CSX Q4 2021 Earnings Call Transcript

Presentation

[Operator]

Good afternoon, my name is Emma, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q4 2021 CSX Corporation Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you, Matthew Korn, you may begin your conference.

[Matthew Korn, CFA, Investor Relations at CSX]

Thank you. Good afternoon, everyone, and welcome. Joining me on today's call are Jim Foote, President and Chief Executive Officer; Kevin Boone, Executive Vice President of Sales and Marketing; Jamie Boychuk, Executive Vice President of Operations and Sean Pelkey, Acting Chief Financial Officer. In our presentation, you will find our forward-looking disclosure on Slide two, followed by our non-GAAP disclosure on Slide three.And with that, it's my pleasure to introduce our President, Chief Executive Officer Jim Foote. Jim?

[James M. Foote, President and Chief Executive Officer at CSX]

Thank you, Matthew, and thank you to everyone for joining us for today's call. First, I'm pleased to welcome Matthew to CSX and believe his investment research background, including coverage of many of our customers will make him a great contributor to our team. And I wish Bill success in his new role as Head of Finance and Treasurer.

As we exit 2021 every CSX employee deserves recognition for their dedication to our customers and what has been another unbelievable year operating through the ongoing impacts of the pandemic and supply chain disruptions. As these challenges continue into the start of the New Year, we continue to take the necessary steps to move more freight for our customers. We are putting the resources in place to deliver a high quality service product and are working hard every day to make rail a more meaningful part of our customers transportation solutions.

Throughout this period we have remained true to our core principles, operate safely, reliably and efficiently and are committed to providing customers with additional capacity to help overcome the current challenges. These actions combined with expected easing of supply chain disruptions positioned CSX for growth.

Turning to our presentation, let's start with Slide four, which highlights our key financial results. We moved nearly 1.6 million carloads in the fourth quarter and generated over $3.4 billion in revenue. Operating income increased by 12% to $1.37 billion. The operating ratio increased 310 basis points to 60.1%, which includes approximately 250 basis points from the impact from quality carriers and 50 basis points from higher fuel prices. And earnings per share increased 27% to $0.42 a share.

I'll now turn it over to Kevin, Jamie and Sean for details.

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Thank you, Jim. Turning to Slide five. Third quarter revenue increased 21% year-over-year with growth across all major lines of business. Merchandise revenue increased 4% on 3% lower volume as the impact of ongoing automotive semiconductor shortages was more than offset by revenue growth across all other merchandise markets.

Industrial and construction related end markets continue to demonstrate the strongest growth. Even though declines in energy related markets remain a headwind for our chemical business, it's important to highlight that our core chemical, plastics and waste markets continue to show solid year-over-year growth.

Intermodal revenue increased 16% on flat volumes as international growth, driven by strong underlying demand and continued growth in rail volumes from East Coast ports was offset by domestic declines, due to ongoing driver and equipment shortages. Coal revenue increased 39% on 2% lower volume. Increases in export coal shipments driven by the impact of rising benchmark prices was partially offset by the effect of declines in domestic volumes, largely related to producer outages.

Other revenue increased primarily due to higher intermodal storage and equipment usage driven by supply chain disruptions resulting from truck driver shortages, chassis availability in the lack of warehouse capacity. As we exited the fourth quarter, we clearly saw the effects Omicron, but December volumes impacted by labor and supply chain disruptions. These challenges have continued into the New Year, where we are seeing customers face labor shortages and their operations. As we look across merchandise intermodal and coal markets demand signals remain strong and supply chain challenges normalize, we would expect volumes to align more with demand.

Finally, I would like to highlight the positive results we have achieved by working with customers on new business development projects. Over the last few months, we have seen three significant announcements of new production of facilities to be located on the CSX railroad, including two electric vehicle plants and a new steel mill. These projects are a team effort and show the ability of sales and marketing team and partnership with operations to creatively come up with solutions that meet the requirements of our customers. Importantly, these projects represent significant long-term value to CSX.

Now let's discuss the progress CSX is making when it comes to our commitment to sustainability as summarized on Slide six. Rail is the most efficient form of land based transportation, then CSX is the most fuel-efficient Class 1 railroad -- US Class 1 railroad. By using CSX rail in 2021 our customers avoided 11 million metric tons of carbon dioxide emissions, which is equivalent to taking 2.3 million passenger vehicles off the road, an amount greater than all the hybrid and electric vehicles operating in the US today. We are proud of the recognition we have received for these efforts to-date. By organizations such as GDP, Dow Jones and Forbes, but we're certainly not done. CSX continue to invest in existing technologies to drive further improvement and we continue to evaluate emerging technologies, so we are prepared to realize those benefits when available.

We are excited to see our customers increased focus on improving their carbon footprint. Customer engagement on ESG has accelerated and we have seen them doubled their usage of CSX provided tools, but helping calculate emission savings from switching to rail. You will also see later this quarter, we will be recognizing customers for their efforts and prioritizing carbon emission savings a converting traditional truck volume to rail.

I will now pass it on the Jamie for -- to discuss our operations.

[Jamie Boychuk, Executive Vice President of Operations at CSX]

All right, thank you, Kevin and good afternoon. As Jim referenced we are working very hard to provide customers the capacity to help overcome the persistent supply chain challenges. One of the areas we have discussed in our ongoing T&E hiring initiative, this effort is beginning to pay dividends as more employees finished training and begin moving freight. We are also encouraged to see ongoing hiring momentum to start the year as we continue to consistently fill weekly training classes, while maintaining a strong pipeline of candidates.

