Good afternoon. My name is Julianne, and I will be your operator today. Welcome to CN's Second Quarter 2022 Financial and Operating Results Conference Call. I would now like to turn the call over to Paul Butcher, Vice President, Investor Relations. Ladies and gentlemen, Mr. Butcher.

Good afternoon, everyone, and thank you for joining us for CN's Second Quarter 2022 Financial and Operating Results Conference Call. Before we begin, I would like to highlight the forward-looking statements and additional legal information provided at the start of the presentation. Please remember, today's call includes certain projections and other forward-looking statements under U.S. and Canadian securities laws. These statements carry risks and uncertainties that could lead to actual results differing significantly from those stated or implied. More details can be found in our cautionary statements regarding forward-looking statements in the presentation. After our prepared remarks, we will hold a Q&A session. Please limit your inquiries to one question each. The Investor Relations team will be on hand for any follow-up questions after the call. Joining us today are Tracy Robinson, our President and CEO; Rob Reilly, our Chief Operating Officer; Doug MacDonald, our Chief Marketing 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.

Good afternoon, everyone. It's a pleasure to be here with all of you today, whether you're joining us by phone or through the webcast. I'm very proud of the performance our team has delivered in the second quarter. Last quarter, we outlined some principles that would guide our business operations and growth, and I’m pleased to report that we've made significant progress on all fronts. While we have more work to do, as mentioned last quarter, this will take time. I’m encouraged by how the team is coming together and the results they are producing. We have focused on our scheduled operations, enhancing train performance, and improving customer service, which is already showing signs of improved velocity. We have started optimizing our business model to ensure we are selling in a way that allows us to deliver effectively to our customers, and our yield performance is improving. Our bottom line and top line are both growing, and while there’s more to accomplish, we’re off to a strong start. In our Q2 financial results, we achieved record revenues of $4.3 billion, a 21% increase, driven by 2% volume growth, higher fuel surcharge revenues, and robust yield management. Our operating ratio stood at 59%, reflecting a 260 basis point improvement from Q2 last year. The network is performing well, and our operational teams have done an excellent job of enhancing performance across the board. The commercial teams also had a strong quarter in terms of yield, contributing to our record earnings per share of $1.93, a 30% rise from last year. The team has shown solid performance. Reflecting on my first months as CEO, I find myself increasingly optimistic about CN's future. I've spent considerable time meeting with employees, customers, government officials, and investors, including many of you. Since our Q1 call in April, I have shared my key priorities, which remain unchanged. I am encouraged by our initial progress, and while we are far from finished, I see a dedicated team focused on restoring CN to an industry leadership position. My colleagues will share details about our advancements, but before that, I’d like to share a few overarching thoughts. Firstly, we discussed our focus on scheduled operations, which has launched successfully and is improving performance for customers throughout the network. We are gaining momentum in this area. Rob will elaborate on our progress and our readiness for anticipated strong volume growth in the latter half of the year. Secondly, we are being intentional about our business strategy. Our customer service levels have improved, and we will continue prioritizing this. We understand that we need to run an efficient operation to foster growth and free up capacity, particularly as we prepare for increased volume in the Western network. Historically, we’ve seen substantial growth in this corridor, which is vital for us. Moving forward, we will also focus on optimizing other network areas, enhancing operations in the Eastern and Southern regions to strengthen our business and overall resilience. Doug will provide insights into the business environment and discuss Halifax, which we see as a significant opportunity for CN’s future. Thirdly, collaboration is crucial for us. We must align our sales efforts with our operational model to leverage our strengths. Our coordinated approach is yielding positive results. Ghislain, Rob, Doug, and I meet regularly to review contracts, pricing decisions, resource allocation, and capital investments. Success hinges on having all these elements aligned correctly. While our decisions may not always be easy, we work as a team, which is essential for achieving the right outcomes. Finally, we aim to grow both our top and bottom lines simultaneously. The results this quarter demonstrate this balanced approach, and I am pleased with our progress and momentum in this regard. Ghislain will provide more details on our financial performance in the quarter. Our plan is effective, and our entire team is committed to achieving strong results as we enter the latter half of the year. Now, I will hand it over to Rob.

