Good afternoon. My name is Julianne and I will be your operator today. All participants are now in a listen-only mode. At this time I would like to turn the call over to Stacy Alderson, CN's Assistant Vice President of Investor Relations. Ladies and gentlemen, Ms. Alderson.

Thank you, Julianne. Good afternoon, everyone, and thank you for joining us for CN's Second Quarter 2024 Financial and Operating Results Conference Call. Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the US and Canadian securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. They are more fully described in the forward-looking statements section of the presentation. After the prepared remarks, we will conduct a Q&A session with our analysts. As usual, we would ask that you please limit yourself to one question. Joining us on the call today are Tracy Robinson, our President and CEO; Derek Taylor, our Chief Field Operations Officer; Patrick Whitehead, our Chief Network Operations Officer; Remi Lalonde, our Chief Commercial Officer; and Ghislain Houle, our Chief Financial Officer. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Thanks, everyone, for joining our call today. I'll turn to the quarter in just a moment, but first, I'll make a few comments on the broader landscape. Now at the macro level, the economy is shaping up to be in line with what we expected when we developed our plans, with North American industrial production trending slightly positive from mixed signals in consumer areas that are mostly timing issues related to interest rates and continued strength in the bulk portfolios. So at a high level, pretty much what we expected. Outside of the macro, I remain very encouraged with the progress we're making with our CN-specific growth initiatives, which are coming online very nicely. We are building a portfolio of business that works for us, fits our network, and enables us to efficiently provide strong customer service. The recent strength in our petroleum and fuels business, the growth of our sand franchise, and the rebuild of our international portfolio are all part of this. Now I know you're looking forward to hearing from Remi today, and he'll give you more insight in a few minutes on both the base business and our more specific customer efforts, which will continue to be a key driver of our growth. In our operations, the scheduled model continues to serve us well. The East and South regions this year are posting velocity and on-time numbers that are better than last year. The West has had some issues in Q2, which we will discuss today, but have lifted out of that in Q3. And customer service levels continue to be very strong across the entire network. The fundamentals of our business are good. The question in this quarter is leverage. For the remainder of the year, it's more about the labor situation in Canada. And we'll get into both of these in our comments today. So first, on labor and the status of our TCRC situation in Canada. Now as you know, the CIRB has now advised that they will release the decision on or about August 9th on the question of the essential service designation. Now there cannot be a work stoppage until they render a decision. And subject to any direction they provide on the cooling-off period, the parties are then required to give a 72-hour notice of a strike or a lockout. Now the prolonged nature of this process, which prior to CIRB referral was to conclude in May, is impacting our customers, and it's impacting our business, particularly in the international intermodal where customers have taken actions to reroute vessels away from Canadian ports until the labor questions have been resolved. Now our intent with the TCRC has not changed. We prefer a negotiated agreement that would do two things: Create a structure on work scheduling that would be positive to current employees, improve crew availability, and also attract the next generation. The offers that we've made to the TCRC have been consistent with this. So now in the quarter. Overall volumes came in on plan, but not exactly in the way that we expected. We were tracking well ahead of plan overall up until the third week in May, driven by growth in international as well as frac sand, petroleum, and chemicals, and the late rush on Canadian grain to Vancouver. Starting late May, we saw a sharp reduction, primarily in our international volumes due to concerns of a work stoppage. Now this is volume destined to the US that shifted to US ports. So we had lighter volumes in the Rupert quarter than expected. At the same time, the heavy grain flows made us much busier in the Vancouver corridor. In fact, we moved record volumes in this quarter, during the period of a very heavy work block program on our system and in the directional running zone in which both the Canadian rails operate. The team got it done, but it wasn't efficient. We saw this in our velocity metrics in the West and in labor productivity. Now it's important to note that the velocity issue has been temporary and the operation in the West has returned to normal levels as the work blocks have moved to other parts of the network. So in the quarter, we delivered on the overall volume level, but we lost traction on leverage. Now Derek and Pat will take you through the details and how we're responding. Here's where it is at a high level. The mix of business was different from what we planned, with more bulk and intermodal and less manifest traffic where we had the most leverage opportunities. We had more demand in the West than expected and less demand than planned in the South and the East. As a result, we had more unproductive labor, particularly in the South, given lower grain and coal volumes through the quarter. We also had lower labor productivity in the Vancouver corridor as we managed record volumes through a heavy work block period. We also had a headwind on fuel in the corner of about $0.10. As we move through July, the velocity in the West is back to normal levels and we're taking actions on unproductive labor. We continue to monitor the international volumes to ensure that we are positioned well for their return once we have labor stability. So with Q2 in mind and with the anticipated continued rerouting of international volumes for a period, we are revising our full year guidance to mid to high single-digit EPS growth. This assumes no labor disruptions on the rails or at the ports and assumes the current traffic diversions do not increase. While there's no doubt that 2024 has and will continue to have its fair share of challenges, our longer-term outlook and growth agenda remain intact, and we remain confident that our operating model will drive leverage as our volumes normalize post-labor uncertainty. So I'll hand it over to the team to provide more details and you're up first, Derek.