In total we roughly double the average number of active trainees in the quarter. Also, the number of employees qualifying and moving to active status increased almost 50% sequentially in the fourth quarter to approximately 150%, but we expect this number to double, it's over 300 employees in the first quarter. Recently, the benefit of these additional employees have been offset by the rapid rise in COVID cases across the network. Average daily cases have increased by several hundred employees since early November and are approaching prior peak levels. That said, there is no doubt that the hiring actions taken to-date have allowed us to better manage the current situation.

We have also supplemented this hiring by bringing additional assets online to help offset network imbalance caused by pockets of concentrated case counts. We will maintain these tactical asset increases as needed to protect service. So we'll look to improve asset utilization and drive increased operating efficiency as employees return to work and our ongoing higher initiatives provide the necessary resources to move incremental volumes and deliver the expected high quality service to our customers.

Additionally, [Indecipherable] capacity improves at intermodal terminals, we will continue making the necessary investments and keep terminals fluid by providing the overflow space and supplemental labor required to move long-dwelling boxes out of our terminals. We're also continuing to take a long-term approach to network and infrastructure planning and have identified several strategic citing extension opportunities that will provide additional long-term capacity by helping to alleviate congestion, while also supporting growth for years to come.

As always we will pursue these initiatives, while maintaining a balanced training plan and a continued focus on strong execution to maximize both reliability and service for our customers. I want to thank the entire operating team for the hard work and long hours they've put into keep freight moving for our customers. Despite, the incremental headwinds this quarter service metrics remain consistent with the prior quarter. And we are taking the necessary steps to drive these metrics back towards pre-pandemic levels over the course of 2022.

Turning to Slide eight. Safety remains fundamental to everything we do at CSX, and we hold ourselves to the highest standard for our employees, customers and the communities in which we work and operate. Our hard work to instill a culture of safety at CSX continues to drive positive results. As shown by the reduction in our train accident headcount this -- train accident rate this year.

Heading into 2022, we continue to target further reductions, the human factor incidents through a combination of increased awareness, best practice sharing, collaboration across regions and expanding our successful drilling program. We are also engaging with our new hires to instill our principles of safe operations and emphasize our commitment to make CSX the safest running railroad.

I will now hand it to Sean to review our financial results.

[Sean Pelkey, Vice President and Acting Chief Financial Officer at CSX]

Thank you, Jamie and good afternoon. As you've heard operating income grew double-digits, up $151 million with revenue up 21% on gains across all major market. Below the line, interest and other expense was $60 million favorable, reflecting the prior-year debt repurchase expense. Income taxes were up on higher pre-tax, though we recognized $25 million in benefits this quarter, primarily related to state tax adjustment. As a result EPS of $0.42 was up 27% versus the prior year.

Now I'd like to take a minute to walk through operating expense in more detail on the next Slide. Total cost increased $451 million or 28% in the quarter. The addition of quality carriers through approximately $200 million of the increase. Higher fuel prices were also a significant factor, driving cost up about $115 million versus last year. Non-locomotive fuel inflation remained consistent with prior quarters just above 3%.

So as we turn to Page to 2022, we expect a number around 4%. Drilling into a few specific line items, labor and fringe increased $115 million or 20% in the quarter. Quality was about $30 million, incentive compensation was a nearly $40 million headwind in the quarter. Largely due to higher expected payouts versus last year and the impact of accelerated expense for certain employees. As Jamie discussed, we continue to focus on hiring and retaining, train and engine employees. We invested over $20 million in new programs targeting our T&E workforce. In line with these efforts average headcount increased by 230% or 1% sequentially.

Labor inflation remained in line with prior quarters though is expected to be slightly higher in 2022. Purchased services and other expense increased to $198 million or 44% in the quarter. As a reminder this is where most of the quality expenditure up, approximately $130 million. Also you may recall that we expected investments in supply chain fluidity to result in higher costs on this line and we saw about $45 million of increased expense as we work tirelessly to drive network in terminal fluidity in light of unprecedented challenges. We expect these costs will persist until we see a normalization of labor in the broader supply chain.

The remaining increase reflected both the impact of inflation, as well as a number of smaller items. Depreciation was up 4% on a higher asset base. Fuel costs were up on higher price and trucking fuel, rents were up slightly and we had about $20 million of higher real estate gains. Going forward you can expect a modest level of base real estate gains, similar to the $35 million we recognized in 2020. As we shift our focus towards leveraging the real estate portfolio to support growth initiatives. However, the Virginia transaction will continue to impact results in 2022 with a $20 million gain in Q1 and a $120 million gain expected in Q2. We anticipate receiving the final $125 million of cash in Q4.

Now turning to cash flow on Slide 11. On a full-year basis free cash flow before dividends increased 45% to $3.8 billion. As a reminder, this includes $400 million from Virginia and over $500 million of total proceeds from property dispositions. Cash and short-term investments finished the year at $2.3 billion, while this remains elevated. We nevertheless expect to continue to work the balance down this year, a levels more in line with our historical liquidity needs.

After fully funding capital investments, shareholder returns exceeded $3.7 billion. We will continue to be balanced and opportunistic in our buyback approach and we remain committed to returning excess cash to our shareholders.

With that let me turn it back to Jim for his closing remarks.

[James M. Foote, President and Chief Executive Officer at CSX]

Great, thank you, Sean. Let's conclude with our outlook for the year on Slide 13. We remain optimistic about the opportunity to grow this year, driven by a combination of strong underlying economic momentum and supply chain recovery. Based on these expected tailwinds we are targeting GDP plus volume growth for the year. Volumes should build sequentially throughout the year as supply chain bottlenecks ease.

