentation documents that can be found on CN’s website. As such, actual results could differ materially. Reconciliations for any non-GAAP measures are also posted on CN’s website at www.cn.ca.

Please standby. Your call will begin shortly.

Paul Butcher: Thank you, Simon. Good afternoon, everyone and thank you for joining us for CN’s fourth quarter and full year 2020 financial results conference call. I would like to remind you about the comments already made regarding forward-looking statements.

With me today is JJ Ruest, our President and Chief Executive Officer; Ghislain Houle, our Executive Vice President and Chief Financial Officer; Rob Reilly, our Executive Vice President and Chief Operating Officer; Keith Reardon, our Senior Vice President, Consumer Products Supply Chain; and James Cairns, our Senior Vice President, Rail Centric Supply Chain. I do want to remind you to please limit yourselves to one question so that everyone has the opportunity to participate in the Q&A session. The IR team will be available after the call for any follow-up questions. It is now my pleasure to turn over the call to CN’s President and Chief Executive Officer, JJ Ruest.

JJ Ruest: Well, thank you.

Thank you, Paul and good afternoon everyone. At CN, we wish you all a safe, healthy and constructive 2021. Reflecting back on 2020 a year with blockade, a spring of COVID, a summary of sharp, but uneven business recovery, and a year when our railroaders became recognized as truly essential workers, a year when our people produce for our society, produce for CN and for that, I personally offer my appreciation to all of them. The business recovery continued. Volume is steady and strong at CNI.

Some sectors remain challenged, but our operating metrics are improving and the commercial team has a game plan to work on the yields of our new business mix. We are optimistic about 2021, especially the economy and the GDP of the second half. We are more cautious about Q1, especially as it pertains to lockdown and preventive quarantine on our operating employees in the communities where we operate. This recovery has a different mix of business. So, market recovered very fast in V shape like consumer goods coming onshore via our five ports and some markets stayed depressed, like crude and refinery product and one market has been simply solid like Iraq and that would be grain export in both Canada and United States.

We ended 2020 solid. We generated record free cash flow of over $3.2 billion for the year. The Q4 adjusted EPS growth was 14%. We have industry leading fuel efficiencies and our revenue ton mile volume growth was 10%. Today, we are showing our confidence in the future by reinstating guidance by announcing a 7% dividend increase, by resuming share buyback and investing to accelerate technology to our operation and investing in connectivities with our customers, in simple terms, investing in the long-term.

On that note, I will pass it on to Rob. Rob?

Rob Reilly: Alright. Thank you, JJ and I also want to thank the women and men of CN for their efforts not only this quarter, but also during this truly unprecedented year. While many people in the world and even on this call were able to work remotely, our railroaders have shown up day in and day out to move our customers freight. I am extremely proud of the work performed this year by the team.

We continue to build on the momentum we came out of Q3 with following the volume recovery and we are optimistic about the future and are prepared to handle the volume that is coming at us. During Q4, we experienced a volume increase of 10%, but through the team’s disciplined execution of the plan, our corresponding crew starts grew by just 4%. We also saw both our train length and train weight improve moving more freight with fewer crew starts, while maximizing the use of our locomotive fleet. Our train and engine crew labor productivity improved 19% year-over-year as we moved more freight with fewer people. Our headcount and transportation was down 8%, engineering down 7%, mechanical down 11%, and network operations down 20%.

The team has also delivered for our customers setting all-time records for movement of Canadian grain during 10 consecutive months. In January here as of yesterday, we have already set another record for their 11th straight month. All of this while effectively handling volume increases in propane, lumber and intermodal. The railroad continues to operate well. We continue to raise the bar for fuel efficiency improving by 6% versus the same quarter last year and achieving over a 4% improvement for the entire year.

The team’s efforts this year have helped us avoid nearly 300,000 tons of CO2 emissions and saved us nearly $60 million from our fuel efficiency initiatives alone this year. CN continues to be the fuel efficiency leader of all North American railroads. As safety is the core value at CN, we were able to improve our personal injury rate by 15% for the year, while our accident rate also improved 18%. We have an uncompromising commitment to safe operations, making sure that CN will be the safest railroad possible for our railroaders, our customers and the communities in which we operate. In the quarter, we continued to prepare for the future by expanding our capacity in Western Canada in completing 3 additional signings on the route to the Port of Prince Rupert.

We have a strategic advantage in Prince Rupert and we plan to deliver on that advantage by having the available capacity to handle the projected growth over the next decade. As we look ahead, we are prepared for the projected growth and we will continue to safely deliver for our customers. We will expand our leadership and fuel efficiency and carbon emissions reduction. We will build on our strong foundation of PSR principles with the evolution of digitized scheduled railroad, DSR, improving the safety, efficiency and the customer experience with CN.

James Cairns: Thank you, Rob.

During Q4, we started to see a more balanced demand recovery, but many carload markets tracking near or above pre-COVID levels. Overall, our carload franchise finished the year strong setting several new records in December. Energy related carloads, which tend to be much longer haul are still well off 2019 levels and had an elevated negative impact on yield for the quarter. Grain both Canadian and U.S. remained strong through Q4.