All right. Thank you, Tracy. The team delivered a very solid quarter of operational results, and I want to thank the employees in the field for their continued dedication and focus as we continue to progress on our plan. I also want to thank the employees that were on duty during the recent Signal and Communications Employee 16-day strike who worked hard to keep the railroad running safely and uninterrupted. Operating performance improved in the second quarter when compared to last year as we emphasize running the railroad to plan. The initial focus was on train departures, and we started at our 4 hump yards in April. And then we turned our attention to our key flat switching yards in May. Since then, we've seen solid improvement in our origin on-time train departures, which reached over 90% in June, up 14% from June of 2021. It's also helped our connection performance, which was up 30% to nearly 80% in June. Clearly, the team has made solid progress on executing to the plan. While the second quarter is when the railroad typically gets its footing after coming out of winter, this year's performance is more than your typical improvement and highlights the dedication of the operating team to execute to the plan. The team achieved performance on a number of operating metrics that we haven't seen since prior to the pandemic, particularly in Western Canada, where car velocity is the fastest since Q2 of 2017, network train speed is the best since Q3 of '17 and through dwell is the lowest since Q3 of '16. The team is also delivering for our customers and working closely with the marketing team as we look to densify part of the network where we do have capacity. While volumes were down in the West due to lower grain volumes, GTMs in our Southern region delivered all-time daily records for the quarter. In addition, this quarter, the team once again set an all-time record for fuel efficiency for CN and for the industry, which drove the avoidance of approximately 43,000 tons of carbon emissions. We are confident that these operational changes are sustainable and will drive further efficiencies as we get ready for a very busy fall with continued broad demand and a more normalized Canadian grain crop. We continue to prepare our resources to handle these expected volumes. Our headcount is up 850 from the end of last year, with a large part of that increase being conductors as we prepare for a strong Q4. We purchased 47 locomotives that will all be in service by the end of September. We have 500 more additional high-capacity hoppers to the grain fleet and continue to add capacity to our Western Corridor with 4 additional siding projects. Finally, a word about safety. Our safety performance aspirations are anchored on the fundamental belief that all injuries and accidents are preventable. Our objectives are simple: eliminate on-the-job fatalities and reduce serious injuries to become the safest railroad in North America. We're proud it's been over a year since we've experienced a serious injury, and over 18 months since our last strategic fatality, both of which are the longest streaks in our company's history. With that, I'll ask Doug to provide some color on the marketing side.

Thanks, Rob, and kudos to you and the operating team for delivering a solid performance in Q2. We are working hand-in-hand with the operating team to deliver for our customers. Let me take a few minutes to highlight our solid top line performance in Q2 and expectations for the balance of the year. We delivered positive volume growth in Q2, with RTMs up 2% and revenues up 21% despite a 40% decline in Canadian grain shipments. This is a new Q2 revenue record. We focused our sales to the eastern and southern parts of our network where we have more capacity to grow. We saw solid growth in P&C from refined petroleum products and also crude oil, which is filling available capacity due to lower Canadian grain volumes. Automotive volumes came back strong with us from a 6- to 12-month backlog on orders. U.S. grain and coal continues to remain strong due to the unfortunate war in Ukraine and the sanctions on Russia. Forest products and metals orders remain strong and well above empty car supply. Elongated car cycles on interline shipments are reducing overall car supply for our customers. Domestic intermodal remained strong with no slowdown in demand. International intermodal volumes were down in June as we are metering flows of Western imports destined to Montreal and Toronto to ensure fluidity of terminals as the industry faces driver shortages and full warehouses. We remain focused on yield management with inflation plus pricing on renewals and as well as other surcharges on older contracts for additional storage and services. As we think about the second half of the year, we continue to assume low single-digit RTM growth for the year. The current demand remains strong, and we continue to dialogue with customers to monitor any signs of weakness. On grain, we are still expecting a Canadian grain crop over 70 million metric tons versus less than 50 million last year. We are working with our supply chain partners and customers on solutions to alleviate the challenges with import containers destined to Montreal and Toronto. We have recently opened up additional storage capacity in each area to add some flexibility to the supply chain. We will continue to benefit from strong coal prices, higher production from Conuma, restarts of CST and Coal Valley mines as well as continued strength in U.S. coal shipments, both domestic and export. We remain focused on driving strong yields with contract renewals coming in above rail inflation. Before I pass it on to Ghislain, let me take the opportunity to highlight an example on how we plan to densify the eastern part of our network. The Port of Halifax, which is solely served by CN, has significant opportunities to attract additional container business in the future. We are working very closely with our partners, PSA Halifax, to leverage this unique gateway. PSA now owns both terminals in Halifax and has made considerable investments over the years. The port's capacity is about 1.15 million TEUs and is currently operating at about 50% of the capacity. We see significant opportunities to add incremental business over the next few years on a part of CN's network that has capacity to grow. With more production coming to Southeast Asia, we view Halifax as well positioned to accommodate this shift of production that wants to make its way to North America. Our service out of Halifax has the fastest transit times from the East Coast to Montreal, Toronto, Detroit and Chicago. Last month, we started a second daily service out of Halifax. And after 4 weeks, we have moved 24% more containers and reduced PSA's ground count by 27%. I'm very excited about the prospects of Halifax and our partnership with PSA. So in closing, my team's focus is on providing the level of service our customers have come to expect from us and driving top line growth to the bottom line. With that, I will pass it on to Ghislain.