As a result, growth in the second half of the year is expected to be greater than in the first year. This growth will be supported by the initiative Jamie reviewed to appropriately resource our network for the current demand environment and to ensure we can provide customers with a consistently strong service product. We also expect pricing to benefit from a combination of market forces, including very strong demand for transportation services. Full-year capital expenditures are planned at approximately $2 billion.

Our top capital priority is and always has been maintaining and improving the safety and reliability of our network. In 2022, we will replace in excess of 500 miles of rail as we continue to focus on the core infrastructure. The cost of this capital work has been offset by significant improvements in the efficiency of our engineering programs, while we expect to drive further efficiencies in 2022. Our plan reflects the impact of increased inflation, any number of discrete strategic investment opportunities. We will continually evaluate future strategic opportunities as they come along, but still have ample capacity across our network to absorb future volume growth.

And finally, after investing in the railroad and high return growth projects we remain committed to returning excess capital to shareholders through a combination of dividends and share buybacks. We are entering the year with strong demand across the economy, but shippers are facing ongoing challenges from a lack of capacity in labor, materials and transportation. Our focus remains supporting our customers by providing effective rail solutions to overcome this persistent bottlenecks. As I said earlier, we are encouraged by the progress we are making and we expect our actions combined with an improving global supply chain. We will provide a year of steadily improving growth.

Thank you. And I'll turn it back to Matthew for questions.

[Matthew Korn, CFA, Investor Relations at CSX]

Thanks, Jim. Now, in the interest of time, I'd ask that everyone please limit yourselves to one question. And with that operator, we will now take questions.

Questions and Answers

[Operator]

[Operator Instructions] Your first question comes from Brandon Oglenski with Barclays. Your line is now open.

[Brandon Oglenski, Analyst at Barclays]

Hey, good afternoon, everyone, and congrats on that. I guess, you guys didn't provide any discussion on forward profitability or margins and I get it. You have the lapping quality carriers plus lower rainfall gains. I guess can you talk to the core efficiencies in the business and how you plan to leverage growth this year? Are there incremental opportunities for you guys to try core profitability not retire?

[Sean Pelkey, Vice President and Acting Chief Financial Officer at CSX]

Yes, thanks, Brandon. This is Sean, so just to clear the record. So you're going into full-year 2022, we're going to have the full-year impact of quality going to have lower real estate gains as I just outlined. That together is about a 350 basis point impact. So on [Indecipherable] like-for-like basis you're starting at a 59 OR. Fundamentally, nothing has really changed about our story, right?

Our expectation as we come out of the pandemic this year is for supply chains to normalize, as they do that some of this -- some of the cost that we've added in order to better serve our customers will start to come down a little bit, obviously the incremental growth that we see stronger in the second half than in the first half of the year should be at good incremental margins, and so at the end of the day, I think the core story that you've seen over the last couple of years with us is the same next year or this year as it's been. The only unknown is what's the pace of the normalization. How do we get -- how quickly do we get -- overcome what we're seeing right now, out there in the environment.

[Brandon Oglenski, Analyst at Barclays]

Thank you.

[Operator]

Your next question comes from the line of Brian Ossenbeck with J.P. Morgan. Your line is now open.

[Brian Ossenbeck, Analyst at J.P. Morgan]

All right. Thanks, good evening. I just wanted to ask Kevin, maybe you can go through some of the puts and takes of the outlook for some of the key end markets and as Sean just talked about in some of the uncertainty around the supply chains. But, you know, where you feel like you have some, maybe more opportunities that could come to bear and where you see some of the challenges. And then if you can layer in some of the impact of those new business development when it sounds like there might be a little bit more longer-dated, but is it too early to see some benefit from those?

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Yes. Thanks, Brian. Look, there is a lot of demand tailwinds that we see pretty robust demand across pretty much every end market currently, so we're optimistic there. Sean pointed out that supply chain challenges and I think the timing of those normalizing is probably the biggest question as we move into second, third and fourth quarter, kind of, when does that really translate into somewhat better fluidity out there for us.

But starting with the merchandise, really it's a story of auto, when did the autos really start to -- and production really start to come back online. When you look at current estimates is really for a back half story on the volume and certainly autos drives more than just a current carloads in the auto side, it's such as the metals business, plastics business for us as well. So auto is going to be very, very important. Certainly, we all know the demand, we've all been into the local dealership and they don't have any new cars. If you want a new car, you probably got to wait 12-months. So that's the demand is there. There's no question about it.

Where we see right now, the metals business is very strong, plastics remains very, very strong, probably the only thing that we're really seeing weak and I touched on a little bit is energy market. And then that's saw those spreads and spreads can collapse and then got out again. So we'll continue to watch those and we'll benefit those to get more positive in the future.

On the intermodal side, we really benefited from the international market and we seen no slowdown at this point. There's still a lot of ships waiting at the port to get in and we've been very successful in moving that freight and we continue to have the operations and I think we'll continue to benefit from that. The domestic side, really where we've seen the disruption and that's been largely due to the driver shortage, the equipment shortages that we're seeing on the chassis side and to be honest, I think the chassis problem is -- seem to being pushed out every month. I know the suppliers are having a hard time ramping up production, but that's probably going to be a second half story in terms of the chassis as far as we see it right now. So -- but we do see that, if underlying demand there and I think that's a good positive story for us into the back half of the year.