And as Rob mentioned, we set new records for Canadian grain each month of the quarter. We saw strong shipments of potash in the quarter and December marked an all-time record for domestic potash shipments as we grew market share. Lumber and panel volumes were strong in the quarter, setting a record in December, a full 6% better than our previous record than 2015. Propane volumes for the quarter, both domestic and export, were a bright spot with AltaGas propane exports exceeding 53,000 barrels per day in December. In Q4, crude revenue declined by close to 65%, but we saw an increase in the relative percentage of heavy crude, which made up almost 60% of our crude revenue in the quarter, demonstrating the resiliency of our heavy crude franchise.

U.S. export coal volumes were up nearly 40% for the quarter, while Canadian coal was negatively impacted by the temporary closure of CST and Coal Valley mines and the permanent closure of the Teck Cardinal River mine. In summary, the positive momentum we saw in Q4 and December in particular positions us well for 2021, where we expect to see continued improvement in our mix and yield. Smartly managing capacity and price will be the theme for 2021. We have introduced several new commercial programs, car auctions, seasonal pricing and threshold pricing that creates flexibility to adjust price to meet increasing market demand.

Additionally, lower volumes of speed restricted light crude in Q1 will help us protect network fluidity in winter and create capacity for quicker turning higher margin freight. This year, we expect to see continued strength in lumbered panels with strong housing demand as well as repairs and renovations pushing inventory restocking earlier than usual.

Keith Reardon: Thank you, James. CN’s participation in the strong consumer based economic recovery continued into the fourth quarter. We handled record port volumes in Q4.

Combined, the West Coast ports of Prince Rupert and Vancouver grew at just under 17% versus 2019 and set an all-time quarterly record. Halifax and Montreal combined grew just over 5% versus 2019 setting a Q4 record. Domestic business was also strong as grocery, e-commerce and consumer products purchasing drove the new economy. Our combined container volumes led all railroads in growth for Q4 at about 15% above 2019. 2021 volumes are strong into Week 3 and are projected to continue at these levels into at least the end of Q1.

In automotive, we have a year-over-year decline in volumes and an improvement in per unit profitability. Macroeconomic factors, delays in SUV product launches and some volume de-marketing related to profit margin, drove the volume decline. We made progress in fixing the poor train imbalances of Q3 due to the huge surge of imports and the lack of enough exports back to the ports. Ongoing joint efforts have increased train sizes, slot utilization and train balance key levers of profitability. In Q4, yield management initiatives produced year-over-year margin improvement for intermodal and automotive.

Densification of trains, elimination of work events online and in terminals, reduction of empty miles, improved efficiencies in container and auto handling in our terminals are some of the many initiatives we will continue to drive in 2021.

Ghislain Houle: Thanks, Keith and good evening everyone. My comments will start on Page 11 of the presentation with highlights of our solid fourth quarter performance. During the quarter, we witnessed significant volume improvements both sequentially and on a year-over-year basis and continued to right-size our resources for the recovery while remaining disciplined and focus on tightly controlling our costs. Volumes in terms of RTMs were up 10% versus last year, while revenues were up 2% or almost $3.7 billion impacted by continuing changes in business mix.

Operating income was up 16% versus last year. Our operating ratio was 61.4%, a 380 basis point improvement over our adjusted operating ratio last year. Net income grew by roughly $150 million, with diluted EPS of $1.43, 17% higher than last year. Excluding our workforce adjustment provision in 2019, our adjusted diluted EPS was at the solid 14% versus last year. Foreign exchange had no material impact on our financial results in the quarter.

Turning to Page 12, let me highlight a few of our key expense categories. Labor and fringe benefit expense was essentially flat versus last year. This was mostly driven by higher incentive compensation and pension expense offset by a workforce adjustment in 2019 and 8% lower average headcount in 2020 or 2,200 less employees. Purchase services and material expense was 4% lower than last year, mostly due to lower outsourced services and incident costs partly offset by higher repairs and maintenance expense. Fuel expense was 25% lower than last year, driven by a 27% decrease in price and an over 6% improvement in fuel efficiency partly offset by 9% hydro workflow.

Now, let me turn to our full year results on Page 13. I am very proud of our performance that again demonstrated our resiliency and capacity to adapt to quickly changing conditions in unprecedented times. We completed 2020 with revenues close to $14 billion, 7% lower than 2019. Our operating expenses were 3% lower than last year, resulting in 15% lower operating income versus 2019. Our adjusted operating ratio stood at 61.9% essentially flat with 2019’s adjusted operating ratio.

Excluding one-time non-recurring events in both years, our adjusted diluted EPS came in at $5.31, 8% lower than 2019.

JJ Ruest: Thank you, Ghislain. And before we turn it to question, I just want to use a second here to make some closing remarks. Our focus is very clear. We price ahead of inflation at a minimum.

We manage yield and productivity both. We generate steady and solid free cash flow. We are a leader to bring technology into rail operation and the customers’ experience. And we have a solid and broad ESG agenda. CN is a long-term investor play focused on sustainable profitable growth.

With that operator, we will turn it back to you to answer the questions from the analysts.

Operator: Thank you. And your first question comes from the line of Fadi Chamoun with BMO. Your line is open.

JJ Ruest: Good afternoon, Fadi.

Fadi Chamoun: Good afternoon. Thank you for taking my question. Maybe on this mix and yield story kind of going into 2021 in the yield per RTM was I think down 1% in Q2 and that 1% to 3% in Q3 and 6% in Q4. Can you give us a little bit of kind of background around what’s kind of causing this more specifically within the categories and how should we think about that yield going into the first half of 2021? And I am guessing it’s probably one of the factors why the operating leverage implied in the guidance seem a little bit muted and if there are other factors that are kind of holding that operating leverage if you can kind of walk us through those as well?