Thanks, Tracy. Good afternoon, everyone. I'm on Slide 7 for reference. Overall, the railroad ran relatively well in the second quarter, which bears out with overall car velocity at 210 miles per day, which is down 3% from last year. Some of our other operating metrics like network train speed and 32-hour cars aren't quite where they were last year but are still demonstrating a fluid railroad that is handling the growth. Notably, the Southern and Eastern regions continue to perform well operationally throughout the entire quarter. The Western region was quite busy with growth weighted more towards intermodal and bulk. To give you a sense of how busy we were, Q2 was the all-time highest average daily GTMs through the Vancouver corridor in CN's history. We added train starts to accommodate the growth, as we had planned and have been successful in onboarding those volumes overall. However, our operating metrics reflect the fact that we were impeded by ongoing track maintenance work in the critical Vancouver corridor throughout the entire quarter. There wasn't a single week in the second quarter where there wasn't some form of planned or unplanned maintenance in the directional running zone or DRZ. Recall that this is the area where CN and CPKC run on each other's tracks to effectively create double-track capacity. When this work is being done, it squeezes capacity because we can't run trains for four to eight-hour blocks at a time. We also know that any type of maintenance work in the DRZ has a disproportionate impact on CN because we run more trains through that specific corridor. As work blocks wrapped up on the DRZ, fluidity returned. In July, car velocity has been trending toward 220 miles per day, and our network train speed is trending towards 20 miles per hour. That is right where we want them to be. I am confident these health of network metrics will continue to trend favorably. We had good terminal performance in the second quarter. Our yards were quite fluid throughout the entire network, and our local service commitment performance approached an all-time high of 94%, topping last year's excellent 91% result. This performance also enabled us to really deliver for our customers in first and last mile execution. Great rarity by the entire team in the field. As you heard Tracy mentioned in her remarks, we have taken action in terms of operating leverage when it comes to both labor and physical assets. In terms of labor, we stopped hiring in both the Southern region and Eastern region. We have also offered voluntary furloughs in both of those respective regions that employees have been utilizing. Another action has been offering permanent transfers from the Eastern region to the Western region where more of the demand has been to balance out our people requirements. In terms of physical assets, we have put down both locomotives and specific car fleets to adjust for the current demand profile that is out there. I'll just wrap up by saying that the railroad is running well and will continue to run well, especially with some of these short-lived challenges behind us as we deliver for our customers. Now I'll turn it over to Pat.

Thanks, Derek, and good afternoon. I'd like to start today by talking about safety. We are committed to building a safety culture where zero serious injuries and fatalities is possible. In the quarter, we saw a 22% improvement in the accident frequency ratio, though, as Ghislain will speak to, the accidents were more consequential, which drove higher costs in the quarter. We continue to work with our leaders and unionized teammates and invest in and leverage technology and training to drive improvement in our accident metrics. We are currently providing training for managers focusing on behavior-based safety best practices to reduce human factor incidents and accidents. We saw a 13% deterioration in our injury frequency ratio driven by our leading cause of injuries, slips, trips, and falls while walking. We have taken note that there has been a 30% reduction in these injuries with employees that have been trained on our walking simulator. We will be investing in additional mobile simulators to train our folks in the field across all of operations. I also want to mention our real-time hazard and near-miss reporting app. We have had great adoption of the tool among our employees. This is a huge asset in reducing hazards and injury prevention. We have already resolved over 1,000 walking conditions received by employees utilizing the tool. Now as Derek mentioned, we were impacted in the quarter by work blocks in the Vancouver corridor. But when we say the plan is sacred, that also applies to the engineering and maintenance plan. Across much of Canada, we have a finite window to perform a significant amount of mission-critical track maintenance work. Work blocks mean we do not operate trains when the work is happening, which reduces our capacity. These plans and disruptions are factored into the train plan. What made Q2 particularly challenging from a planning perspective was the complexity arising from both the amount of maintenance work that was done and that a lot of this work happened in close productivity in and around the directional running zone. As a rule, we do not schedule work blocks so close together because it requires trains to stop for two blocks within a short distance. This leads to congestion and crewing challenges during start-up operations. The urgent nature of some of the unplanned work meant that we had to do this anyway. As Derek mentioned, with the maintenance issues in the BC South now behind us, we have seen strong improvements in overall car velocity and train speed. I want to add a final point which bears repeating. The government-mandated duty and rest period rules in Canada, which have now been in place since the end of May 2023, have made crew scheduling very complicated. It amplifies the challenges to crew availability and productivity when we have disruptions, which include work blocks. This was even more so in the quarter because we didn't go a single week without some work being done in the BC South. In closing, we're looking at all levers to be able to increase crew availability, including looking for additional opportunities to extend crew runs. Our plan continues to produce positive results. Origin's train performance remains solid at 93% quarter-to-date and destination train performance is approaching 70% quarter-to-date, in line with our expectations. Now you already heard Derek talk about what we are doing in the East and the South. In the West, we are resourcing for strong volumes and the network is well positioned moving into the third and fourth quarter. I'll now turn the call over to Remi.