I will reference Page 15 of the presentation, which will give more insight into our second quarter performance. These results demonstrate the strength of our franchise, as we achieved a volume growth of 2% in terms of RTMs and a 21% increase in revenues, despite facing significant challenges from Canadian grain. The top line performance, alongside a solid operating performance, contributed to record earnings in the quarter. Let me share more details about the quarter. My comments will focus on adjusted results, excluding advisory costs related to shareholder matters. We recorded adjusted operating income of nearly $1.8 billion in Q2, reflecting a 29% increase. Our Q2 adjusted operating ratio was 59%, which is 260 basis points lower than the same period last year. Our fuel expenses rose by over 70% as fuel prices continued to climb during the quarter. We have an effective fuel surcharge program that addresses price fluctuations, but it does introduce some short-term variability. In this quarter, we faced challenges with the unfavorable fuel surcharge lag compared to last year. Adjusted diluted EPS hit a record $1.93, a 30% increase over last year. We generated nearly $1 billion in free cash flow in Q2, up over $250 million from last year, primarily due to higher earnings. Under our current share repurchase program, which runs from February 1, 2022, to January 31 of next year, we have repurchased just over 15 million shares for $2.3 billion as of the end of June. Moving on to Page 16, we remain confident in our outlook for the rest of the year and are reaffirming our 2022 financial outlook, forecasting adjusted EPS growth in the range of 15% to 20% with an operating ratio beginning with a 5. We anticipate RTM volumes to increase in the low single-digit range for the year, with strong growth expected in the latter half of the year, including a normalized Canadian grain crop starting in the fall. We continue to project that for 2022, the average price of WTI will be between USD 90 to USD 100 per barrel, and the value of the Canadian dollar against the U.S. dollar will average around $0.80 for the year. We do not expect any significant service disruptions in the second half of the year, and our outlook does not account for an economic recession. However, we have a robust bulk franchise, including grain, potash, and coal, which is less affected by economic fluctuations, along with a current backlog of lumber traffic. In closing, let me emphasize a few points. The current demand environment is robust. The network is operating smoothly, and we continue to maintain a scheduled railroad with a focus on car velocity. While we are beginning to experience some inflationary pressures impacting our costs, we are closely monitoring the situation to manage our expenses and ensure we price above rail inflation on contract renewals. We have a competitive network and understand its production capabilities. Our strong balance sheet affords us financial flexibility, and we will allocate our capital in a way that fosters long-term value for our shareholders. Let me hand it back to Tracy for some final remarks.

Thanks, Ghislain. Now let me just close our prepared remarks by reiterating a few key points. We have an advantaged 3-coast network with a balanced book of business. We have a solid pipeline of growth opportunities across many segments. Doug provided you with 1 example, Halifax, with a significant opportunity to densify the eastern part of our network. And as highlighted by Rob, we're making some good progress on the operating side. The railways fluid, and we're running faster and more efficiently. We will invest not only in our capacity to accommodate those growth opportunities but also in our talent to develop the next generation of railroaders. And we're looking forward to discussing more of our growth strategy when we get together at an Investor Day in the spring. This is a great company with significant potential, and I'm very excited about our future. Now we're happy to pause and take your questions.