JJ Ruest: Yes, thank you, Fadi. And so it’s an important aspect definitely we are – and we have recognized that.

So I think James could probably provide good colors on the mix, but also on the action plan that we have in terms of working on the mix of our new book of business. James?

James Cairns: Yes. Well, thanks for the question, Fadi. As we came out of COVID, we have seen a quicker recovery in our consumer products business. That’s our intermodal business than we saw in the carload business.

Industrial production a key indicator of carload growth continues to improve and our mix is getting back to historic levels. Thinking about Q3 we moved about 59% of our business with carload going into Q4 that escalated to 74% of our business was carload as industrial production picks up. And rest assured, we are going to continue to move the needle on the carload growth driven by improvements in North American industrial production. We are also working to make our own luck and improve yield within each segment. For example, on the carload side, we purposely scaled back speed restricted light crude through December and into Q1 to create capacity for higher margin freight moving through the winter months, where capacity as you know was precious.

In addition to that, we have a number of commercial yield initiatives that protect capacity to ensure that we can move the most profitable freight as we see the pace of recovery escalate. As we move into the second half of the year, I think things get back in balance for sure and we want to make sure that we have that capacity protected to move the highest margin freight. Thanks for that, Fadi.

JJ Ruest: Thank you, Fadi. And mix is an important aspect and we are working on it very hard.

Fadi Chamoun: Okay. The other part of the question – just the other part of the question like on the cost side, are there anything on the pension side or cost per comp or anything like that, that could be kind of holding that operating leverage going into 2021?

JJ Ruest: Okay. So since Fadi, you are the first one asking question, we will do it in two parts, but I will ask everybody to focus on one items. On the cost side, Ghislain.

Ghislain Houle: Yes.

Fadi, on the cost side, we do have cost headwind. We have about $200 million of cost headwind related to depreciation and related to incentive compensation and I would say it’s

about 50:50. And on the pension side, I would say we have a very insignificant tailwind in 2021 versus 2014. So no, nothing to report views on pension, but definitely $200 million up cost headwind coming into 2021. Thanks, Fadi.

Fadi Chamoun: Thank you.

JJ Ruest: Thank you.

Operator: Your next question comes from the line of Chris Wetherbee with Citi. Your line is open.

Chris Wetherbee: Hey, thanks guys.

And maybe if I can stick on that line there for a minute and just think about the operating ratio and certainly, if you want to provide some color around 2021 that would be great? But I guess maybe bigger picture, as you think about sort of the opportunities for growth on the network, are we going to see here is where there is maybe equal parts revenue opportunity as well as operating ratio opportunity? I guess I am kind of thinking about that as a key benchmark that’s out there whether you have the ability to kind of get past that lower than that and what you see from a revenue opportunity that’s out there?

JJ Ruest: Yes, Chris. Very good question. So definitely, to see in this we don’t have a volume column, volume as an opportunity, but regarding the operating ratio, Rob, do you want to talk to that?

Rob Reilly: Yes, absolutely and thanks for the question, Chris. Yes, I think there is opportunities abound here as we look into 2021. In terms of the operating ratio, we are certainly here shooting for a full year operating ratio below 60 and we do believe that’s achievable, beyond some of the structural headwinds that Ghislain talked about that are non-operating challenges on depreciation and compensation and even some of the mix headwinds that wipe out.

We found ways coming out of the volume recovery to do things more efficiently. Some of that you are seeing in the headcount and some of those efficiencies are structural, but we still see opportunities as we look into 2021. Car velocity, train speed, train length, we see opportunities to improve all three as we go into this year, we will continue to drive even though we are the leader in fuel efficiency, we will continue to improve that here in 2021. So we are optimistic about it. All of that, with the work hand in hand with James and Keith and what they are doing on the top line that will help us.

We are about people, fuel and purchasing and we are focusing on all three to try and make this cost structure as effective as it can be, but very, very optimistic as we look into 2021. Thanks for the question.

JJ Ruest: Thank you, Chris.

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

Cherilyn Radbourne: Thanks very much and good afternoon, I wanted to ask a question on the technology agenda, which I believe is expected to yield $200 million to $400 million of savings over time. And I appreciate those savings are backend loaded. But I was just curious whether they are starting to crystallize more fully as you make progress against that agenda? Thanks.

JJ Ruest: Yes, thank you, Chris – Cherilyn. Very good question.

It’s one of our focus for this year and the years to come and we make significant progress, especially as it relates to preventive maintenance. We want to give some example Rob of that, some of the benefits that we currently experienced right now and maybe talk about some what we have in line for 2021.

Rob Reilly: Yes, absolutely. Thanks for the question, Cherilyn. So with the specifically when you talk about the portals in the ATIP cars, we know of 4 cases in the past 12 months in terms of truck cars derailments that our ATIP cars would have prevented had they been running.

And now we have got those during the course of 2020 covering our entire core main from the Atlantic to the Pacific to the Gulf. As we move into 2021 and we take on a couple of more cars we will start to expand it into our branch lines. So, along the safety piece of it in reducing train accidents, we did see a decrease in terms of the cost of train accidents and also the number of train accidents. And on the portals themselves, we are about halfway through our algorithm development, but each week and each day, I can tell you, our portals are actually finding defects that the human eye is not and they are actually making our railroad safer. We will continue to develop that here into 2021 as we add cameras to our portals and then we will reassess as we go forward.