Thanks, Pat. CN's revenues grew by 7% in the second quarter compared to last year on stronger pricing, higher volume, and favorable foreign exchange, offset in part by lower fuel surcharge. Our RTMs were 7% higher, in line with plan, mostly from shipments of international intermodal, Canadian grain, and refined petroleum. Revenue per RTM was down slightly on account of mix, specifically the longer average length of haul for these products. I'll emphasize that we are delivering same-store price ahead of our cost inflation. Before turning to the individual business units, I want to underscore some of the CN-specific growth initiatives that appear in the results. Selling service reliability for international intermodal through Western Gateways by leveraging the strategic benefit of the Rupert option in our train plan design and building our book of business accordingly. Moving frac sand from Wisconsin to Western Canada and hauling the resulting propane for export through Prince Rupert. Delivering incremental volume growth through Canadian and US crush plants with inbound grain and outbound renewable feedstocks and protein and inaugurating with our partners the first phase of the Greater Toronto area fuel facility. So overall, the business is growing on plan, except for some headwind around lumber and labor uncertainty. Let's take a sector-by-sector look at the quarter on an FX-adjusted basis. Intermodal revenues grew by 6% with a 13% increase in overall RTMs, reflecting international up by 19%, but domestic down by 1%. Year-over-year growth in international is due to higher traffic through Western Gateways and key customer wins as we push to sell service reliability, but also the 2023 impact of the then imminent ILWU port strike. The domestic business, on the other hand, faces more pressure due to market softness, combined with an oversupply of truck capacity. The resulting change in mix caused a 3% increase in average length of haul and therefore pushed revenue per RTM down by 6%. It’s worth noting that intermodal is the most sensitive to the ongoing uncertainty around the labor situation with the TCRC. Accordingly, we saw volumes soften towards the end of the quarter as ocean lines and domestic shippers activated contingency plans, including port diversions and modal shifts. Grain and fertilizer revenues and RTMs each rose by 7%, reflecting a stronger-than-expected 24% increase in Canadian grain shipments which was partially offset by lower shipments of export potash and US corn. The strength of Canadian grain comes from destocking as farm optimism towards the new crop grows after low moisture levels earlier this year. Indeed, as the 2023, '24 crop year draw to a close, I'm pleased to note that we moved more grain in a smaller crop year, increasing our share. Our potash volumes were lower on the other hand, as some of the business has largely, but not entirely naturally reverted to the Western terminal that experienced a lengthy outage last year. Revenues for petroleum and chemicals were 14% higher in the quarter on a 12% increase in RTMs. This includes strong domestic demand for gasoline, diesel, and jet fuel in Ontario and Quebec, higher shipments of polyethylene and more export NGL shipments from Northeast BC mostly through Rupert. Metals & Minerals revenues grew by 6% on 12% higher RTMs which reflects a 36% increase in frac sand for the robust drilling activity in Northeast BC and Alberta and the shorter breakup period. On the other hand, steel product shipments have been softer due to production inconsistencies, a weaker market, and volume leakage to the oversupply truck market. Revenues in automotive grew by 9% and RTMs by 12% due mainly to an increase in long-haul imports through Vancouver and North American origins into Western Canada, offset by lower short-haul due to Canadian plant retooling. Forest product revenues improved by 4% in the quarter despite flat RTMs. While RTMs were 4% higher in Pulp and Paper, they slipped by 3% in lumber given the ongoing demand slump. Indeed, shipments were particularly soft in June. The coal business lagged in the quarter with revenues down by 8% on an 11% drop in RTMs. Shipments fell in both Canada and the US reflecting lower available to ship inventory in Western Canada and throughput challenges in that corridor as well as lower thermal coal demand in the US. As we turn to the outlook, let me say first that our comments assume that we will have certainty around our labor situation by the end of summer and that there is no other Canadian labor disruption, either rail nor port. We expect to carry intermodal momentum through our Western Gateways in the second half of the year and to come in higher over the strike affected same period last year, and we will face headwinds with the overhang of uncertainty around further potential labor disruptions in the Canadian supply chain. We also see rising pricing pressure with domestic intermodal in light of the less than strong consumer and business sentiment in Canada and oversupplied truck market. While the prospects for the 2024, '25 Canadian crop year are brighter than expected, that will show up more with the Q4 fall harvest. US crop looks good overall despite some excess rain in certain areas, but the outlook for export demand is soft. Fertilizer volumes will be lower than last year, given the 2023 opportunistic potash spot moves, but we should continue to see good momentum with crush capacity on both sides of the border. Our expectation is for continued growth in petroleum and chemicals during the second half, mainly from refined products to the GTA fuel facility and a new distribution platform in Prince Rupert and continued growth in propane exports through Rupert. With active drilling in the BC Northeast and growing port terminal capacity, we expect frac sand shipments to stay strong. We also expect incremental minerals shipments, mainly lithium and gypsum, to offset softer metals, especially for steel on commodity prices and excess trucks. Automotive RTMs should be flat in the second half of the year based on the mix of business as market fundamentals trend back toward pre-pandemic levels. The underlying market for lumber is weak and is likely to remain that way through the end of the year, which will drag on forest products volume. We expect to see the same run rate in US thermal coal shipments due to high domestic stockpiles and soft export demand, but there should be incremental production gains at various Western Canadian sites for metallurgical coal. So overall, the business is growing on plan, except for some headwind around lumber and labor uncertainty. And for RTMs in the second half compared to last year, we should see a good uptick in the merchandise business, especially for petroleum products, chemicals, and plastics, despite softer forest products. Flat to slightly positive in bulk with Q4 grain, offset by lower potash and incrementally positive consumer products, thanks to international intermodal despite the headwind from the labor situation. Before I pass it over to you, Ghislain, I'd like to say that I'm very excited to join the CN team on this journey. The first couple of months have been a lot of fun as I've plunged deep into the inner workings of the business to learn how the railroad runs, get to know the team, and start to build crucial relationships with our customers, business partners, and communities. We look forward to working with my colleagues to contribute my diverse experience to make a difference here and to drive value for the company and its shareholders. CN is an amazing business and the path ahead is very exciting. Over to you, Ghislain.

