Good afternoon. My name is Julianne, and I will be your operator today. Welcome to CN's Third Quarter 2023 Financial and Operating Results Conference Call. I would now like to turn the call over to Stacy Alderson, Assistant Vice President, Investor Relations. Ladies and gentlemen, Ms. Alderson.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for CN's Third Quarter 2023 Financial 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 under U.S. 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. They are more fully described in our cautionary statement regarding forward-looking statements in our presentation. After the prepared remarks, we will conduct a Q&A session. I would like to remind you to please limit yourself to one question. As usual, the IR team will be available after the call for any follow-up questions. Joining us today are Tracy Robinson, our President and CEO; Doug MacDonald, our Chief Marketing Officer; Ghislain Houle, our Chief Financial Officer; and Ed Harris, our Chief Operating Officer.

I want to start today by addressing our operational structure changes. We announced last week the appointment of Derek Taylor as Executive Vice President and Chief Field Operating Officer, and Pat Whitehead as Executive Vice President and Chief Network Operating Officer. Both Pat and Derek are highly skilled and experienced operating officers who will be vital to CN's future success. This change does not simply divide Ed's role; rather, we are expanding our focus to include tasks we haven't undertaken before. The new structure aims to enhance our core capabilities for achieving profitable growth, recognizing the distinct yet equally important functions of planning and executing operations. Derek and his field team will concentrate on improving our daily operations across our three regions and intermodal terminal, aiming for better on-time performance and improvements in delivery metrics for our customers. Meanwhile, Pat and his network team will manage the operational plan, focusing on refining it to align with our volumes and enhance efficiency, while also developing a long-term capital plan to maintain and expand our network cost-effectively. This structure effectively separates the daily operational focus from the specific work needed to sustain and grow our operations. I'm eager to collaborate with Pat and Derek as we refine this model, and I'm excited about the innovations and performance they will bring in this new phase. Although they are present with us today, they will not be speaking, and Ed will be leading the operational discussion on this call. I want to take a moment to thank Ed for his readiness to step back in, his partnership in shaping our future, and his leadership in ensuring optimal conditions for this transition. He has made a significant impact, which is precisely what he aimed to achieve. Before handing over to Ed, I’ll briefly discuss the business and the quarter. Our railroad continues to perform well, successfully maintaining our efficiency, velocity, and customer service amidst challenging conditions. We've proven our resilience during the recent forest fire season, flooding, and port strikes. Our operational performance has shown stability, with on-time train performance and velocity holding steady. Our last-mile services have improved significantly, exceeding 90% for the last two quarters compared to about 80% last year. This level of performance is critical as we build our growth strategy. Regarding volumes, we see a mix across market segments. Our bulk business has been robust this year, and we are seeing improvements in our merchandise business. However, our intermodal segment remains uncertain due to consumer behavior and port challenges. While our Canadian volumes have returned post-strike, U.S. destined volumes have not fully recovered yet. We are optimistic about reclaiming these volumes, as Canadian ports offer compelling value in service and cost. I believe we’ve reached the lowest point for volumes and are starting a controlled ramp-up to support growth. Our growth strategy is advancing, combining economic recovery with specific customer initiatives, both of which will provide significant margin leverage as volumes increase. I trust in the resilience of the North American economy, and our team has handled recent volume softness effectively. We are prepared for future growth, and I have full confidence in our team, network, and strategy. Now, turning to our third quarter results, I’ll highlight a few key points. Our third quarter EPS was down 21% from last year, and our operating ratio was 62%, higher than last year but still among the best in the industry. I'm proud of our top-tier customer service and operational efficiency over the past six quarters. The team will now delve into the details of the quarter, starting with Ed. Ed, as I mentioned earlier, this will be your last quarterly call with CN. Thank you, and let's make it a good one.