And then finally, we're moving to coal the demand is outstripping supply you see it in the export benchmark prices, they're incredibly strong right now. We're at all time highs almost and when you look at the met and thermal markets today. And so we have some opportunity there. The mines that had struggled, quite frankly, they have under-invested, they had a hard time ramping back up production some of dealt with strikes, some of dealt with other problems and -- but those things should normalize hopefully and we should see the benefit of that. We've also seen recently a new mine come online and so that should help us as we get through the year. But those I think the biggest question is how long do the export prices stay at these levels, but we would expect hopefully volume to pick up as we move through the year. Those are some of the moving parts through the markets.

[Brian Ossenbeck, Analyst at J.P. Morgan]

All right. Thanks, Kevin. If I can ask for just a quick comment on coal inventory levels, do you think you can see some restocking given some of the dynamics you talked about with demand outstripping supply specifically on the domestic utility side?

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Yes. Coal levels, particularly in our Southern utilities are very low. So there is restocking -- us meeting, we're working really closely with our customers, and I would expect that to persist through this year and probably in the next.

[Brian Ossenbeck, Analyst at J.P. Morgan]

All right, thanks very much.

[Operator]

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

[Tom Wadewitz, Analyst at UBS Group]

Yes, good afternoon. Wanted to ask you a bit about how closely we should tie your own capacity, you know, growth in conductors coming out of the training classes. It seems like you have a nice pipeline and a nice ramp up in that. But how close should we tie that volume growth to that ramp in your capacity? And is that the right way to think about it? Or do you think that the factors outside your control in broader supply chain or kind of a bigger variable in terms of your volume growth?

[James M. Foote, President and Chief Executive Officer at CSX]

Tom, it's Jim. Just generally, it clearly CSX is no different than any other industry right now, where we have been challenged finding people to come to work, and because we have been short on our train and engine service employees, simple fact is we have not been able to move the amount of freight, we could have and we've been staffed up at the appropriate levels, that's why we've been talking for the last year, at least about our attempts to train ramp up the hiring of operating employees.

And as Jamie said that, you know, we're starting now just down in for 12-months of very, very hard work to get back to a positive growth number in terms of the number of employees. And when we do that we'll be able to move more freight in the -- Jamie [Indecipherable] more detail?

[Jamie Boychuk, Executive Vice President of Operations at CSX]

Yes. Again, I think Jim pretty much nailed it [Indecipherable]. This is probably one of the most difficult environments we've ever seen. When you think about all the stuff, the rail industry has gone through over the past 10, 20 years -- by 25 years of railroading, I can tell you, when you come in one week and you've got 60 people off on COVID and new variant comes through and you got 350 off on COVID on your T&E side, you really start to feel the effects and believe me, Kevin and I are talking all the time about the opportunities of moving as much product as we can for our customers and not only just the product that we currently have with our current customers, but the growth side of things. And what else can we move out there.

So to Jim's point our hiring classes of -- over I would say probably the past two months have been extremely successful. We are putting 150 plus T&E, while new conductors I guess through our training center in Atlanta and we continue every single week to hold a new class. And I'm proud to say that all the hard work our HR team has done through Diana Sorfleet, it's paying off. And honestly, when we start looking at where we're going to be in three or four months from now, we're going to be different look on railroad and these opportunities that Kevin is talking about is going to be opportunities that we're going after.

[Tom Wadewitz, Analyst at UBS Group]

So are you optimistic about a quick improvement related to Omicron or really just focus on second quarter for that improvement in capacity?

[James M. Foote, President and Chief Executive Officer at CSX]

Yes, Tom, it's Jim. We're thinking about maybe getting epidemiologist [Indecipherable]. So if you're ready to step up and tell us this is it, this is going to be opened in two months and we're not going to see another one. Just reminding you can start tomorrow.

[Tom Wadewitz, Analyst at UBS Group]

It sounds like second quarter. Thank you, Jim.

[James M. Foote, President and Chief Executive Officer at CSX]

You bet.

[Operator]

Your next question comes from the line of Chris Wetherbee with Citigroup. Your line is now open.

[Christian Wetherbee, Analyst at Smith Barney Citigroup]

Yes, hey, thanks, good afternoon guys. Maybe wanted to ask a question on pricing, so Kevin maybe when do you think about renewals for 2022 maybe how -- what the opportunity set is there? And maybe how those are progressing as we've gotten through the month of January here? And then on the coal side, any help you can give us with how to think about yields. And maybe just the first half of the year or over the course of 2022. I know the thermal exports are probably a full-year renewals, so maybe have some uplift there, but I think some of the met stuff a little bit more closer to market. So if you could just help a little bit -- help us with this point that would be great?

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Yes, sure. Let me cover the pricing side first, and obviously, knew we're going to get this question. The market is -- currently there is tight from the supply chain from the transportation side, you've seen our primary competition truck rates are up significantly, and we're having to react to that obviously in what we're doing. But also working with customers on opportunities for them to convert more freight over the rail in this high inflation market they're looking for ways that they can save on their transportation costs and rail is almost every time the most economical solution for them. And so those discussions, I'm happy to say are really accelerating now and talking to Jamie every day on what we can do, so that's a real, real positive for us.

So I would say, certainly, the market is better than it was last year. We're working with customers, they understand the cost pressures that are out there across world they're seeing it, they're asking their customers for the same. So we're seeing some positive momentum on that side. In terms of coal, I mentioned it on the -- on my opening remarks, export coal prices benchmarks are at highs what we've assumed. And your guess is probably as good as mine is that will moderate through the year. But what I can tell you is, if the economy re-accelerates post Omicron and China demand continues to be strong then, who knows, it could last much longer.