Thanks for the question.

Cherilyn Radbourne: Thank you.

JJ Ruest: Thank you, Cherilyn.

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

JJ Ruest: Good afternoon, Ken.

Ken Hoexter: Great. Hi, good afternoon. Hey, JJ. Just I am a little surprised I don’t think I have ever heard the term structural costs so many times from CN on a call.

It used to be the other rails, but let me go to the growth side. Do you think coming back to James and Keith’s comments before do you think you are being conservative on the growth given the need for Western investments like is that something that’s slowing you down from chasing more volume in ‘21 or is that not an issue, it’s more the market pace?

JJ Ruest: So, let’s say, James, if you – not James, Keith, if you want to talk about that? I mean, there is volume growth at CN, I think there is no shortage of that, but we also want to manage what comes out of Keith.

Keith Reardon: Yes, thanks for the question, Ken. We do have other coasts that we serve as well. We saw growth in Halifax and we actually see some opportunities in the first and second quarter there to maybe have some new services.

Well, we will. We also see in the Gulf Coast opportunity for another service we bring – we have been bringing more business on in Q3, Q4. We also are leveraging our transaction at H&R product, that’s one of the things that we have been able to do is growing the consumer and the refrigerated market, but we do have plans for growth on the west with our customers, whether it’s through Rupert or Vancouver. So, we are trying to grow, Ken. We are just working with Rob and his team to manage it effectively and efficiently.

We want to make sure we provide a good service for our customers, day in and day out. So we are going to grow.

JJ Ruest: Yes. Ken, if I might ask on Q1, we are little more conservative, because there is still a lot of things that might happen with COVID and vaccine and either things start to go the right direction that we might slip a bit. But when we look at second half, you got to believe that the pandemic will have the more under control and we are much more bullish in the second half, especially as James mentioned earlier on the initial product side, on the carload side and that’s good business with CN.

So we will see how the winter goes along. It’s about COVID. But I think so far so good, we are 10% above RTM year-to-date and product at CN are currently very solid. Thank you for the questions.

Operator: Your next question comes from the line of Benoit Poirier with Deutsche Bank.

Your line is open.

Benoit Poirier: Yes, good afternoon everyone. With respect to Milton, you just received approval for the logistics of project. Could you maybe talk about the next milestone, the capital deployment and how it will impact the slow on your network down the road? Thank you very much.

JJ Ruest: Thank you, Benoit.

And yes, we did obtain approval. Keith, do you want to talk about the next step from here?

Keith Reardon: Yes. Thanks, JJ and thanks Benoit. Yes, we are very pleased with the approval that we received last week. We know there is couple more small steps to go through that we will – that we will go through here in the next several months, but we do plan construction to start in 2021.

We do see that this new terminal will allow us to expand our capacity in the GTHA. It’s going to allow us to provide better service. It’s going to allow us to have better cost of providing that service and again, it’s going to grow our capacity. How we – what trains we run through there and that type of thing is still to come since it’s probably going to be about 2 years out before it’s completed, Benoit.

Benoit Poirier: Okay, perfect.

Thank you very much.

JJ Ruest: Thank you.

Benoit Poirier: Thank you.

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

Scott Group: Hey, guys. Thanks. So, I just want to make sure I am understanding the model and pieces, right as you are saying. So if we have mid single-digit RTM and some price in the buyback and you get to a sub 60 OR, it gets you above – it gets you in these double-digit earnings growth. Maybe just are we missing something there any thoughts for us? Thank you.

JJ Ruest: Yes, no, listen, I mean, as you know we have a big headwind on FX that I talked in my remarks, Scott and I will just remind you of the rule of thumb is every cent of appreciation of the Canadian dollar to the U.S. dollar is $0.05 of EPS on an annualized basis and it’s $35 million of net income. So, I mean, if you back that in and we are assuming that this FX will create a headwind of anywhere between $0.20 and $0.25 and we are assuming that FX will remain at $0.80. Now god knows where it’s going to be, but that’s what we are assuming. So if you adjust for that, I mean we would be in the double-digit range to your point.

So, the FX is really a big headwind for us at this point in time and we will see how it evolves during the year. Thanks Scott for your question.

Scott Group: Okay.

JJ Ruest: Yes, so it’s high single-digit, but if you were – if it was a constant FX, we would be at the double-digit. It hits $0.25 of EPS of $0.80.

Thank you, Scott.

Operator: Your next question comes from the line of Konark Gupta with Scotiabank. Your line is open.

Konark Gupta: Thanks and good afternoon. My question is on capacity as obviously several container terminals on your network expand capacity of target growth and you are obviously seeing some industrial economy recovery here.

Would you say or think of the 20% kind of capital intensity on the lot, but it kind of boiled down to this year and maybe in the future? Would that be enough to prepare for potential opportunities you have in 2021 and beyond?

JJ Ruest: Rob, you want to talk about network capacity especially to Rupert in Vancouver?

Rob Reilly: Yes, absolutely. And Konark, I just want to make sure I understood it. You also asked about container help capacity, is that correct?

Konark Gupta: Yes, absolutely. I am talking about the total capital envelope transaction expansion into plastics.