Thank you, Tracy. Thanks for the kind words, I think. Before I jump into the quarter, I just want to take a minute to talk about these two guys, Derek and Pat. I've really gotten to know them over the past year, and they are among the finest operators I have ever had the pleasure to work with. Investors got to see a bit of their great chemistry and relationship back in May at Investor Day and how they work together. The entire network benefits from how well these guys operate every day. I can't tell you how confident I am in the future of the operation and the company with these two working as one while expanding their responsibilities and pushing the team to be better every day. In fact, this quarter has been a great example of how well they work together because it was tough operating out there in quarter 3. We started out by dealing with a two-week port strike on the West Coast and then faced constant disruptions from forest fires and flooding until September. Running to a plan makes all the difference. For instance, we had a two-day outage on our mainline east of Edmonton in the quarter. In the past, that would have taken us up to a week or more to get operations back in sync. This one took two days. The team really took it up a notch in September, though, with improvements in car velocity, train speed, through dwell, and origin and destination train performance. We told you how we decided not to furlough train crews earlier in the year. Now, with grain coming on strong, we're seeing the benefit of that decision. All in all, we're set up well for a strong fourth quarter. I'm very proud of the whole operating team this quarter and especially the leadership provided by Pat and Derek. So how did the quarter shape up? Car velocity averaged 209 miles per day, which was down 1% compared to last year. Some of the other metrics we look at every day like train speed and train length were also down slightly. But when I think about the disruptions this quarter, I don't think we went a single week in July or August without a major network disruption. Stats that could tell you a lot about the quality of the people operating the network and the resiliency of running to a plan. And as well as the network ran this quarter, our yards were in even better shape. Our origin train departure improved to 89% in quarter 3, which is right in the sweet spot that we targeted. This is one of the keys to delivering for our customers, and as Tracy has already covered, our great local performance. Finally, on safety, we had six more reportable injuries and two more reportable FRA accidents than the third quarter of last year, which put some pressure on our quarterly metrics. But our year-to-date injury frequency ratio is still 11% better than 2022, our best-ever quarter 3 year-to-date performance. And our year-to-date accident ratio is also on track at 16% better than last year. Now, Tracy said it, this will be my last call as Chief Operating Officer. I'm going to hang around for the winter to give the team some support through the transition, but I officially hand over the reins to Derek and Pat on November 15. And like I said before, I have complete confidence in these guys and in this team. Tracy gave me two priorities when I came out of retirement last year: get this place running well again, and coach and mentor the next generation of operating talent. As I head off to my fifth retirement, I'll sleep well at night knowing we knocked it out of the park on both counts. This place is running as well as I've ever seen it run, and the next generation is ready. And finally, on a personal note to the team around the table here today, it's been an honor and pleasure to come back to where I started and finish a career that I started over 50 years ago. It certainly has been my honor to be able to make that happen. Thank you. Now, it's Doug's turn to talk about top line performance and market outlook.