But what our assumption is going forward is likely this prices will come down. So that will impact the yields somewhat in the back half of the year. But offsetting that somewhat, we would expect maybe some volume progress as the producers ramp up some of their production as one of the new coal mines that I mentioned comes online. As perhaps one of the coal mines that we serve -- resolve their strike and there's another major mine that we have right now, they're shut down completely. So hopefully some of those things come back online and help us on the volume side.

[Christian Wetherbee, Analyst at Smith Barney Citigroup]

That's great. And you just quickly have merchandise and intermodal, how much of the contracts come up for renewal at the beginning of the year?

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Yes, we see about 50% to 60% renewed annually and about call it 75% of those in the first and fourth quarters of the year.

[Christian Wetherbee, Analyst at Smith Barney Citigroup]

Great, thank you very much.

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Yes.

[Operator]

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

[Ken Hoexter, Analyst at Bank of America Merrill Lynch]

Great. Good afternoon. Jim, Union Pacific this morning talked about growing faster than industrial production about 4.8% for their level of carloads, you'd pick GDP in your outlook. I just want to understand, kind of, trying to parse your growth target, which include services on GDP. So can you kind of talk about that overall target or maybe that's a Sean question? And then you're now more than [Indecipherable] with quality, are you seeing any of that contributions that you expect at this point from the acquisition? Thanks.

[James M. Foote, President and Chief Executive Officer at CSX]

We are talking about -- Ken good to talk to you. Yes, I think we're comfortable with quality so far. I mean, it's playing out as we had expected. The customer enthusiasm about this product that we have in the marketplace now is very good, lot of conversations ongoing about converting to a transload type of operation versus truck direct. So -- and we have even got the equivalent yet here from -- to utilize some of the ISO containers, which will help this conversion even more. So all in, yes, I mean, they are a great team, smart people with extremely enthusiastic and excited about this opportunity so far. I think Sean is probably better to mediate between the [Indecipherable] view of growth in mind.

[Sean Pelkey, Vice President and Acting Chief Financial Officer at CSX]

I don't know about that. But I can -- just going to give you a little bit of color, which I think Kevin really sort of already went through in terms of each of the markets and the puts and takes there. But I think, first half of the year or first quarter, at least on the auto side, we're going to continue to remain challenged, so -- and you can see it in our weekly numbers in terms of how that's trending. So the hope is that as we get into the second half of the year that's part of kind of what drives the above GDP growth.

Kevin also talked about some of the growth initiatives and the three he mentioned aren't the only three obviously there's a lot going on within the sales and marketing team in terms of attracting new business to the railroad. And then fundamentally our ability to capture the demand picture that's out there assuming that the recent momentum we've had on the hiring front continues and the tools that we're using in terms of retaining employees we have -- continue to be successful. We grow the active T&E count, we're going to be able to move more volume.

[Ken Hoexter, Analyst at Bank of America Merrill Lynch]

Great. Thanks, Jim. Thanks, Sean.

[Operator]

Your next question comes from the line of Jon Chappell with Evercore. Your line is now open.

[Jon Chappell, Analyst at Evercore ISI]

Thanks, Emma, good afternoon everybody. Jamie with some [Indecipherable] on labor for obvious reasons, such as impacting yours, impacting your customers as well. But if we could go all way back to a few quarters ago before really, kind of, wired that we had in the supply chain got into a real bad congestion issue. I know you're out in the field, kind of looking for other types of improvements you can make within the network. So as we think about rightsizing the organization, getting through some of the supply chain congestion into normalized "fluidity", do you guys seem to had -- had to start here. So are there other opportunities for you within the network, whether it's just on trip plan performance or some of the cost levers in the back half of the year into '23, that you think being a front-runner here, you have a real opportunity on a relative basis?

[Jamie Boychuk, Executive Vice President of Operations at CSX]

Jon, we are always analyzing the railroad, so ongoing out there again next week, spend some time on the railroad and we'll be analyzing again what we're doing with our plan out there. So of course as market conditions change and other factors that go on out there. We analyze what we do. Yes, we just finished finding different opportunities to service our customers better, particularly in the Carolinas we spent a lot of time out there just over this past quarter.

And as I mentioned, we have put some assets out there in order to ensure that we can provide the service that our customers require right now. So there are some expenses that go along with that. And we see in a quarter or two from now as our hiring catches up to where we needed to be, we'll be able to pull those assets back and/or use those assets or -- for continued growth as we move forward. So there is -- there absolutely is always an opportunity on our railroad. The job of the folks out there who are working really hard on the ground, their job is to execute, the network centers job is to analyze and I work between those folks to make sure we're making the right decisions and we'll continue to do that. So yes, there is always opportunities, but I can tell you right now our focus is on growth, our focus is on service and our focus is to make sure we continue to balance those expenses along the way. So that's going to be where we continue to pushing towards 2022.

[Jon Chappell, Analyst at Evercore ISI]

Great. Thanks, Jamie.

[Operator]

Your next question comes from the line of Amit Mehrotra with Deutsche Bank. Your line is now open.

[Amit Mehrotra, Analyst at Deutsche Bank Aktiengesellschaft]

Thanks. Hi, everyone. I just had a couple of quick questions. And then one, kind of, maybe broad one for Jim. But first, Sean, I wasn't sure about this when you answered earlier, are the margins of the business going to improve on a year-over-year basis against the 58.1 [Indecipherable] that you did in 2021. And I'm obviously excluding Virginia. I understand the timing of the Quality Carriers acquisition and all that. But ex-Virginia or the margin is going to improve year-over-year relative to the 58 spot one? And related to that could you just talk about maybe what the expectations are [Indecipherable] revenues year-over-year, because I think that will probably be a little bit of a headwind in "22.