Rob Reilly: Yes, absolutely.

In terms of the mainline capacity, we continued as I said, in my opening remarks continued to expand our capacity, particularly headed to the Port of Prince Rupert. But really, you will see our focused investment in terms of mainline capacity going forward as it is last year and continuing west of Edmonton. We see the growth opportunities in Western Canada both in Rupert and Vancouver and we will continue to prepare to handle that. From a container terminal standpoint, I know Keith on here, maybe you want to add a few things.

JJ Ruest: Keith.

Keith Reardon: Thanks, Rob. Thanks, Konark. Yes, we do have plans. We are going to finish up our construction process at our new terminal just outside of Minneapolis. We are also expanding and making some improvements in Chicago.

We have a couple of things that we are doing here in Brampton. We have some things we are doing in Calgary, Edmonton. So, all of these minor expansions or some updates to some of our terminals are all in the capital plan.

Konark Gupta: Okay. Thank you.

JJ Ruest: Thank you.

Operator: Your next question comes from the line of Walter Spracklin with RBC. Your line is open.

Walter Spracklin: Hi, thanks very much. Good afternoon, everyone.

I was wondering if you could talk a little bit about some of the inputs into your labor cost side. I know you mentioned the pension, but can you give us some color on how you see headcount evolving through the year certainly going through winter now and whether that is aiming to come off a little bit on your kind of total cost per employee. I know you didn’t payout all your bonuses this year and what kind of headwind certainly behavior targets here? What kind of headwind would we be looking at in terms of bonus payments for next year?

JJ Ruest: Okay. So, thank you, Walter. So maybe on the headcount and the operating ratio of people to volume, you want to take that Rob and then just like and finish it regarding the refurbishment of the bonus, Rob.

Rob Reilly: Yes, absolutely. And when you look at some of our operating functions, mechanical engineering net ops, we will see those that headcount remain muted. Some of the changes we made will continue to produce dividends going forward. On the train and engine standpoint, crew members we will continue to grow that headcount as volume dictates, but we will do it at a lesser rate than the increase in volume. Good example is Q3 to Q4 and the sequential growth we saw 12% growth in volume and only a 5% headcount.

So we will be hiring to handle the volume, particularly in the second half of the year, but it won’t be at the same rate as the volume increased. Ghislain?

Ghislain Houle: Yes, maybe on your second part, Walter of your question. So as I said previously, we have $200 million of cost headwinds next year, $100 million is incentive compensation. So, it’s really the replenishment of our bonus. So obviously, when you look at the average comp per employee, then you should expect that to be slightly up, because again, you will have more incentive compensation per employee next year than we have this year.

Walter Spracklin: Appreciate the time.

Ghislain Houle: Thanks.

JJ Ruest: Thank you, Walter.

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

JJ Ruest: Hi, David.

David Vernon: Hi, good afternoon, guys. I was wondering if you could to talk about this margin topic outside of the framework of 2021, you guys have put a lot of money into technology capacity efficiency. It sounds like the revenue side you are managing yields pretty well, as you think about, where you are going to be running the railroads in the next 3 to 4 years, what should we be expecting as far as kind of how those investments in technology and things play into the business? Is this going to be a case of it helping you can accelerate growth or should we be thinking that you are going to be running the business in somewhat mid to high 50s range on an operating ratio perspective?

JJ Ruest: So broadly speaking, David, they will be coming, so that maybe half and half commercial effort on getting better value for a product and as well as on the cost, but you want to talk about incremental margin, Ghislain?

Ghislain Houle: I can talk a little bit about your question on margins, David and also on technology. I think we are quite bullish on technology.

I think that as you know in the last Analyst Day we said and I think Cherilyn asked a question about the benefits and we told people 200 to 400. We are still tracking that very, very well, I think. But first and foremost, that technology will really improve safety. That’s first and foremost. So the productivity and efficiency in the cost take out is a byproduct, very good byproduct, don’t get me wrong, but really it’s safety.

I mean, if we can fully automate all the inspection we do of track and of train, I mean, it’s incredible what we can do in terms of reducing accident costs and solidifying our social license to operate. So, I think with the effective deployment and the value created deployment of technology, absolutely, you can expect in the next 2 years that our margin will improve, absolutely. And we have said that, when we talked about this a few years ago that unfortunately, in IT and its technology, the benefits are back-end loaded, because you need to build it and test it before it actually produced, but now we can see it starting producing and you should see that in the next 2 years and that will really not only produce the savings and produce – improve the margins to where we need to be, but also it will fundamentally change the way we do business at CN and we are quite bullish about it.

JJ Ruest: And if I might add, I mean, it’s high time for the rail industry to adopt technology and automation. It’s also high time for the rail industry to really define ESG in a much broader perspective and we are very much focused on those two area automating technology and ESG way beyond just the fuel efficiency.

David Vernon: And then just – and this is more of a follow-up to the second question, but as you think about that rate of change – are we thinking that this starts to accelerate in the next 2 to 3 years or the next 3 to 5, I am just trying to get a sense of where I should be directing investors in terms of expectations on how quickly this can develop?

JJ Ruest: I think we are starting to see benefits coming in this year and then it will continue to accelerate. I mean, we didn’t have a whole lot of benefits before, because again you need to build it before you actually can see. But Rob has got some good examples on how we use the ATIP car and how we use the portal and it’s coming in loud and clear. So stay tuned, but we are quite excited and quite bullish about it.