Thanks, Ed, and all the best on your well-deserved retirement. Also, congratulations to Pat and Derek. I look forward to working even closer with you as we deliver for our customers together. We said it on the Q2 call that our commitment to our customers is to provide industry-leading service, and we continue to deliver on our promise. As for volumes, we believe the worst is behind us. They hit the bottom in July. We saw improvement in August and September. Through the rest of the year, we expect this trend to continue, and I'll give some more details in a moment. We continue to deliver core pricing ahead of CN inflation. The pricing environment remains robust, and our service levels are facilitating pricing conversations with our customers. We started the quarter in a bit of a hole with the port strike on the West Coast. This impacted international intermodal more than any other business segment. And as Tracy mentioned, we continue to see a hangover effect from cargo diversions to U.S. gateways. We ended the quarter with the UAW strike starting at the Detroit Big 3. Fortunately, this only had a limited impact on our volumes in Q3. Turning to Slide 9 now, third quarter revenues were nearly $4 billion, down 12% versus last year on lower fuel surcharge rates, lower volumes, but partially offset by solid pricing. RTMs were down 5%, but excluding overseas were up 1% for the quarter as we see a continuing recovery across the other business lines. For merchandise, metals and minerals finished with the best quarter so far this year, supported by increased drilling programs in Western Canada driving strong sand shipments. Demand for forest products remains below pre-COVID levels due to a challenging macro environment. Lower petroleum volumes in the quarter were mostly due to spot crude unit trains that we moved last year. We should lap that tougher comparison in the fourth quarter. Plastics and chemicals sequentially strengthened in the quarter, which is a leading indicator of industrial production. Automotive continued to benefit from strong pent-up demand with limited strike impact. Turning to intermodal, I will remind you that storage revenues were normalized this year following last year's supply chain issues, which represents an impact of about $100 million in the quarter. In domestic intermodal, we saw the monthly year-over-year numbers turn positive in Q3, in part because of our Falcon service between Canada, Detroit and Mexico. International intermodal continues to be weak, but we were impacted and we're impacted by the West Coast port strike. We continue to see lighter U.S. discharge at Rupert and Vancouver, and we're working hard with our customers to get that volume back. Our bulk business has been outperforming since the start of the year. Starting with grain, we saw a strong weekly ramp-up in Canadian grain in September with the crops coming off the field about three weeks earlier than last year. Building on our strong service from the last crop year, grain is now rolling, and we expect strong volumes until at least next spring. We handled record potash volumes in the third quarter to export markets and the U.S. market. The operating team is providing outstanding service to our customers for this incremental volume, but we are being careful not to oversell the network. Finally, the West Coast strike and subsequent terminal outage had a minor impact on met coal in the quarter, but commodity prices are still supportive of ongoing export volumes. Looking ahead to the balance of the year on Slide 10, we're seeing lots of momentum across almost all of our markets. With bulk leading the charge, Canadian grain is running full out. U.S. grain will also be strong and similar to 2022, benefiting from record low water levels on the Mississippi and limited barge capacity, but tempered by demand in China. We expect solid potash demand in line with the Q3 run rate, and there could be additional upside with a robust export market. Canadian met coal should be strong for the rest of the year, and we have set an annual export record already with one of our largest customers. For overseas intermodal, we are seeing clear indicators of positive trends. Destocking appears to be nearing an end, but wholesale inventory-to-sales ratios remain elevated. We are forecasting a gradual improvement throughout 2024. On the domestic side, both retail and wholesale are tracking favorably over last year. As Tracy said, domestic is also helped by some growth initiatives. Rounding out with merchandise, we have a strong outlook for drilling with frac sand demand, aided by our network capacity enhancements in Northern BC. We expect automotive to outperform with continued pent-up demand contingent on how long the UAW strike goes on. And we expect a continued positive trend in chemicals, plastics, and metals, and stable forest products. October is off to a good start and in line with how we have been modeling the quarter. Before I hand it over to Ghislain, I want to review some of the unique growth initiatives we laid out at Investor Day. We announced our new long-term agreement with AltaGas yesterday, which will drive an increase in LPG export carloads through Prince Rupert and Ferndale, Washington. CN, along with our customers and supply chain partners, continue to invest and develop the Rupert gateway, which we highlighted at our May Investor Day. On the Falcon product, we've been building up this service since its launch in May. It's now a solid and consistent product. In line with truck transits, we saw our first loads with STG Logistics a couple of weeks ago, and we continue to actively pursue opportunities to build density to and from Mexico as major RFPs come up for bid. CN's Eastern fuel strategy is progressing with the new distribution terminal in Toronto, ready to start receiving cars in December. In line with what we projected at Investor Day, we expect volumes to build over 2024. We continue to work with our customers on building up the electric vehicle supply chain. We now have five announced projects on our network in Eastern Canada. It's going to take a few years to fully develop this opportunity, but we're pleased to already see the first shipments of raw lithium moving on CN for export at Quebec City. Our Northern BC strategy is also progressing, as we finished the first capacity project in the area this month. This will allow CN to add additional frac sand and propane shipments to the network. To finish, I'm really excited about the next year and will have more to report on these opportunities in January. Over to you, Ghislain.