Turning to Slide 14. Q2 diluted EPS was down 1% versus last year but up 5% on an adjusted basis after removing the impact of the loss on assets held for sale related to the transfer of the Quebec bridge to the federal government. Adjusted OR increased by 160 basis points to 62.2%, mainly due to higher costs versus Q1, OR improved by 140 basis points. While volumes were very strong, up until the third week of May, we saw some meaningful softening in June as some international intermodal business diverted to US ports due to the possibility of labor disruption in Canada. At the same time, lumber prices plummeted to historical low levels and below breakeven. Overall, revenues were up 7% year-over-year. Let me provide you with more details on the quarter. Fuel was a headwind of around $0.10 of EPS and was dilutive to the operating ratio by 130 basis points. Absent the fuel impact, the operating ratio from the underlying operations slipped 30 basis points year-over-year on account of the challenges mentioned by Pat and Derek. We continue to monitor fuel prices very closely. Applicable OHD rates, which drive fuel surcharge revenue, decreased by 5% versus last year, while average fuel price for expenses increased by 6% year-over-year in Q2. In terms of expenses, which I will speak to on an exchange adjusted basis, starting with labor, which was 13% higher versus last year on 2% higher average headcount, general wage increases, and higher current service pension costs. We also saw higher short-term unproductive costs in the quarter related to deadheading, recrews, and held-away costs in the Vancouver corridor, which was amplified by the impact of the government-mandated work rest rules. Fuel expense increased by 11% versus the same period last year, mostly due to a 7% increase in gross ton miles combined with a 6% increase in price per gallon that I just mentioned, partly offset by a 2% improvement in fuel efficiency. Equipment rents was up 20%, driven by higher intermodal car hire and other increased 22% on higher incident costs. In other income, we benefited from roughly $30 million in higher earnings from the sale of property within a subsidiary. We generated around $1.5 billion of free cash flow year-to-date at the end of June, about $200 million lower than last year, mainly due to lower net cash from operating activities and higher capital expenditures. Under our current share repurchase program, which runs from February 1, 2024, through January 31, 2025, we have repurchased close to 10 million shares for almost $1.7 billion as of the end of June. Moving to Slide 15. Let me provide some visibility to our revised guidance for 2024. Note that our revised guidance assumes that we do not have a labor disruption and that the labor uncertainty is behind us by the end of August. Our revised guidance accounts for our year-to-date actuals as well as several unforeseen headwinds. From a volume outlook perspective, the mere potential of a rail and port labor disruption dampened overseas intermodal volume starting in June and we expect that to continue until the labor uncertainty is resolved. We've also adjusted our outlook for lumber and now expect a 2025 recovery given current commodity prices. More broadly, overall industrial production remained slightly positive but tepid in part because inflation has been persistent and interest rate cuts have yet to come or been more modest than expected. On the other hand, we're encouraged that early concerns about moisture levels for the Canadian grain crop have abated. We also continue to advance on our CN-specific growth initiatives in line with our expectations. Overall, we now expect to deliver RTM growth in the range of 3% to 5% versus 2023 compared to our previous assumptions of mid-single-digit growth. On costs, we are already seeing the positive impact of improved fluidity in the Vancouver directional running corridor and expect year-over-year operating ratio improvement in the back half of the year. Our foreign exchange and WTI assumptions continue to be around $0.75 and US$80 to US$90 per barrel, respectively. Putting it all together, we are now targeting to deliver mid to high single-digit EPS growth in 2024. Our 2024 to '26 financial outlook of 10% to 15% CAGR remains unchanged. In conclusion, let me reiterate a few points. Our CN-specific growth opportunities are coming online as expected. The network is fluid with car velocity as well as seasonal levels. We are delivering industry-leading service to our customers, and we remain intensely focused on delivering growth at low incremental costs. Back to you, Tracy.