And then, sorry, Jim, one out of the box question a little bit, you've had great success leading CSX and the whole team over the last many years under very difficult circumstances for sure. What is the thought process around succession planning, do you plan or are you willing to lead CSX for many, many more years to come? Or do you think there is some scope for change internal or external, could you just talk about that, because it's a question that I get, and we get a lot and I thought it would be interesting to get your thoughts on it as well. Thank you.

[Sean Pelkey, Vice President and Acting Chief Financial Officer at CSX]

Amit, this is Sean, I'll take the first two to begin with. So on your operating ratio question, you've got the 58.1 full-year impact of quality. So what I was saying is that kind of takes you to a 59. So I think your question is, can we do better than that in 2022? And we're not going to give our guidance today and but that being said, I think we've kind of walks through all the factors that are going to drive growth both in terms of our volumes or revenues, as well as operating income. And what that means for OR. We go into the year with a little bit of an elevated cost profile probably in Q1 you're going to see costs that are largely similar to Q4, given that things have not gotten better from a supply chain and labor availability perspective. As we go through the year we think that does improve, and if it does then, we also see volumes come along with it and we think that sets us up very, very well. There are other uncertainties. What happens in the coal market, export coal pricing and other factors that Kevin talked about.

And then the other piece of it, that you hit on was the other revenue. I think largely other revenue is going to trend with the broader supply chain, because the issues that we're facing that are causing containers to dwell on the intermodal side are the same factors that we're facing more broadly in the economy between driver availability, chassis availability and so on. And so it's likely other revenue is going to remain elevated here in the first quarter. And then I would say our baseline expectation is that it begins to normalize starting next quarter and then hopefully sort of back to normal by the second half of the year, which means we're probably moving more volumes, so those are the factors.

[James M. Foote, President and Chief Executive Officer at CSX]

On the question of succession, clearly, it's been a topic since I got here starting in the beginning of 2018. You may recall, there has been quite a significant change in the management makeup here over that four-year period. And it has always been my goal and it has always been the goal of the Board to make sure that we had in place a rock-solid diligent succession planning process and the procedure to follow for all of the executive management jobs.

And I think when you talk on the call today and you heard these great new voices here that are, so doing such an exceptional job, that's because of the diligence that we needed to making sure that we always have an available pipeline of qualified talent. And I could tell you from working with the Board, that's no different from my job. Our job and the Board's job is to make sure when Jim decides to go, whenever that might be, hopefully, it's when I decide not when they decide. But whenever we're going to fill that job that we have qualified people, both internally and externally that can step right in and being a significant shareholder, I hope you can do a better job than I think I have done. Maybe other people disagree, but it's been an interesting ride.

[Amit Mehrotra, Analyst at Deutsche Bank Aktiengesellschaft]

Yeah. Well, I appreciate you entertaining that question. Thank you very much.

[Operator]

Your next question comes from the line of Ben Nolan with Stifel. Your line is now open.

[Benjamin Nolan, Analyst at Stifel Financial]

Yeah. I have two probably quick ones, if I can squeeze them in. The first is just when we're looking at the $2 billion of capex, curious if you might be able to parse that out between -- or what portion of that might actually be growth related? And the other one is, you talked a little bit about coal outages and I know there was an issue it occurs, but how should we think about coal in the first quarter specifically?

[Sean Pelkey, Vice President and Acting Chief Financial Officer at CSX]

Hey, Ben, this is Sean. I'll take your first question around the capex and, I would say, capex is up about $200 million versus 2021. About half of that is related to growth investments. So, Jamie talked a little bit about the sidings already, which set us up very well for the long-term to grow into the capacity that he'll be creating. We're making some incremental investments on the technology side. Some of the quality investments in the ISO tanks fall into that category and then some commercial facilities. So lots of good high-return growth-oriented investments. The balance of the increase in capital is really driven by sort of inflation in the core infrastructure spend, as well as slight increase in hardening the core infrastructure for safety and reliability.

[Jamie Boychuk, Executive Vice President of Operations at CSX]

I would just add on the capex side that the siding extensions we're looking at mostly on our LLN [Phonetic] part of our property, which was down in the Southern -- Southwestern part of the railroad where we had smaller sidings. It worked for us, but the growth coming out of some of that area through Alabama and other stuff that's going on, the need is there. So that's where the majority of this capex money is going to, and we're excited to get it out in that area to support that growth that Kevin and his group are bringing.

With respect to Curtis Bay, yeah, we were down for a couple of weeks, but we're back up doing direct dumping. We did redirect a few trains to a couple of different locations, but we are back in business.

[Benjamin Nolan, Analyst at Stifel Financial]

All right, thanks.

[Operator]

Your next question comes from the line of Justin Long with Stephens. Your line is now open.

[Justin Long, Analyst at Stephens]

Thanks and good afternoon. I was wondering if you could talk about the impact you expect from Quality in 2022 from both the revenue and operating expense perspective as we try to model that out?

And then circling back to some of the labor commentary, can you help us think through what you're expecting for the sequential change in headcount as we progress through this year?