Rob Reilly: Yes.

Maybe simply said, as Rob said earlier in with 5 is very achievable at CN despite the $200 million headwind that Ghislain was talking about on depreciation and replenishment of bonus. The team is capable of doing that. Thank you, David.

David Vernon: Thank you.

Operator: Your next question comes to the line of Steve Hansen with Raymond James.

Your line is open.

Steve Hansen: Yes, good evening guys. Just a quick one on the coal side if I may. I don’t think we have seen real net growth in your coal business for sometime now and we have obviously got some contract business coming over your way. Can just maybe give us a bit better perspective on what we should expect here going forward both with the new tech businesses ready to go live soon as well as the broader set of opportunities you guys have? I know you have spoken to some expert opportunities are trying to frame that in the context of not a segment that we have seen a lot of growth in recently? Thanks.

JJ Ruest: Thank you, Steve. Good question. And James is our expert in coal that we have a couple of the puts and takes in that market. James, you want to give some more color?

James Cairns: Yes, I would say coal is looking very good, very strong for CN in 2021. The tech deal, I think we are all familiar with that April is going to be our go time for the tech deal and we should see a fairly rapid ramp up to full volumes with that tech deal.

Part of that tech deal was some significant investments to be made in unlocking capacity on the North Shore in Vancouver. And because we have made those investments now we are well positioned to move more grain in the North Shore and more products in North Shore and looking at growing our volumes beyond just the coal business. Also, when you look at U.S coal, U.S. coal is really going to be a significant tailwind for CN as we move into 2021. They are very strong export program.

The pricing for export thermal and metallurgical coal seems to be favorable if you look at the futures certainly above our customers’ breakeven. And last, I would like to say that we have got two coal plants, one metallurgical, one thermal, but we are shattered in on CN in 2020. And looking at the forward curve on pricing, it’s favorable for one or both of those new, I am sorry, one or both of those coal plants to restart. So, we are pretty bullish on what the outlook is going to be for coal on the CN network through 2021 here. Thank you for the question.

Good question.

JJ Ruest: I think maybe while we are talking about bulk, Rob, do you want to talk about how we are doing this month in terms of grain?

Rob Reilly: Yes. As I mentioned, we set 10 straight monthly records al-time monthly records in terms of moving Canadian grain, January, we have actually already exceeded the all-time January record. So we are well positioned. We are bringing on new high capacity cars, just like we did in the latter half of 2020.

We have more of those coming, which will help further that but we are in really good position and we continue to handle it.

JJ Ruest: Yes. 6 days to go we have already exceeded our all-time record in grain export. Thank you, Steve.

Operator: Your next question comes from the line of Jon Chappell with Evercore ISI.

Your line is open.

Jon Chappell: Thank you. Good afternoon. Rob, earlier you addressed the cadence around bringing headcount back on slower than volumes, but the term managing capacity and the excitement around volume, especially in the second half of the year has come up a few times. When you think about other parts of the cost structure so equipment, locomotives, whether leased or own cars, etcetera, etcetera, should we think about it the same way as the T&E labor continuing to bring it out in anticipation of a recovery in the business, but still at a slower pace and then kind of wait to see the whites of the eyes on volume before you really move on bringing some of those costs back?

JJ Ruest: Yes, Rob?

Rob Reilly: Really good question.

And the short answer to that is yes, think about it the same way. We will make sure the volumes there as we bring resources on, whether that’s equipment, people and we will continue to build capacity for it. As we see the car miles and train speed improve that will also help in terms of our car velocity in trains. As I look at it so far this month, in the months almost out, we are operating really well right now. We are up double-digits in terms of volume.

Car velocity is up double-digits. Train speed is up. Train length is up. So, we were seeing some of the fruits of the labor here in late Q3, early Q4. And we plan on building on that momentum here as we go through it.

You can say we really haven’t had a winner. Well, we have had 3 straight days of nearly minus 40 in Manitoba and Saskatchewan and although we see some degradation in a minor way to some of those key metrics, we are well positioned to respond to it and we don’t see it – we see a quick recovery. So, really off to a very strong start this year and we plan on building on that momentum. Thanks.

Jon Chappell: That’s great.

Thank you, Rob.

JJ Ruest: Thank you, Jon. Thank you.

Operator: Your next question comes from the line of Brian Ossenbeck with JPMorgan. Your line is open.

Brian Ossenbeck: Hey, good afternoon. Thanks for taking the question. Maybe one on price, I know there is lot of new initiatives within James mentioned maybe you will help if you can give an example of how those are being deployed in some of the early results. And then I guess looking past, maybe offsetting the management of mix a bit, do you think that these things are something you can push further on in terms of price maybe go a little bit higher than inflation as you mentioned, JJ volumes, not a problem. So, looking to see your willingness to maybe pull the pricing lever to mitigate some of those challenges and then also to get recoup of the capital spend on the accelerated tech investment?

JJ Ruest: Very good question, Brian.

And so yes, James, you will start and after that, Keith, if you could also complement, James?

James Cairns: Yes, thank you, Brian. Let’s talk about yield a little bit. I mean, we have got a number of initiatives. I think I talked about a couple of my opening remarks. I will give you a couple of more examples.