The first question comes from Chris Wetherbee from Citi.

I guess maybe I wanted to kind of focus on the operations in the back half of the year. So you've given us the RTM guidance for positive inflection and moving forward from the second quarter. I'm curious, as you think about sort of the cost opportunity or the efficiency opportunity, how much do you think you'll have or will be able to realize in the back half of the year? I want to get a sense of what's included in the 15% to 20% EPS growth year-over-year? And maybe where you may see opportunity to either exceed or maybe be pressured a little bit by the macro?

Thanks, Chris. The operations team has done a tremendous job of kind of putting their foot to the gas on this network and this operation. Certainly, it's going to be a different environment in the second half. And I'm going to ask Rob to comment on some of where the opportunities are and where the pressures will be.

Yes, Chris, when you look at 2022, it's really a tale of 2 halves. Really, the first half of this year has been driven by the southern portion of our network in GTMs and volume. We've experienced some crew delays down there just because of the volumes that we've handled. So we look to see that actually improve in the second half of this year as well as Eastern Canada. The big volume that we're going to see in Q4 is really Western Canada and with the normalized grain crop. So some of the velocity that we're seeing right now may come down a little bit as that volume really starts to pick up. But our focus in terms of running a scheduled railroad, as we've continued to emphasize here, will continue to pay dividends, and we'll continue to press that even in the high-volume times of the year, and we expect to see some benefits from that.

Our next question comes from Brian Ossenbeck from JPMorgan.

Maybe 1 for Doug. Can you talk about yields? And can you break down in the quarter, perhaps maybe your core price, mix, fuel, FX, a lot of moving parts, maybe even some storage fees you mentioned, certainly would be helpful for some context around that. And then just the sustainability of that into the back half of the year, your visibility there and expectations for next year as well.

Thank you, Brian. This is Doug. We do not provide specific guidance on our pricing, but we are consistently maintaining it well above inflation. We've seen considerable success with our contract renewals. Additionally, due to the supply chain disruptions, we are offering many extra services to our customers, such as storage and other necessary support. Altogether, this allows us to keep our prices well above rail inflation. We expect this trend to continue for the rest of this year and into next year as well.

Our next question comes from Ken Hoexter from Bank of America.

Congratulations, Tracy and team, on a great quarter. Doug, can you discuss the increase in volumes? You mentioned the opportunity in the East Coast, but to reach that low single-digit RTM target, we need a significant ramp. Could you elaborate on the rolling of grain and the economic pressures you've considered in setting the targets to achieve that goal? Additionally, what are your thoughts on labor and what is needed to reach that target?

I will discuss the markets and then pass it over to Rob to cover some aspects of labor. Ken, I want to highlight that a significant portion of our increase this year is expected to come from the Canadian grain crop, with forecasts indicating over 70 million metric tons. We are guiding towards this figure. Additionally, everything else remains strong. The only minor issue we’ve encountered lately is with international intermodal, but we've implemented solutions that are taking effect immediately, so we anticipate improvements in August. Now, I’ll hand it over to Rob for his insights on labor.

Yes. And from a labor standpoint, Ken, we have been preparing for this more normalized grain crop in Q4. And certainly, that's what it appears as we sit here today that we're going to be back to those levels. So we've been hiring in Western Canada. Other than some of the hard-to-hire locations that we typically see, we're in pretty good shape as we go into Q4. Some of the crew issues we experienced in the South where some of the geopolitical issues with Ukraine that really allowed us to move more freight in the South, so we've been hiring for that. We get much better here as the quarter comes to a close. So we'll continue to stay after it. As we look into next year, we'll continue to plan for attrition as well.

Our next question comes from Konark Gupta from Scotiabank.

Congrats on a great quarter. I just wanted to ask the labor question a little bit differently here. In terms of resource level where you are relative to where the economy is, how soon can you adjust the network and resources if demand starts to slow down versus your expectations?