Thanks, Ghislain, and over to you, Julianne. We'll take questions now.

Thank you. We will now begin the question-and-answer session. The first question will come from Chris Wetherbee from Wells Fargo. Please go ahead. Your line is open.

Hey, thanks. Good afternoon, guys. Maybe, Ghislain, I can pick up where you ended there on the operating ratio as you think about the second half of the year. So I guess I'm just curious how much of what you saw in the second quarter related to some of the cost and congestion around maintenance carries over, if any, into the third and fourth quarters? And I guess thinking in that context, how would we expect sort of that OR to progress relative to normal seasonality? I guess, in other words, is there some cost embedded in 2Q that we could see naturally come out and think more about things seasonally from there? Just want to get a sense of how to think about profitability.

Hey, Chris, this is Tracy. I'll start on that, and then I'll hand it over to Ghisl. So this was the issue with the work blocks and maintenance program in the Vancouver corridor, where the grain was moving was something that largely happened at the tail end of Q2. Those work blocks have moved off now. And as you heard Derek say, the railroad's back to operating at normal levels from an on-time performance and from a velocity perspective. In fact, I think in the last seven days or so, the railroad overall is now running about 216 car miles per day versus the last year about 210. So the railroad is operating well right now. If we think about OR and where we'll end up in the quarter. Now, if we assume that there is, as you heard Ghis say, no labor outage this year and no significant impact from fires, we are watching this Jasper situation that we've got going on right now closely. But if there's no major impact from fires, then you'll see us come in the second half, Q3 and Q4 on an operating ratio of sub 60, as you would expect us to do. Ghis, anything to add on?

Yes, first of all, Chris, congratulations on your new position. Let me provide some examples of the costs we are discussing, particularly related to the Mountain South subregion, which refers to the Vancouver corridor that Pat mentioned. Our recrew cost per GTM in Q2 reached as high as 130%. Our deadhead cost per GTM increased by 37%, and our held-away cost per GTM rose by 74%. These costs are now aligning more closely to expectations as some of the unplanned work is behind us. Therefore, we anticipate a much better Q3 compared to Q2. Thank you for the question.

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

Thanks very much. Good afternoon. My question is for the operating team. Could you speak to, number one, if we set aside the planned and unplanned maintenance outages, should investors feel comfortable that Vancouver, Edmonton corridor otherwise has enough capacity to handle the record volumes that you saw in the quarter? And I guess, number two, are you pleased with how the team managed the disruption and the pace of the recovery or is there something that in hindsight you think you could have done differently? Thanks.

Okay. I'll take that one. And I would say, first thing is that when you look at the volume that moved to Vancouver, we talk about record volume. And our share of that volume was two-thirds of the trains running through the DRZ we're seeing. So much bigger impact to CN through this corridor. I am pleased with, as we plan work blocks, we coordinate with our partners, we plan the material to be distributed. We plan the maintenance employees, the engineering department employees the gang to be in place to do this work. So as you look at this, in the way we do the planning. We try to keep work blocks separated where they're not in such close proximity to one another. We did a lot of that work. We had some unplanned work that needed to be done, and we had these work blocks closer to one another than we would have liked to see as it relates to our network and getting into the DRZ. What I would do differently, I would say, a lot of the work that we are doing and where we're investing is to get ourselves out of unplanned work blocks. We're doing the work in a manner that we want to minimize the unplanned work blocks. We had an emergent rail issue that we had to deal with that was right adjacent to the DRZ. That's a takeaway for us is to make sure that we plan our work and that we're doing our best to stick to the plan and not have unplanned work blocks. That would be one thing that we would change. I am pleased with the capacity in that corridor, though as we see, as we've lifted out of the work blocks, the maintenance season, we have seen a significant uptick in the speed and velocity. In fact, we're approaching last year's levels of both train speed and car velocity. So pleased with where we're trending. And yes, we would certainly not plan to have those blocks in such close proximity.

And I'll just add a little bit to that, Cherilyn. So we're being quite thoughtful. We don't sell capacity that we don't have. And so we've been thoughtful on how we've constructed this portfolio. Remi has put together this international portfolio. We know that what grain is coming; what the grain crop is, this quarter can handle that capacity. We have turned away business in the Vancouver corridor that wouldn't fit either our network or capacity. And so the work blocks in this particular quarter were significant enough, particularly the unplanned work blocks that it had an unexpected impact. Going forward, we've sold the capacity that we have.

Thank you.

Go ahead. Thanks.

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

Hey, thanks. Good afternoon. So I just want to clarify the guidance now assumes continued diversions, but no strike. Is that right? And then just bigger picture, I just want to understand what's going on with price. You guys talked about price above inflation, but cents per RTM are down slightly, why aren't we seeing better yield growth, given what you're talking about is still inflation plus price? When do we start to see that? Thank you.