But before I do that, I want to thank Ed for everything he has done this past year. I've known Ed a long time, and I wish him and his family a long, healthy retirement. Frankly, I hope he stays in retirement. Congratulations to Derek and Pat on their appointments. Now, I will discuss Slide 12 of the presentation, which will provide more visibility on our third quarter performance. Volumes in terms of RTMs were lower by 5% year-over-year, including the impact of the external disruptions that Ed mentioned earlier. We delivered operating income of around $1.5 billion, which is 21% lower than last year. Our operating ratio came in at 62%, which is up 480 basis points compared to the same period last year, but is only slightly higher year-to-date year-over-year. EPS for the quarter finished at $1.69, also 21% lower than last year. The estimated impact of external disruptions on our network this quarter negatively affected EPS by $0.10 and had a dilutive effect of 130 basis points on the operating ratio. In terms of expenses, labor was essentially flat compared to last year, due to a 6% increase in average headcount and general wage increases, offset by the U.S. wage accrual true-up related to new labor agreements in 2022 and lower incentive compensation this year. We have reduced and, in some cases, halted the pace of new hires throughout the quarter. Fuel expenses were more than $175 million lower than in the same period last year, primarily due to a 20% decrease in price and a 6% reduction in workload in terms of GTMs. With rising fuel prices, we experienced an unfavorable fuel surcharge lag, which impacted EPS by $0.10 this quarter and $0.20 year-over-year. We generated nearly $2.3 billion of free cash flow through the end of September. We are investing in our railcar fleet and continuing to steadily invest in track maintenance and capacity expansions with a focus on capital efficiency, so we can be ready for the rebound. Moving to Slide 13, let me provide some visibility for the full year. Despite uncertainty in sectors related to consumer consumption, most other areas are showing signs of strength. The bulk segment of our business continues to perform exceptionally well. We believe the worst is behind us, and you should expect operating leverage to improve as volumes increase. We are still expecting a gradual recovery in consumer-related freight demand in 2024. With this in mind, we are reaffirming our full-year guidance of flat to slightly negative EPS growth in 2023 compared to 2022. We assume that for the remainder of the year, foreign exchange will be in the range of $0.70 to $0.75 and WTI in the range of USD 80 to USD 90 per barrel. However, our full-year assumptions remain $0.75 for foreign exchange and WTI at USD 80 per barrel. We stay committed to shareholder distributions. We are confident in our long-term growth outlook and have increased the budget of our current share repurchase program, which runs through January 31, 2024, to approximately $4.5 billion, up from the previous budget of around $4 billion. Under this program, we have repurchased nearly 20 million shares for just over $3 billion through the end of September. In conclusion, let me emphasize a few points. The team is dedicated to the scheduled railroad model, which provides reliable service for our customers. Besides international intermodal, we are seeing strength in many segments, and volumes continue to improve sequentially. With this in mind, we are reaffirming our full-year 2023 guidance. We have a strong balance sheet that offers us financial flexibility, and we will allocate our capital in a way that drives long-term value for our shareholders. Let me pass it back to Tracy.

Thanks, Ghis. Operator, I think we're ready to take some questions.

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

This is James McGarragle. I am on for Walter this morning. We've been tracking some TEU trends out of Prince Rupert, and some of the weakness that occurred as a result of the port strike in July looks to be extended into August and more recently, September. And I guess, my question relates to the extent this might be structural versus temporary. I know you addressed this in your opening comments, but can you speak more specifically to some of the service and cost benefits you have versus U.S. alternatives and the confidence you have in that volume coming back? And any update on your conversations with the shipping lines? And how quickly do you think we could see that come back?

Yes, as we mentioned earlier, we believe this is a temporary issue. There are significant structural advantages to Rupert, particularly in terms of economy and service. We have established a premium container service from Prince Rupert to the U.S. markets, and this strategy has been effective. When the strike occurred, it was that business that began to shift to U.S. ports, and that structural advantage remains in place. We are currently two days faster shipping from China to Chicago compared to other options, and there are economic benefits, partly due to the Canadian currency, that we anticipate will persist into the future. We expect this business to return, and we are actively collaborating with our customers on this. Our expectation is that it will return gradually; we have lost some confidence in the West Coast ports, but it could return more quickly if volumes start to increase significantly. Meanwhile, at Rupert, we are continuing to enhance our structural advantages. The import transload facility is now under construction, and the port has announced an approved export logistics park that is moving forward. All of this supports our container operations. Additionally, outside of containers, we appreciate our partnership with AltaGas, and the new agreement is set to drive significant growth in that corridor. If we consider the growth projections shared at our Investor Day regarding the Rupert corridor, we are actually ahead of that plan. We feel optimistic about our position and the strong structural advantages of Rupert.

I appreciate it. And just a quick one on Bill C-47 and interswitching. I've seen some of the companies post about this on LinkedIn. But have you seen any customer uptick on interswitching? And any early commentary you can provide on the matter? And I'll turn it over.

Yes. I would say that what we are focused on is driving the highest performance out of our supply chains in the country and in the continent. And we are prepared to continue to invest in capacity and that performance. The interswitching provisions and the concept of it is not at all supportive of supply chains that perform at a high level. It slows cars down, slows service down, and it is not supportive of continued investment. And so, on that basis, we've objected to this. Having said that, we haven't seen a significant impact as of yet, but it's really good.

And sorry if this is a little bit near-term focus, but Ghislain, can you just walk us through some of the moving pieces of your implied Q4 guide? Because I think it suggests that OR should improve sequentially. And obviously, you had some issues in the third quarter. But can you talk through the moving pieces here on how to get to the full year guide from where you are?