Yes. So we're certainly playing different scenarios as we go forward. We've shown the ability to adjust. When it comes down to labor, we'll certainly take a look at that. And we'll do things like repositioning people into other training or other departments to make sure we hold on to that labor versus furloughing and dealing with some of the issues, I think, some of the U.S. railroads are doing right now. But we walked through a number of scenarios out there, growth scenario and also something less than that and we'll be nimble. Obviously, with cars, locomotives, we can do things very quickly in terms of laying those up, and we'll do that as we start to see if we see any of those signs.

Our next question comes from David Vernon from Bernstein.

So sticking on the intermodal theme, Rob, I've heard from some former colleagues in the shipping industry that you guys did metering service off of cost. Truck availability was challenged in Montreal. Are those challenges kind of lifting right now? Could you talk a little bit to where the level of congestion is and what the risk is to the volume growth on some of those sort of interlinkages, if you will? And then, Doug, do you have any sort of commitment from the sea ship lines on Halifax longer term? I'm just wondering if this shift in volume up to the Eastern Canada, Northern ports could be tied to some of the backlogs we're seeing in some of the U.S. East Coast ports.

Thanks for that question, David. And we're going to turn that one over to Doug. He's been leaning into some of the trucking issues as well. So Doug, why don't you take both of those?

Yes. So David, so really the issues are, I'm going to say, more in line. So it's the Montreal, Toronto areas for us, and we've also seen it a little bit in Chicago. So with the warehouses being full, there's no place for the containers to go once they get in land. That's been backing up the terminals, which then backs up at the ports, which backs up ships at the harbor. So what we've been doing is we've been focusing on how do we move that and create extra space. At the same time, there's also been a shortage of drayage that we found out. So it's been down roughly 18% from what it was year-over-year in June. So we've been working with the freight forwarders and the different drayage companies to be able to increase that, and we have seen it really improve in the month of July. So that's all good news, and we've seen dramatic improvement. Now what we're also doing is we're working on new storage locations in Toronto, which is up and running already and a new facility here just outside Montreal, which will be up and running next week. Now on Halifax, we don't have any customer commitments to give us specific volumes through there. We have to build up our service, which we already know is there, and that will attract the new business. So we did have already great success over the last 4 weeks, and we expect to see more of that with the customer base because of the service that's there.

Our next question comes from Benoit Poirier from Desjardins Capital Markets.

My question is regarding the Trudeau government's climate plan, which aims to reduce nitrous oxide emissions from fertilizers. Are there any potential long-term negative effects on grain and fertilizer? Tracy, do you have any thoughts on this?

I'm going to hand that over to Doug. However, I want to mention that we have some strong forecasts for fertilizers and grain. Looking ahead, this is one of the unique advantages of our Canadian economy. Doug, would you like to share some specifics?

Sure, Benoit. So specifically, just around the fertilizer market. Listen, we had actually a fairly wet spring, so we actually saw some lower volumes there in the first half. We're expecting a normal shipment pattern actually all throughout the fall and into next year. If you want to talk specifically about potash, we're seeing obviously a very strong market for offshore, and the domestic market suffered the same as the fertilizers, so we see that pick up in the second half as well. But it continues to be a very strong market right across the board.

Okay. And what about the potential desire to reduce the fert by 30% by 2030? I'm just wondering about the reduction target, whether you see any impact here, Doug, longer term?

I'll take that one, Benoit. The organization has done an excellent job in this area. Currently, we're starting on our targets related to fuel efficiency, which is crucial since most of our emissions come from locomotives. We've observed a 4% improvement in fuel efficiency year-over-year, which is a significant achievement. I believe we remain the leader in the railroad sector regarding fuel efficiency. This is just the first phase. Additionally, we have a plan aimed at meeting a scientifically-based target that our team has developed. We'll provide more details about our investments for this as we move forward. Overall, I'm quite satisfied with the plan and the progress made in this initial stage.

Congratulations again.

We continue to be the best in the railroad sector when it comes to fuel efficiency. That's the first phase. Going beyond that, we have a plan aimed at achieving a science-based target developed by our team. We'll outline more of our investments to accomplish this as we move forward. I'm quite satisfied with the plan we have and the progress the team has made in that first stage.