[Sean Pelkey, Vice President and Acting Chief Financial Officer at CSX]

Yeah, Justin, it's Sean. I can take both of those. So the Quality impact is pretty straightforward. What you saw in the second half of this year, both in terms of revenue and expense is probably a pretty good run rate going into the next year into 2022, will have kind of a happier impact in Q1 and Q2. And then as we get into the back half, it should be pretty similar. The things that are going to drive any difference would really have to do with driver availability. The demand is very strong on the Quality side, but that's how I would think about it. So, a little over $400 million of revenue in the second half of this year. That's probably a good run rate around $200 million a quarter.

In terms of sequential labor headcount, so you saw an increase of 1% from the third quarter to the fourth quarter. I think that's probably a pretty good estimate of what we might see over the next couple of quarters. The good news is, as Jamie talked about, the headcount we report to you includes both T&E employees who are in training, as well as those that are marked up in revenue service. The mix between those that are in training and in service will change a little bit over the course of the first half year, which is great news. But the headcount should go up very modestly on a sequential basis over the first couple of quarters here.

[Justin Long, Analyst at Stephens]

Okay. Helpful. Thank you.

[Operator]

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

[Scott Group, Analyst at Wolfe Research]

Hey, thanks. Good afternoon. So, Sean, we have some pretty big headwinds from comp per employee and purchase services in the quarter, I think, including some accelerated costs. How should we think about those two pieces this year? And then, Kevin, just circling back on coal for one second, was your point about the net prices at highs suggesting that there's another sequential uptick in coal RPU in 1Q?

[Sean Pelkey, Vice President and Acting Chief Financial Officer at CSX]

Scott, so comp per employee, you're right, it was elevated here in the fourth quarter, and that was one of the big factors there, obviously, was the incentive comp piece. So that should normalize as we get into 2022. I think if you look at it, excluding that for the back half of this year, that's probably a good baseline to build off of. We're going to have some higher labor inflation, which includes health costs, as well as payroll tax and railroad unemployment. That will be partially offset by the incentive comp and then there's some favorable mix from the Quality addition in the first half of the year. Hopefully, as we get later into the year and the network is cycling better, we also see a reduction in overtime and things like that. So they're probably as a result of inflation, there will be a modest increase versus the normalized comp per employee, but not significant.

And then in terms of purchase services, that's a line that has a lot of different moving pieces. What I can tell you is that, you're probably going to see something similar in the first quarter to what you saw in the fourth quarter. But a lot of the costs that we added recently have to do with off-site storage and intermodal facilities, supplemental labor, adding some locomotives, things like that. And that ties directly to overall fluidity within, not only our network, but the broader supply chain. So as that gets better, the purchase services costs should come down commensurate with that.

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Yeah. And then on the coal RPU, we would expect something probably flattish in first quarter versus fourth quarter. Mix always matters. I would say, the mix in terms of our domestic coal side should we see some of the supply issues at the mine and prove could help some of that Southern coal, longer haul coal, maybe later here in the quarter that could help, but largely flat is the way we see it today.

[Scott Group, Analyst at Wolfe Research]

Okay. Sean, if I can just clarify one thing. It sounds like the purchase services headwind is an offset to this accessorial stuff. So, as the accessorial goes lower, the purchase services costs go lower, too, so don't think about the accessorial as 100% margin. Is that [Speech Overlap]?

[Sean Pelkey, Vice President and Acting Chief Financial Officer at CSX]

Yeah, that's correct. I think it's -- that's right. That's right. Now, probably accessorial may come down a little bit faster than purchase services just as -- just from a timing perspective, but they will trend together.

[Scott Group, Analyst at Wolfe Research]

Okay. Thank you.

[Operator]

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

[Bascome Majors, Analyst at Susquehanna International Group]

Yeah, thanks for taking my question. Jim, you talked a little bit about having a lot of new faces in management over the last few years since you've been in the Company. Can you talk about potentially updating the investor community with an Investor Day, or other type event? I mean, it's approaching for years, you've acquired some non-rail businesses, you've got new faces and we've been through the global pandemic. Just curious when you think it might be time to kind of share your vision of where you think and you take CSX kind of midterm and how we're going to get there? Thank you.

[James M. Foote, President and Chief Executive Officer at CSX]

I think we had probably planned on doing another Investor Day, at least a year ago, if not longer. But I don't -- I personally have not felt that it's really that useful via Teams or via Zoom and have every time we've kind of talked about getting out to New York or doing something here or whatever it is, something else comes along and kind of puts the kibosh on our plans. So, as soon as Tom Wadewitz [Phonetic] gets here and tells me when the pandemic is going to end, then we'll schedule it up and get out and talk to all of you. I'd love to show this team off, they're fantastic.

[Bascome Majors, Analyst at Susquehanna International Group]

Yeah, thanks for the color.

[Operator]

Your next question comes from the line of Jason Seidl with Cowen. Your line is now open.

[Jason Seidl, Analyst at Cowen and Company]

Hey, thank you, operator. Afternoon, gentlemen. I wanted to talk a little bit about the performance in the quarter on the operational side. I think this was the first time your trip plan compliance for the carload division got above 70%. So, I wanted to find out what was going on there? And what else needs to be done to sort of try to close that gap between carload and intermodal?