Thanks, Brandon. Well, I think as we said in our opening remarks, we see definitely improvement in volumes on a sequential basis. Just when you look at our volumes sequentially, in October versus September, were up 7%. So I think you can expect volumes to improve sequentially. And as volumes come in, I think that we are very comfortable that we will deliver some operating leverage. And maybe I'll pass it on to Tracy. Do you want to add anything, Tracy?

Sure. We are observing the strong volumes that Ghis mentioned. Our pricing is aligning perfectly with what we instructed Doug to achieve. I am very pleased with the margins this system and team are delivering. I believe we've maintained the best margins in the industry for the past five or six quarters. We recognize that there is potential for leverage, especially in the manifest business on the merchandise side, as volumes begin to increase again. We're looking forward to that development, and it seems to be starting now.

I wanted to pick up on some of the new interchange relationships that you've negotiated with your rail peers. What do you think needs to happen to make these partnerships work better than they have in the past? And do you think that the willingness to cooperate will extend to include trickier situations where perhaps one of the key carriers has to accept a shorter length of haul?

Yes, Cherilyn, thank you for your question. I think we're witnessing a shift in the industry for various reasons. During our conversation, I want to emphasize that we are ready to collaborate and are keen to partner with other carriers to create and offer services that benefit our customers. Recently, we have focused on reducing truck traffic on the roads. Initiatives like the Falcon service, which Doug is involved in, along with our new service with NS and collaboration with FXE on Falcon and UP, have been effective. We now have a product that consistently delivers service times comparable to trucks, which is quite impressive. I believe we will see more of this approach in the future. The discussions we've had with all carriers reflect a desire to act as though we are a united carrier. This may sometimes benefit one party more than the other, but I think this principle should guide our relationships moving forward. Doug, do you have anything to add?

The only thing I'll add, Cherilyn, is that it's all about service. So the quickest transit times to compete against truck is really what the operating teams between the railways are really focused on. And we don't really care how long the haul is; it's all about we need to get it there as fast as truck. All the teams have been greatly focused on that. They've come up with some great products where we think we are truck competitive in all these corridors, and they're major truck lanes. So I assume that we're going to take our time. We're going to start to build this as we build momentum. It's going to take a while to pull trucks off the road, but we're pretty happy with the product so far, and we think we'll be successful.

Ed, congratulations and good luck with your retirement and congrats to the new incoming team as well. Maybe one kind of parting question for you. Kind of as you joined the team, was this transition kind of timing what you had planned when you joined? Or is it something that you brought forward just given some of the traction that you've had with implementing the plan?

When I joined the team, I had already consulted here for several months. Our assessment of both Derek and Pat was nearly instant. Tracy and I were aligned on the future direction of the operating department. Both of these individuals have risen to the occasion and have effectively been in charge for the past few months, preparing for what’s ahead. I am incredibly proud of their achievements, which reflect their dedication. Our third quarter was challenging, as I mentioned earlier. Conditions were tough, and our metrics showed only a slight decline in car velocity and train speed cycles. We were doing everything right. Additionally, as Doug mentioned regarding the carriers, consider the potential of this industry if we can reduce a day from the cycle; if all carriers achieve that, we could shift traffic off trucks. Thank you for the kind words; I appreciate them. I might miss you all, but I have truly enjoyed my time here. Thank you.

And then, maybe as a follow-up, Tracy, can you share what the initial success has been like selling your Falcon service to your customers? Obviously, your peer has a bit of a speed advantage still. But kind of where are your customers sitting here in terms of their preference for speed versus value? Or kind of what are they looking for from that intermodal service?

I would say that regardless of whether it's an intermodal service or any other, the fundamental requirement is the consistency of the service we provide. When we target truck traffic, as the Falcon service does, we understand that speed is also essential. I'm really impressed with how the three organizations are collaborating to develop a service that continually improves efficiency. You’ve seen this improvement already. Delivering this level of service consistently every day is a significant achievement, and we're succeeding in that aspect. As Doug mentioned, this is a concept we need to demonstrate to our customers, and it's expected to evolve over time. We anticipate starting small, which we are, but we expect growth as we progress. Ultimately, we believe this could reach a train a day in both directions.

No, Trace, to answer it, that's the market share that we see out there, and it's going to take a while to get there, and we're going to make some progress. Like I said in my remarks, we were lucky enough to see STG join up on the service, and they started shipping their first loads a couple of weeks ago. It's our first real new, I'll say, third-party person that's come on, and that's great. We're looking forward to more.