On the iron ore side of our business, our iron ore volume was up 22% in the fourth quarter in its part because of some yield initiatives we have underway with new fleet, longer trains, more efficient trains, with the new fleet we have deployed, where we have them in place, we can move 50% more iron ore using the same resources allows us to take out a train start a week and move the same amount of iron ore. So that’s been successful. Also, on the grain side of things, I mean, grain has just been an outstanding example of how we can put a detailed focus on the business and get some really, really good outcome, the outcome we’re looking for here is moving more grain for our grain customers. And this is a combination of deploying the new cars, right sizing our unit trains to match horsepower, so that we don’t leave any empty spots available that we could have moved in its customer investments and country and port infrastructure that allow us to run very efficient, long integrates, and new signings on the CN side of things that we can accommodate this, additional grain growth and not deteriorate our velocity on the network. Another example might be some seasonal pricing that we put in place, as you know Q1 every year is a capacity constraint.

So where are we can we want to draw traffic that would prefer to run into Q1 into Q4, where we have the capacity to move it. So we did that quite successfully, particularly on the track science side of the business. So, these are all activities that are undergoing to create capacity so that we can move more freight or create the opportunity to move the best paying freight where we have that capacity. It’s pretty exciting time again as we embark on this renewed focus on yield, I would say. Keith?

JJ Ruest: Keith?

Keith Reardon: Yes.

So, Brian, we are focused on yield and we are focused on price and we have a lot of cross-functional teams actually in the intermodal and then Rob, Doug or Chuck and others, where we are working on those yield programs. I mentioned quite a few of the operational side earlier. But on the commercial side, we also have yield programs in place and price programs. On the yield side, it’s making sure that the right containers are getting on the right train. It’s – we have worked with our customers, they want capacity.

So we are working with them to get them the right capacity in the right gateways. We have moved some trains around, some stuff that was maybe in one gateway, we have moved it to another gateway to densify that train, all of that together. And then as Rob is talking about, we are running the railroad better, we are able to go out and get more price and our target is inflation plus pricing in all that we do not just one or two customers, but in all that we do.

JJ Ruest: Thank you, Brian.

Brian Ossenbeck: Alright.

Thank you.

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

JJ Ruest: Hello, Tom.

Tom Wadewitz: Yes.

Hi, JJ. I guess this question maybe a little bit of a variation on the one you are just talking about. But I guess when I think of your franchise and how you run it, I think you guys have a lot of potential for kind of industry in RTM growth or volume growth or at least being at the high end. And your forecast is somewhat muted given that you can constantly in second quarter. I understand that quality revenue, but is there I guess – is there a capacity consideration it’s meaningful too or is there an element that says where we can be – there can be upside scenarios that are maybe likely or maybe it’s a little bit conservative on volume? I guess I am just surprised there isn’t maybe a base case that’s stronger on the volume side.

So, I wonder if you could talk a little bit more about that?

JJ Ruest: Okay, Tom. So it’s a very good question. Maybe I’ll take that one. So we are a bit conservative of Q1. We would like to see the eye of the Q1 economy.

We would like to see the eye of how the pandemic will evolve whether or not at some point we may have a number of employees in quarantine and no matter I think the capacity is on network so far so good. But it’s I mean – it’s – we are in lockdown Montreal today, since we have a curfew every night. So, that’s not necessarily your usual thing. We are very, very, very confident of when the pandemic starts to be on control with vaccination and vaccination is slower in Canada and U.S. there should be a strong economy for us on the other side, whether that is your product and the consumer is already very solid.

So volume at CN is not a problem, volume at CN is a strength. We have enough crews to run our train, we will and make sure they all stay healthy and don’t have too many of them in quarantine. And after that, we’ll see we – I think so on the capacity side there is capacity at CN. There’s also a very conscious effort at the end to recognize capacity is precious capacity cost money. And now we like to see as a model vessel coming to a port but we want to be sure that they pay the price the price to pay especially when it’s business that it no, it may not be there as 12 months from now.

No because it’s obviously coming from U.S. West Cost port as well. And we want to be sure we protect capacity for propane going through West Coast, coal going into West Coast, grain going to the West Coast. So there is a mindset of doing some arbitrage if you wish into what we do first and what we do second long-term business first and the business that may or may not be there for months from now. If we do it, we would want to be paid a higher price or a different price than normal contract business.

So, as we do all that, which is a bit of a newest port at CN, because let’s face it. Our port business has become almost too good. I mean, it’s – also it was imbalance early days, because we basically have lots of import and no export, which is not the most way to when you run an imbalanced network. It’s cost a little money. So are we conservative? No, ask us again in April.

Tom Wadewitz: Right, okay. Thanks. Thanks for the perspective.

JJ Ruest: Thank you, Tom.

Operator: Your next question comes from the line of Brandon Oglenski with Barclays.

Your line is open.

Brandon Oglenski: Hey, good afternoon, everyone. Thanks for taking my question. So I guess, you know, JJ following up on that, or maybe this one’s better for Keith, but can you talk about the competitive dynamics specifically in international and domestic intermodal markets? I think, we saw another large contracts go to your competitor at the end of the year? Is that part of the conservative outlook on volume as well?

Keith Reardon: So Brendon, I guess I’ll take that one. I just not to correct you but the large customer that you’re talking about, we will hold the majority of that volume moving forward.