Next question comes from Amit Mehrotra from Deutsche Bank.

Congratulations on the results. I wanted to understand the EPS guidance for this year. In the first half, adjusted EPS is up 20% year-over-year. This suggests a potential decrease in earnings power in the second half compared to what was achieved in the second quarter. Could you address that? Also, I believe the company brought in Ed Harris as an operational consultant. Can you discuss the reasons behind his hiring, the scope of his work at CN, and any results that have come from his involvement?

Thank you, Amit. I'll start and then hand it over to you, Tracy. As Rob mentioned regarding the operational outlook for the second half of the year, and Doug discussed our revenue and volume opportunities, we are reaffirming our guidance of 15% to 20%. We've outlined our assumptions to clarify how we arrived at these projections. A key factor to monitor is fuel prices, which can fluctuate significantly. We are currently assuming a foreign exchange rate of $0.80, while the current spot rate is around $0.76 or $0.77, indicating several variables at play. Last year, we experienced a few service interruptions, and as we approach the end of the year, we must remember that winter can impact us in northern regions quite early. Given all these considerations, we remain confident in our guidance of 15% to 20% with an operating ratio starting with a 5. In Q1, we began at a 66, and this quarter improved to 59, which aligns with our expectation that Q2 always performs better than Q1 due to seasonal factors. We will continue to focus on managing our expenses and enhancing our operations and revenue. Now, I’ll pass it to you, Tracy.

Thanks, Ghis. And let me make a quick comment on that. When I came in and we were looking at what to do with our guidance on the year, we considered a whole range of scenarios and building kind of the expectations that we put in front of you last quarter. And I think Ghis today laid out a number of the assumptions that we've made as we look to the remainder of the year, particularly on those things that we don't control, and he just spoke about them now. There's a lot of year left, and we're positive, we're optimistic. We're working hard to get ready for what's coming. But there's a lot that's not yet certain. So we're comfortable with how we're doing. We're comfortable with confirming our guidance based on where we sit now and what we see coming. As to your second question, we have a few people on the properties that are giving us advice, we're pretty intense on where we're going and getting there as quickly as we can. And so one of those focus is, as you say, Ed Harris in on the consulting arrangement, largely for Rob's purposes. And maybe Rob is best if you speak to what you've asked Ed to do.

Yes, Amit. We are fortunate to have Ed as a valuable resource for the team. He brings significant experience and knowledge. Our aim is to enhance every aspect of our business, including operations, marketing, finance, and more. We seize opportunities to bring in individuals who can contribute to our continuous improvement. Our operations focus on maintaining a safe and efficient process that consistently meets our customers' expectations and needs. Ultimately, the team in the field is driving the results, and they deserve the credit. Thank you for your question.

Our next question comes from Fadi Chamoun from BMO.

Maybe I'll do 2 in 1 as well. So on the pricing side, Tracy, you talked about the opportunity to revisit pricing on some of the business. In what inning would you say you are in terms of kind of revisiting the pricing on that business? And my main question really on the ROIC as well. You talk about kind of bringing CN back to kind of top-tier performance in the industry. The dialogue in the past have been at around mid-teens ROIC, and we've seen a few of your peers kind of move up into the high teens. Do you see the scope of that happening kind of in the next couple of years to kind of bring that ROIC back to top tier in the industry?

Thank you for your question, Fadi. To begin with the first point, when we talk about curating our business, it involves more than just pricing; it's about understanding our network, our operational strategy, and our capacity. Doug has mentioned this as well. Where we have available capacity, whether it's for the short or long term, Doug’s team focuses on that. Our goal is to enhance earnings and improve operational efficiency. If we encounter more demand than we can accommodate effectively, we make adjustments accordingly. In all situations, we ensure that our business aligns with the appropriate pricing. We are intentional about what we add to our network to provide the right service, speed, and growth in our profits. This is something our team has dedicated considerable effort to this quarter, and we will keep at it. We will continue to address any issues that need attention. You'll see us maintaining this focus and there will always be new opportunities to explore, which we expect to discuss moving forward. Regarding our return on invested capital, we are currently concentrating on meeting the goals we set for this year. We look forward to sharing our long-term vision during our Investor Day next spring.