I'll take the first one. First, Scott. For the guidance going forward, we are assuming that there will be no labor outage, meaning no strike or lockout. Regarding diversions, we are currently experiencing them. We expect to have clarity on labor by the end of August, and we anticipate that these diversions will maintain their current level; they won't return immediately, but they also won't worsen. We believe it will take some time to restore the international business routing back to the Canadian ports, hopefully not as long as it took after last year's port strike. This is the basis for our guidance. I'm sorry, I don't recall the second part. Go ahead, Remi.

It was on revenue per RTM. So I can take that. So I did mention, and you pointed out, Scott, that we are delivering same-store price ahead of rail inflation. What we see, though, is that the mix of business has changed in favor largely of bulk. So in this case, it was a lot of frac sand and Canadian grain, in particular, and more international business for the intermodal stuff. So that shows up as a drag on RTM because our average length of haul has gone up across the business by 5%. So the denominator widens, and that dilutes the yield. Simple answer.

Thanks for your question.

Our next question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open.

Yes, good afternoon. Thanks, guys. Appreciate the time. Just as you contemplate this new grain harvest that's coming in, we've seen revisions to the upside now at least once and probably another to come, we'll see. How do you think about preparing for that relative to some of these constraints that have existed? It sounds like you feel confident and being able to handle the volumes. But is there any additional preparations you will need to make to handle this harvest if it is indeed a big one?

Well, we hope it is a big one, and we're ready for that. Steve, thanks. I would say this: that there's more than one port that the grain moves through. So we've got Vancouver, which is an important port for grain. We've also got Rupert, Thunder Bay, and then into Eastern Canada. So as we think about how we're going to put that portfolio together, we'll use all of those are great ways to use our network, and we'll make sure that we focus on getting the right volumes in the right corridors. Thanks for the question.

Thank you.

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

Hey, great. Good afternoon. Just thinking about the outlook shifting to mid-single-digit to high-single-digit earnings. You've obviously got a big uptick coming in the third quarter, but maybe some concern on yields with better grain. What are the upside, downside risks in that target? And then does the unproductive costs that you talked about, do they accelerate as business returns and labor gets more stretched or not necessarily? Thanks.

Thanks, Ken. I'll start that off and then I'll hand it over to Ghis or Remi, if you have some comments. On the unproductive costs, we experienced them, as we said earlier, in a couple of ways. One is that we did have lighter coal and grain down in the US, we were resourced to handle more volume. So we had some unproductive costs there, a little bit less in the East, but a little bit in the East. And so we're taking some action on those. And as Derek went through, stopped hiring, we're offering voluntary furloughs, and we're coming, and we'll continue to adjust as we look forward to make sure that the resources, crews, but also all the equipment are matched for the volumes that we are expecting. If we look at the West, the unproductive labor or sorry labor productivity issue was more related to the work blocks. And so the lumpiness of how that volume was moving through the quarter. You heard Ghis go through kind of the recrews and some of the deadhead issues that we had. So as the work blocks have come off there, then that is adjusting back. We do have an ongoing structural issue with the duty and work rest rules that have come in. As you know, we've said that this is costing us in Canada. In the year that it's been in place about $100 million, $100 plus million annualized. We're working through how, basically, this is appearing for us and crew availability. This is something that we've been attempting to address in the collective bargaining. If we can't do that, then there's some self-help that we're going to do with some of the local agreements that would address some of the redundancy that's been created there. So the temporary issues on labor productivity, we're all over those. The more structural one around the work rest rules, and we'll deal with them as we go forward in our labor negotiations.

Tracy, you made some good points. I want to add that, regarding fuel, we've mentioned the impact this quarter is about $0.10, and it was even greater in Q1. If fuel prices, such as OHD and WTI, stay as they are, we can anticipate a year-over-year fuel headwind in the second half, similar to the first half, but likely more pronounced in Q4 than in Q3. This is an important factor to consider in our revised guidance. Thank you for the question.

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

Thanks for taking my question. Just wanted to understand, what drove the increase in number of unplanned work blocks during the second quarter? And where are you performing the planned work blocks now?

Okay. I'll take that. So there were unplanned work blocks both in the DRZ and just adjacent to the DRZ. And the way we plan to work is, I mentioned we have this finite window of time where as the weather breaks, we typically start in Western Canada, where the weather breaks first, we move our way east across the network, and we distribute the material, and we align the engineering gains, work schedules around that progression. As we've made that progression, we continue East and our plan is we're now East of Edmonton with one return cycle to the West that we have to make. Our plan is to get off of that corridor before the fall rush and the grain harvest. We want to be off of the core route in Western Canada; that's the way that we plan it. We had some rail issues, as I said before, we had to deal with on our subject adjacent to the DRZ, and we had some unplanned work blocks in the DRZ as well.

Okay. Thanks. And just a quick clarification question. What are you assuming just for wage inflation related to the pending TCRC deal in the new guidance?