It was not a winner take all type of thing. In fact, we picked and choose what we wanted, where we wanted it that fit into our network. We’ve been working very hard on that contract. It’s not complete yet, but we will definitely get our more than fair share. With regard to the domestic business, we’re always competing, but the types of products and services that we have, and the geography that we serve, has served us very well during COVID.

I think there’s a reason why you saw our growth in Q4 and why you see the growth in Q1 being industry leading. So we are satisfied with our products, our services and we love our network. Thanks, Brendon.

Brandon Oglenski: Thanks for the clarification.

Operator: Your next question comes from the line of Allison Landry with Credit Suisse.

Your line is open.

JJ Ruest: Good afternoon, Allison.

Allison Landry: Good afternoon. So, I just wanted to ask about the potential for M&A in the short lived space. We have obviously seen some activity there recently and historically CN has been relatively active.

So, if you can maybe speak to any opportunities that might be a strategic fit for CN that you see and then sort of specifically as we think about the growth potential at Halifax and in Eastern Canada and perhaps if you could comment on the CFX’s acquisition of the PanAm and if they are seeing commercial opportunities there that you could benefit from? Thank you.

JJ Ruest: You want to talk about M&A activities or joint ventures, Ghislain?

Ghislain Houle: I can talk to overall, Allison, thanks for the question of M&A. I mean, I am – as you know, we are always on the lookout to do M&A. I mean, it needs to fit our network. We are not – we don’t want to diversify for the pleasure of diversification, that’s not our game, for whatever can add to our network, either extending our reach or that we can put more business on our network, we’re always on the lookout.

And I mean, we have a list that we’re following up and nothing, nothing really, that is really hot right now. But it’s certainly on our radar screen, that we want that I mean, part of our strategy is on a inorganic growth. So that’s, we’re following-up on that for sure. And it allows us to get to markets that today we can’t get, because of our reach. And obviously, it makes a lot of sense, hence why we also want to keep a strong balance sheet, we want to keep a strong balance sheet, because not only it was we saw the value of it during the pandemic in 2020.

But also because if there’s a deal coming in, we can act very, very quickly and do it on an all cash basis and be successful. So, I mean, we’re on the lookout, I mean, if something makes sense and fit our network and fit our strategy, it needs to fit our strategy long-term, then obviously we can move very quickly on it.

JJ Ruest: Yes, so we have a small team that look at that all the time. And we don’t wait for phone calls to come in. We also make some outbound call and we will see what does the future hold through.

Thank you, Allison.

Allison Landry: Thank you.

Operator: Your next question comes from the line of Bascome Majors with Susquehanna. Your line is open.

JJ Ruest: Hello, Bascome.

Bascome Majors: Yes, good afternoon and thanks for taking my question. To extend sort of the growth question a bit further out, I mean, you have embraced the supply chain collaboration and share gain driven strategy for a decade now and we are approaching the point where every other class when rail is going to enter a steady state of running their version of the 100 Harrison operating principles that underpin what you do at CN and in operating ratios that reflect that. As the industry pivots kind of from this operational realignment to maybe a broader and more consistent growth strategy, does this open up some model share opportunities for CN and industry as a whole for say, the next 3 years versus the last 3, just strategically how do you think about that? Thanks.

JJ Ruest: Yes, thank you. It’s a very good question.

It’s – and it certainly does. So, that’s one of the reason when we look at CapEx. And when we look at implementing technology, we just don’t talk just about railroad operation like inspection, a locomotive or eventually equipment different than diesel, but we also talk about we want to invest into the customer’s experience where we would automate and digitize the customer’s experience in a way that they want us to provide services to them and in that case, doing that also with other supply chain partner in the supply chain, like port operators or shipping line or little companies. So definitely, the CN story long-term is one of growth, profitable growth, profitable growth from an existing account and profitable growth from new account. And some of these new accounts may accompany the competition, but they might very well could come from supply chain that we are not part of it today.

But the reality is at CN, at least at CN, we believe that investing in technology that relates to the supply chain experience people will be able to track their product from A to Z and not just at CN, but when they are on the coming to us or buy our port or going back to a port is very much part of how the long-term future of the company is. So, if we do joint venture with acquisition, some of them might be technology related or some of them might be with partners like port operators and whatnot. So, the evolution of PSR gets into digitizing the schedule railroading, but also into bringing the element of service in the scheduled railroading that’s also closer to what the customers expect, which means that its visibility and control to their freight beyond the rail, before the rail and after the rail as well. We actually have a group that’s really working on that very actively. This morning, the Board approved two promotions in our technology group, one of them is the person who is going to be very strong, automation of rail operation and the other one is very strong in terms of automating the supply chain related to the supply chain services that we offer to a customer.

To your question, Bascome, because it really talks about the future of CN and the future of the industry. Thank you.

Bascome Majors: Thank you.

JJ Ruest: Do we have time for more questions, Paul?

Paul Butcher: No.

JJ Ruest: It’

s 5:30.

Operator: Thank you. This is Simon. I would like to turn the meeting back over to Mr. Ruest.

JJ Ruest: Thank you.

Thank you for all of you to joining us today. And as usual, we want to have as many of you to ask questions and then making good use of your time. So thank you for your time and then we will see you again in 3 months. Thank you.

Operator: Thank you.

Ladies and gentlemen, the conference has now ended. Please disconnect your lines at this time and thank you for your participation. Thank you and have a great day.