Best of luck to you, Ed. So Ghislain, the $0.20 of headwinds in Q3 from fuel and external disruptions, should we just assume that those entirely go away, and that's basically the bridge to your full year guide? And then, as I think about next year, where you stand today, do you think the long-term guide of 10% to 15% earnings growth is achievable next year?

Yes. Thanks, Scott. I can answer the first part of your question, and then I'll turn it over to Tracy for the second part. So you're right. So when you look at the fuel surcharge headwind that we had in the quarter, it's $0.20 year-over-year. It's $0.10 this year. And if you remember, Scott, last year, we had a favorable fuel surcharge of $0.10. So year-over-year, it's $0.20. And then, there's another $0.10 of year-over-year disruptions that we quantified for you. So that's what we have to go through in the quarter. And despite all of this, we delivered a 62% OR, which we're quite proud and pleased about it. And then, I'll turn it over to you, Tracy, for next year.

Sure. Regarding the guidance we provided at Investor Day about the 10% to 15% CAGR for EPS, we are maintaining that outlook. This railroad is performing exceptionally well, continuing to do so despite various challenges faced this year, which is a testament to our team's efforts. I am consistently impressed. We presented a growth plan based on the assumption of a supportive economy, which we haven't experienced much this year, but signs of recovery are beginning to emerge. This growth plan consists of leveraging economic strength along with specific customer initiatives that we are actively pursuing. The list of these initiatives is expanding, and we are making progress with them independently of the economic conditions. In many instances, Doug has been able to bring them in ahead of schedule, as seen with the Prince Rupert corridor. We believe this plan is solid, and while the underlying economic strength poses a risk, we feel optimistic about our position today.

So, Tracy, I just want to push on that a little bit. Obviously, we're coming in a little bit weaker than we might have thought for 2023. As you think about that three-year envelope of 10% to 15%, with some of the growth initiatives starting to pay off, should we maybe be doing a little bit better than the lower end of the range? Or how should we be thinking about the contouring of that 10% to 15% over the three years? Is it more back-end loaded, middle loaded, front loaded?

I think the timing will change. We're feeling quite positive about the specific customer initiatives. What we need to determine is the pace and strength of the economy's recovery. We'll provide more details on that in January based on what we're observing. For now, we feel confident about our guidance.

Thanks. Yes. We have these customer initiatives. If these customer initiatives, some of them fall off the table or some of them happen later, then obviously, we will regulate our CapEx accordingly. The capital envelope is a living thing. It's a dynamic thing. We look at it on a regular basis. So obviously, absolutely, we will look at our CapEx in light of those opportunities coming on board.

Congratulations to Patrick and Derek. Perhaps on the international intermodal side, I want to figure out what's your visibility on timing for when the container traffic fully returns back to Canada from the U.S.? And then, as a follow-up on domestic intermodal, can you talk about the RFPs you're expecting in terms of size or nature for Falcon Premium?

Thank you, Konark. Regarding our international operations, customers have indicated that they anticipate a gradual increase over the coming year, which aligns with our forecasts and outlook. This is the clearest insight we have into the market, and we believe it is accurate. On the domestic front, particularly in Canada, we are experiencing strong year-over-year growth, which is encouraging, and the market appears to be recovering well. We are also receiving regular requests for proposals related to the Falcon. It's essential for customers to have confidence in us, so we are conducting trials and engaging with them. Building this up will take some time. Meanwhile, we recognize that truck rates in the U.S. have been low for the past year, and we must navigate that as we progress. However, we are confident in our product and believe we will achieve success over time.

Ed, Pat, and Derek, congratulations on your new roles. Ed, if this is indeed your final retirement, I wish you all the best and appreciate all the guidance you've provided over the years. Doug, for the fourth quarter, could you share your expectations for volume growth compared to last year or sequentially to help us monitor your progress? Additionally, I'd like to understand how we should consider the cost per employee as we move into Q4, especially with upcoming labor negotiations. What is your outlook on managing that cost per employee for 2024?

I'm going to take the first question and then pass it to Ghis for the second. We're observing week-over-week and month-over-month volume trends, and we see sequential strength across all areas, except for international volumes. However, even in the international segment, we are noticing robust performance across most of our business lines when viewed over time. We have analyzed this data thoroughly. Doug is in close contact with our customers regarding their plans for this year, which supports our confidence in our guidance. Additionally, we indicated that we expect to outperform industrial production, which is currently on the rise. Doug, do you think we'll achieve this across the board, perhaps with the exception of the international lines?