Listen, we're in the middle of, as you know, negotiations in a process there. So it's probably inappropriate for us to comment directly. But we have settled a number of agreements in Canada this year. I think you're looking at a pattern that looks somewhere in the 3% range. So that wouldn't be a bad number to expect here. Thanks for the question, Konark.

Thank you.

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

Good afternoon, team. Thank you for the question. I wanted to address the three-year guidance, specifically maintaining a target of 10% to 15%. It seems that reaching the midpoint of that range requires achieving the higher end for two consecutive years. What is the rationale for setting the target at that level? Additionally, have you calculated the exact dollar impact of the maintenance delays and other related issues? I'm trying to understand how much of the increase in 2025 is simply about recovering what we lost in 2024. I’m looking to clarify the timing for the three-year guidance while keeping the 10% to 15% growth in mind. Thank you.

Thanks, David. Our three-year plan is still in effect, and I'm pleased with how our growth strategy is unfolding, especially regarding the CN initiatives that Remi discussed, which are performing well. He and his team are actively building that pipeline. The economic recovery is progressing somewhat more slowly than anticipated, as seen in some areas Remi mentioned, but I believe it will improve. Once we resolve the labor issues, you'll witness the full benefits of our growth plan. Additionally, the railroad operations are running smoothly despite the recent challenges in Vancouver. Pat and Derek are focused on enhancing network operations, transportation, and engineering productivity, and they will keep improving performance. Overall, the plan is on track and looking promising. The main concern we face is related to the duty and rest period regulations and the redundancies associated with them. We're addressing this issue this year, either through collective agreements or other self-help measures. We're generally confident in the plan. Ghis, do you have anything to add?

No. You covered it well.

Okay. Thanks, David.

Just a quick follow-up. I mean, Ghis, as you think about that, the duty and rest stuff like that will be in the base for next year, but how much of the incremental leverage did it absorb this year?

Well, as we quantified, if you remember, when it came in, we said that this could be an impact as much as $100 million on a yearly basis. I would tell you that in reality, it's probably a little higher than that. And as Tracy mentioned, the team is working very hard to alleviate some of this. This is really about crew availability. That's really what we're trying to work, and we're trying to work with our unions to do exactly that.

All right. Thank you for that added color.

Thank you.

Thanks, David.

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

Thank you. Good afternoon. I want to return to the topic of the Western Corridor. You have a volume opportunity that many of your peers would be envious of. This quarter, despite generating $185 million in revenue, we saw a $36 million decline in operating income. It appears that the Vancouver Edmonton corridor was your biggest challenge this quarter. Considering the next three years, do you believe there is a structural bottleneck in that corridor? It seems that with each cycle, problems arise in that corridor, leading to various issues. Is there a more sustainable solution needed to improve performance, such as capacity expansion or a different approach to managing customer traffic? I'm curious if this is simply an isolated issue from Q2, as volumes often don’t arrive as planned. How do you plan to address this in the medium term?

Thank you for the question, Fadi. There are two ways to look at this. First, part of our capital program this year is dedicated to this corridor, and we are investing in it to enhance capacity and capabilities. Both railroads are collaborating effectively to maximize capacity. You’re familiar with the situation in the Vancouver area, which highlights this effort. The second aspect to consider is that there are practical limitations to how much more growth can occur in the Vancouver corridor. Fortunately, we have the Rupert corridor, which is very open and can accommodate not only grain but other commodities as well, and much of our growth is focused there. Regarding grain, you know about the various routes to Thunder Bay and Eastern Canada. While Vancouver remains a priority, we will continue to improve productivity and ensure we do not oversell our capacity in that corridor. We have options for our growth, and we are fortunate in that regard. Thank you for the question.

And just a quick follow-up. I mean, given what you just described and the supply-demand situation in that corridor. Is there a pricing lever that you can lean on a little bit more going forward?

I would say that Remi and his team are all over that. We're being very thoughtful around how we sell our capacity to all of our customers. Thanks, Remi. Sorry, thanks, Fadi.

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

Yes, thanks. Good afternoon. I just wanted to maybe ask a follow-up on the Western part of the network, maybe it’s for Remi, but you certainly need to invest to keep up with the growth there, but in the East and maybe in the South, you need to invest to sort of attract the growth. So anything that you would highlight as being up and coming or something a little more exciting on the East and the South? I know it's been an area the company has been trying to grow for some time, and the volume will go where it will go. And then just as a quick follow-up maybe for Tracy, can you give us a sense as to whether or not you can get that same structural relief for the work rest rules if it's negotiated or if it's self-help? Thank you.

Thanks. Maybe I'll just start. So a couple of things that I think are interesting, the Gulf option for us is a good one for the intermodal business. So I think that there's headroom there. The corridor, Chicago to the Gulf is very efficient the way that my operating colleagues run it. We also are in the process of integrating the INR to extend our reach and bring more volume on our rails. So I think there's upside to chase there as well.