I think you covered it well. I think that we've guided that we would hit an ROIC of 15% this year. I think we're very confident that we will hit that. And I think that we'll provide more visibility from a longer-term standpoint on some of these measures when we have our Analyst Day that we've always already said that we were shooting for some time in May. So we'll provide more visibility on some of these metrics at that time.

Our next question comes from John Chappell from Evercore.

Tracy, I wanted to dig a little deeper on the freight operational alignment. And in the last 90 days, you've definitely taken a focus to the operations of the network, and it shows in a lot of the service metrics, even your outlook for the back half of the year, the double green arrows that Doug has all over his Slide 12. When you think about positioning then from focusing on the network and the service and then really leaning into that and really pushing for top line growth, what are some of the metrics that you're looking at that gives you the comfort that you can lean in a little bit more to solve the network?

Thank you for the question. You're touching on the intersection of our short-term and long-term strategies. We have a clear understanding of our business outlook for this fall, and our primary focus is on managing that effectively. This means ensuring we deliver to our customers across different parts of our network. In areas like the West, where we anticipate full capacity, we will be proactive in identifying other opportunities throughout the network. We'll follow the approach that Doug and his team took with Rob last quarter, identifying capacity and seeking opportunities that span short, medium, and long-term horizons to enhance our growth. Importantly, we aim to drive both top-line and bottom-line growth simultaneously. Currently, our focus is on effectively managing the significant volume expected in the second half of the year.

Our next question comes from Scott Group from Wolfe Research.

Ghislain, I want to return to the guidance. I recognize there are several factors at play. If we interpret this correctly, it suggests that the operating ratio and volumes in the second half are expected to improve compared to the second quarter, but the earnings might be slightly lower. Is that accurate? Or is there any additional insight you can provide? Are there aspects of the guidance regarding earnings or the operating ratio that you feel more confident about? Any clarification would be appreciated.

We provide annual guidance but usually avoid giving quarterly or half-year projections. We've explored various scenarios with Tracy, Doug, and the team. We're comfortable reaffirming our guidance, and we've shared our assumptions to assist you. That's all I can say on that.

Our next question comes from Walter Spracklin from RBC Capital Markets.

I would like some clarification on the Halifax situation. Doug, you mentioned 600,000 TEUs and that adding a second train resulted in a 24% increase. Does that mean you're now operating at 750,000? My main concern is regarding the West Coast and the potential labor disruption in LA Long Beach, which has historically led to volume increases. Eric Waltz at Deltaport has mentioned that this has been as high as 13% above the norm. Are you observing similar trends there? Are you concerned about this affecting your capacity? How well-positioned are you to manage any increases that might arise from potential labor disruptions in LA Long Beach? Do you have any insights on whether we're seeing this phenomenon emerge again, as it has in the past during similar disruptions?

Thank you for the questions, Walter. Regarding Halifax, we are beginning to train out. It’s somewhat shorter than operating a full train today as a lease, but we are also picking up significant freight in Moncton. By the time that train is fully integrated into our Eastern operation, it will be operating at full capacity. Ultimately, it will be a combined train, starting as a full intermodal train, and we have seen considerable success with it. Our goal is to expand it to a full train. While we cannot achieve that from day one, we have to start somewhere, and it has been functioning well. On the West Coast, there has indeed been considerable discussion about a potential West Coast port strike in the U.S. However, we have not encountered any indications of that occurring further north. No one has communicated with us on this matter. Currently, the terminals in Canada are quite full, so we are focusing on reducing those numbers to ensure they are operating smoothly. We could potentially handle some additional volume, but that will depend on the supply chain. We would need to address this before the end of September when grain shipping begins, as we likely won’t have available capacity at that time.

Our next question comes from Brandon Oglenski from Barclays.

Doug, in response to that question, you mentioned that you are still metering into Toronto and Montreal, if that’s correct. Is this a physical limitation on your terminals? Are these storage positions intended as a temporary fix or a long-term solution? Additionally, are there any signs of weakness in the portfolio today that might indicate a softening economic environment?