No, I agree with that 100%, Tracy.

Yes. So Fadi, on the average comp per employee, when you look at it sequentially, it's up 2% in Q3 versus Q2, and that's mostly due to a 4% wage increase on our U.S. employees that started in July 2023. And for next year, again, I would continue to assume regular wage increases, and we're just replacing employees for attrition, and that's about it. So that's the answer to that question.

Ed, I will stick to that. Congratulations on your last call and your efforts for the fifth retirement. Congratulations to Derek and Pat as well, which is great since, as Tracy mentioned, they don't have a microphone. Tracy, you can go ahead and discuss them now. I have a quick question about the casualty costs, which increased this quarter. I want to understand if that’s a persistent issue or if it was just due to a few extra accidents during this quarter. For the long-term aspect, I know you've previously discussed the 10% to 15% range. I realize that it’s not a linear progression, but how should we view this as you begin to rebound? Can you provide insights on potential upsides and downsides? Is it primarily driven by volume? It seems like Doug is confident we've moved past the lowest point. Is this just about overcoming recent challenges and the U.S. grain crop recovering? Please elaborate on the potential upsides and downsides for next year within that range.

Yes, Ken, regarding your first question on the casualty cost, I have my notes here. The casualty and other costs are mostly stable compared to last year in this quarter. I'm not sure what number you're referring to.

I just looked at it and it was up sequentially, right? So I know it's year-over-year. Is that seasonal in terms of the accidents?

Okay. Sequentially, it's up about 6% to 7%, and it's primarily due to lower high horsepower income in Q3 compared to Q2.

Regarding the volume question, we don't see this as a straightforward linear trend. Last year, we provided a long-term, 10-year perspective on our growth. Earlier this year, we shared a 3-year outlook. A significant part of this involves various customer initiatives that Doug is managing, and this list is dynamic; it changes frequently. I'm enthusiastic about some of the new initiatives emerging from that list. However, what remains uncertain is the aspect of volume growth tied to our customers and partners, particularly in relation to economic conditions. We are incorporating what we've discussed with you into our modeling. Next year, we will provide more insights pertaining to industrial production during our January discussion. I would highlight that this volume growth represents the biggest risk for next year.

Yes, and happy retirement, Ed. Congratulations to Pat and Derek for their new roles. If we turn our attention to Eastern ports, there is a labor agreement that needs to be renewed with the dock workers at the Port of Montreal, and we are also facing potential strikes with the St. Lawrence Seaway. I'm curious if you have noticed any cargo diversions so far and what actions are being taken to mitigate the potential impact of those labor agreements.

Thanks, Benoit. It's Doug here. On the St. Lawrence, it's a brand new operation. The main product being transported on the St. Lawrence, which complements rail services, is grain. Currently, there's sufficient elevation capacity in Thunder Bay for this week and likely most of next week. If the strike continues beyond that, we have proposed a train package to our customers to facilitate product movement from Western Canada to the East. We are looking at potential business there. Additionally, iron ore typically exports via Quebec City from the Minnesota area, which may present some opportunities, but generally, that should continue to be transported to the dock as usual. Overall, I don't anticipate significant changes for us moving forward. As for the Port of Montreal, we have been preparing for this situation. We have developed a plan to move a substantial amount of our customers' freight through the Port of Halifax. We are currently reaching out to the market to inform them of these options and are in the early stages of planning, but we already have an operational plan in place.

Okay. And just a follow-up on Contrecoeur. We've seen a great announcement over the last few weeks. What would be the next milestone to monitor, Doug?

So Contrecoeur, the next one will be really, I think, you will see a new RFP for a port operator. That will be the next big milestone for what they're telling us. They're going to start work on the dock as it is today or the waterfront as they call it. So that's where that money is going, Benoit. So they're going to start there without a port operator being named. And then, the port operator will be the next big milestone. So we're looking forward to that as well.

I guess, I wanted to ask about headcount and resources maybe in general. As you think about kind of reaccelerating the growth and this line of sight that you have to volume growth as we move forward into 2024, where do you think you are in resources? I guess, maybe asked another way, do you think that there's a certain amount of volume growth that you can absorb with the headcount and sort of the overall resource base that you have today? Or do you think you'll need to be adding incrementally as we move forward?