Yes. Thanks Remi. I would also say that we are hopeful and expecting this week that we will get some good news on the Iowa Northern acquisition. So that also is going to add to our Southern quarter efforts. Remi talked about the Gulf. We've got some good chemical business down there. We've got the Falcon business that we're continuing to grow. So lots of effort on the South. Really the impact in this quarter. We would normally be moving grain and coal and we had resources to move grain and coal and that's kind of the gap. Nonetheless, building the density in the South remains one of our key strategic initiatives. As far as the duty and rest period rules, all of what we're contemplating, whether it is within the collective bargaining or whether it's some efforts that we can take outside of that would keep us fully compliant with both the spirit and the rules that the federal government put out when it comes to rest and safety and everything else. What we've experienced is all of this has happened is a high level of redundancy in the stacking of our collective agreements with the local agreements with the duty and with the new rules issued by the federal government last year. We need to make this simpler and there are things that we can do to reduce that redundancy. But as I said, in all cases, we'll stay compliant with the federal regulations. There are scenarios that we can do this through the collective bargaining at the table and that's what we would like to do. We are hopeful and there's still our base plan that we would get a negotiated outcome a negotiated agreement. That is the best way for us and for the union to kind of deal with each other. So we're ready for those discussions when they're ready to start up again. Thanks for your question.

Thanks, Tracy.

Our last question will come from Walter Spracklin from RBC Capital Markets. Please go ahead. Your line is open.

Thanks very much, operator. I wanted to come back to a prior question that I don't know if it was answered directly. And that relates to your decision to maintain your three-year CAGR of 10% to 15%, but obviously, with the 2024 decline to mid to high, it puts up quite significantly the 2025 and '26 CAGR. And as we set our '25 and '26 estimates, I just want to make sure you're comfortable with kind of growth that's going to be in that 12%, 13%, 14%, 15% range to just get back into that 10% to 15% CAGR over a three-year period. Are you comfortable with that kind of growth in '25 and '26 because that's just mathematically what that implies, right?

Let me explain our perspective. The growth driven by our CN-specific initiatives is progressing very well and aligns with our plans. We initially anticipated this growth to be at 50%, independent of the underlying economic conditions. However, the pace of economic growth is turning out to be much slower than we expected when we presented at Investor Day last year. We recognize this slowdown and it is influencing our growth strategy. We are optimistic that the economy will improve, but if we are mistaken, it could result in a slower pace than anticipated. Regarding our operations, we believe that the key to increasing efficiency in our railroad operations is through velocity. I am pleased with how our plan is unfolding and the velocity with which our team is executing it. If the expected volume materializes, we can operate at a high level of efficiency. Looking ahead, based on some key assumptions we've discussed, we are confident that we can achieve our projected numbers.

Okay. Thank you very much.

Thanks for the question.

Our last question will come from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open.

Thanks for squeezing me in here. Just a couple of follow-ups. One is, in your conversations with your customers, are you seeing them pull forward peak season demand into basically now? And is there a risk that you may be potentially missing out on volumes? I mean just when you kind of resolve the labor things kind of later this summer, early fall, does that drop off in the back of the year? And also, apologies if I missed this, but did you quantify the OR impact of the network blockages in Q2?

Maybe I'll start on the pull forward. Thanks for your question. So yes, for sure, we do see part of that. There's, obviously, the biggest impact of the labor situation is on intermodal and the international business because our customers are planning vessels; they have to plan them quite a bit further out. On the domestic side, we think customers have largely proved out their truck contingencies and then more rapidly came back to the rails. On the vessel side, it's a little trickier. We think there has been a bit of pull forward of that volume. What we're sort of focused on, though, is how quickly once we put this behind us we can recover it. We think that ports in the US on the West Coast are more congested than they were last year when we had the ILWU strike. Ideally, that volume will come back more quickly. Indications are, as I said, on the domestic market that we'll be able to bring the volume back to our rails quicker also. I just want to add to an earlier question on the Iowa Northern acquisition that both Tracy and I talked about. Obviously, that is pending STB approval. So we're hoping that comes through in the next couple of weeks here, but that is an important caveat.

And maybe, Ravi, on your second piece of the question in terms of if we quantify the impact of the network Vancouver corridor issues on OR, we did not, but I did give some specific examples of recrew costs or deadhead costs and held away costs that were much higher than what we've seen in the past, such as in the range of 130% on the first one, close to 40% on deadhead and about 75%, 74% on the last one. So that's what we did. Thanks for the question, Ravi.

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

Thanks so much. We will wrap it up here. This has been a challenging quarter for us, but we understand the issues, and we're on them. In the immediate term, we're working through the uncertainty on labor here in Canada, which we hope to resolve in the coming weeks. The railroad is running well, and I'm excited about the future, particularly the efforts and the successes that we've had in driving new business to railroad and advancing our customer initiatives. Remi is all over this. The team is doing exactly what they need to do, and we're continuing to deliver to our customers. This model is working. Thanks so much for your time today.

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