The metering has been more significant in June than at any other time and has continued into the first half of July. Last week, we implemented a new solution in Toronto, which allows us to clear the terminals. Previously, when boxes arrived in Montreal and Toronto, no one was able to pick them up due to a lack of storage space in overcrowded warehouses and limited drayage capacity. We have now formed a partnership in Toronto that provides its own drayage service and storage for boxes, which has greatly improved our operations there. We are now operating at full capacity in Toronto and even shipping additional freight to support the West Coast ports. As for Montreal, our solution will begin next week, and we anticipate a similar improvement there, although Montreal has already shown some progress. We expect to operate at full capacity throughout August, potentially even exceeding that. Regarding our markets, we have not observed any weaknesses, and we will continue to provide this guidance until we hear otherwise from our customers.

Our next question comes from Steven Hansen from Raymond James.

You referenced some opportunistic crude by-rail movements in your commentary for the period. Just curious as to what kind of longevity you see of that business through the back half of the year and how it might interplay with the arrival of the Canadian grain crop?

So Steve, we actively plan for this. Rob and I discuss it every month and we review it with our customers as well. There’s one major customer that has the potential to make this transition. They are moving from the Alberta market to the Gulf Coast, and we are evaluating it on a monthly basis. We've decided to proceed with this through part of Q3, and it is likely to wrap up in Q3. We anticipate that when grain processing begins at the end of September, we will utilize that capacity, and we are fully preparing for it. At that point, we will stop taking on crude.

Our next question comes from Ravi Shanker from Morgan Stanley.

A quick question on Halifax. Again, based on how excited you guys sound about it, and it sounds like your port partners and customers as well, it doesn't sound like you guys expect a meaningful shift in near-shoring over time impacting volumes coming in to North America from Asia. So if you can just unpack what do you think happens with that over time, that would be great. And as a quick follow-up, Ghislain, I'm sorry, did you quantify what the strike impact was in the quarter?

I’ll begin. We are observing a significant volume shift towards Southeast Asia for both production and sourcing, which is increasingly routed to the East Coast just as easily as it is to the West Coast. This diversion is noticeable across all East Coast ports, and Halifax is well-positioned to accommodate more of this traffic. We are collaborating with our customers to facilitate this, but we needed to establish the service to attract the business, and that has been our primary focus. So far, we haven't experienced a substantial increase in near-shoring to North America. While there has been discussion and some minor developments, it has not reached a level that would significantly affect the volumes this year or next.

Yes, thanks, Ravi. Regarding the strike impact, there were 750 unionized workers on strike for 16 days, and I would say the effect was minimal to nonexistent. I want to express my gratitude to our management team led by Rob and Tom Hilliard for maintaining smooth operations without any disruptions during the quarter. I truly appreciate the entire team for their excellent work in keeping the railroad operating flawlessly and safely in the second quarter.

Our last question will come from Tom Wadewitz from UBS.

Yes. I have a question regarding the intermodal sector. Revenue per piece increased by approximately 33%, indicating a significant rise in this area. I suspect that storage fees could be a contributing factor. Could you clarify how substantial this component is? Additionally, what are your expectations for intermodal revenue per piece in the third quarter? On another note, there has been some recent news regarding Walmart that suggests a decline in consumer demand, which has been a concern for some time. Do you foresee any potential slowdown in international intermodal as we approach the fourth quarter or even into 2023?

Okay. Regarding revenue per unit, we don't provide specific guidance on that due to various factors involved. However, we have observed ongoing improvements as we adjust our pricing strategy and during contract renewals. This trend is evident, especially in terminals and storage charges, which significantly impact our numbers. We anticipate these storage fees will diminish as the supply chain stabilizes, although we can't predict when that will occur. We are still experiencing considerable fluctuations in volumes, akin to a bullwhip effect, with drops during lockdowns. We expect to see storage charges persist for at least the remainder of this year. As for international consumer demand, we have noted slight decreases in certain areas, but it's primarily related to supply chain issues rather than demand. Customers have indicated some temporary softness this month, but they are also communicating that we should anticipate a significant influx next month. Therefore, we will continue to operate based on this feedback from our customers.

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