Thanks for the question, Chris. Currently, we have the resources to handle our existing volume, but our resource planning is focused on the next six to nine months. We're preparing for future needs. The bulk business is currently active, and if it grows, we will require additional resources for new train starts. In contrast, the merchandise business still has significant potential for growth. For instance, in this quarter, our volumes decreased by 5%, while train starts fell by 2%. We are maintaining our scheduled operations' integrity and discipline, which means our trains are operating at reduced capacity. Consequently, the first increase in merchandise volumes will utilize the capacity of existing trains, resulting in considerable efficiency gains. This will be managed with our current crew. As international operations begin to increase, they will also contribute to new train starts. We are planning for next year and addressing some tough hiring locations, but overall, I believe we are in a strong position.

Okay. And 4Q should be roughly flattish or slightly higher than where we are from a heads perspective?

I think that's pretty much baked right now. So yes, it should be about what we are now.

I'll stick to one question as instructed. It seems like everyone on this call doesn't understand what that means. But in any case, a question for Doug or Tracy. Grain has been one of your biggest tailwinds year-to-date piggybacking off last year's harvest. At this juncture, I think it's fairly well known that this year's harvest was anything but superior. I understand you've got a couple of weeks of tailwinds from an early harvest, but I'm surprised your comments on the outlook were more balanced or cautious. You suggest that it was quite bullish. And I'm just trying to square the two given the harvest backdrop.

Yes. The grain crop this year was not bad, but it was definitely smaller compared to last year, particularly in the North, and we didn't experience the same drought conditions. Currently, we are moving a significant amount of grain. As Doug mentioned before, this might lead us to run out of grain to move a bit earlier next year, which could present a challenge in Q2. However, we have several customer initiatives underway that are already starting to generate volume, which we believe will serve as a good offset. Doug, do you have anything else to add?

No, you covered the Canadian grain really well. And on the U.S. grain, we're seeing some strong volumes right now because of the Mississippi being so low. But a lot of that's going to be tempered by overall demand with China and other countries. So we're moving good volumes right now. The team is doing a great job at that. We're really sold out in the U.S. market. We're going to see how the rest of the year plays out here.

I was wondering if you could comment on your expectation for the sequential progression of yields on a cents per RTM basis as we move into the fourth quarter? And maybe along with that, give a little bit more color on the core pricing trends you're seeing. I heard you say that they remain above inflation. But I'm curious if pricing is getting better, worse, or about the same on a year-over-year basis.

Yes, let me address that first, and then I'll pass it to Ghis. It can be tricky to discern pricing from the revenue line because it includes some factors that can obscure the picture, such as last year's higher storage fees compared to this year, fuel surcharge variations, and currency impacts. It makes it challenging to identify clear pricing trends. However, I can share that we have tasked Doug with ensuring that our service capabilities allow us to exceed our inflation rate. He is successfully achieving this with contract renewals, and our multi-year contracts also incorporate mechanisms that support this goal. Overall, the underlying pricing is performing well. Ghis, I can't recall the first question, but...

You covered it. When evaluating cents per RTM or revenue per RTM, we advise against considering this as an indicator of yield due to the various factors involved. There are foreign exchange rates, auxiliary charges, and fuel surcharges to consider. I understand you are looking for metrics related to yield, but this data comes with a lot of variability. However, we are confident, and Doug pointed out that our pricing exceeds our rail inflation.

Thank you for the question. And I think one more question, and then we're out of time.

Congrats Ed, Patrick and Derek. Maybe just turning to automotive, when I think back to your Investor Day, you laid out a number of opportunities related to the EV supply chain. It does feel like that we might be slowing down here in terms of EV adoption. At least that's what we're hearing from the OEMs. Just wondering any changes to your long-term potential growth opportunity there, the volume capture opportunity, just given what some of the OEMs are doing as they adjust production around their EV portfolio?

Thanks, Kevin. That's a great question. The electric vehicle supply chain starts with the battery and the minerals required for it. We have begun moving some of the raw lithium. Currently, we have six plants operating in our network, all located in Eastern Canada, which are focused on constructing batteries, manufacturing components for the batteries, or refining raw lithium and other metals. We are building up that supply chain, although we anticipated that it wouldn't happen overnight as these plants take time to construct. In the meantime, we see that the production schedules for electric vehicles are continuing to progress with most of the major automakers. While GM has recently delayed its schedule by about a year, there are still many other products being developed in the automotive sector. This delay gives us the necessary time to complete the construction of our plants in Eastern Canada, allowing us to transport those batteries and other components effectively. Overall, progress is being made.

Okay. Please proceed, operator.

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