[Jamie Boychuk, Executive Vice President of Operations at CSX]

Thank you, Jason. I'd say, as you've followed probably quarter-to-quarter, it is a slow climb. We're working really hard on the service product. It really comes down to the availability of people. Our COVID numbers were down into October, November, where we had maybe 30 or 40, maybe up to 60 T&E employees and then towards the end of the year up to where we are today, well over 300 to 350 folks off. So, for us to really get this service product where we're arriving on the hour, as we continue to commit to, it really comes down to people. And we've been saying this for probably over a year now as we've struggled to even get that pipeline going. Now, we've got a great pipeline. We continue to fill those classrooms and the folks in Atlanta are doing an absolute amazing job under Jim Schwichtenberg and his team. It's all about producing conductors and as this quarter continues, we should see that number come up. But again, I think Jim has mentioned a couple of times, it all comes down to what happens in the world with respect to COVID or whatever the next pandemic or item might be that affects our crewing of our trains, so that for us is the dial that really turns us up and down when we think about our service product.

[Jason Seidl, Analyst at Cowen and Company]

So, I guess, we'll just wait for a while to confirm the end of COVID. But good job on the numbers and we'll look for the -- more steady improvement as the year goes on. I appreciate the time.

[James M. Foote, President and Chief Executive Officer at CSX]

Well, you'll see that number -- I mean, we publish our velocity as well every week. And that's a good proxy for understanding how fluid the railroad network is, whether you're trying to look at it from a service standpoint, a customer perspective and where are we in terms of trip plan compliance or how much extra cost we're having out there because we're running slow in the region, we run slow. It is not that the locomotives moving at a lower rate of speed, it means it's sitting someplace because it gets to a terminal where it's supposed to be recruited and there is nobody -- we don't have an employee to get on the train because he got sick. And so, as that velocity number increases, as that drone number goes down, the result is that our customer performance metrics or our trip plan compliance numbers will just improve over time.

[Jason Seidl, Analyst at Cowen and Company]

Well, I've always appreciated the fact that you guys publish this, because trip plan compliance is what most shippers look at anyway, so I much appreciate it on my end.

[James M. Foote, President and Chief Executive Officer at CSX]

Good, great.

[Operator]

Your next question comes from the line of Jordan Alliger with Goldman Sachs. Your line is now open.

[Jordan Alliger, Analyst at The Goldman Sachs Group]

Yeah. Hi, afternoon. Just some -- one, if I have some thoughts on round revenue per carload sort of from the total Company perspective, obviously, coming off two strong quarters, we talked a little about the first quarter recall, but as you think about moving through the year, taking into account mix, how do you think about revenue per carload first half, second half or however you want to talk through it? Thanks.

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Hey, this is Kevin. I'll take this one. Clearly, yeah, we had some strong performance. Some of that, obviously, was due to the impact of fuel surcharge. We see that probably being a favorable impact into the first quarter and probably less so as you move into the back half of the year and just face tougher comparisons there. There's a couple probably larger swing items we've talked about quite a bit already, but the export coal side will be a large swing item into the second half of the year if prices and the benchmark prices remain high. That will obviously be a good impact. We've talked about how we reprice 50% to 60% of our business every year, and so you'll start to see that impact start to flow through probably more heavily in the back half of the year.

And then on -- those are probably the major moving parts across the business and, obviously, mix always matters. If intermodal is outgrowing your merchandise side of your business, that's always a negative mix. So we would expect merchandise to remain strong, but intermodal has proven over the last few years to be outgrowing merchandise, which is a good thing, but can have a negative impact on the overall RPU.

[Jordan Alliger, Analyst at The Goldman Sachs Group]

Okay. Thanks for the color.

[Operator]

Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Your line is now open.

[Walter Spracklin, Analyst at RBC Capital Markets]

Yeah, thanks very much, operator. Good morning or good afternoon, everyone. Just a question here on the environment that we're in right now and how different it is and whether that creates opportunities for you to kind of re-envision some of the historical practices you do, particularly around contracts with customers and contracts with employees. So, given, Jim, you mentioned you just can't get -- and Jamie as well, you can't get people. I'm wondering if this sets the stage possibly for a bigger push on automation, perhaps it's a little easier to get automation through if the workforce is short people.

And secondly, same thing on the customer base, if you've got a customer base that is -- that appears to be extremely high demand for transportation services, does it allow you to perhaps restructure aspects of the contract that you might not have been able to do in the past, open up that door whether it's on duration to your favor longer or shorter? I'm not sure which one you would prefer, but items like that on either of those two, I'd love to hear any color that you might have.

[James M. Foote, President and Chief Executive Officer at CSX]

Well, on the customers, we have -- for good or bad, and yeah, maybe this -- the last two years has caused us to rethink everything because things that we never thought were possible to happen, have happened. So, we look at -- I think we look at the world differently. Our relationships with our customers is -- this is big business -- it's a big business. Our -- we have relatively long-term, not as long as some contracts. But a couple of three-year duration with a customer who is making huge capital investments in these plants in order to produce and has to have some level of longer-term reliability on what is transportation costs are going to be for him to be able to plan how to run his business. So trying to change that is difficult. I think every -- and again, our customers are reasonable people. So I think there's dialogues about what works. There's always what works for both. It's a partnership arrangement in terms of how we help our customers be successful in these markets.

In some circumstances, it may have accelerated our views to a certain degree in terms of -- there has been a modification. There has certainly been a change in the e-commerce arena about who buys themselves transportation in the marketplace. And so, we're dealing in certain circumstances more directly with the customers as it worked [Phonetic] with third parties in -- that we did in the past and I think that's something that probably will evolve and continue to change.

In terms of working with how we interact and how we contract with people that want to work for us, I think this is a big challenge and a huge opportunity for us to really upfront address what we think the worker who wants to work for the railroad is, what's the profile of that individual, not six months from now and not a year from now, but five years and 10 years from now. And how do we evolve for this industry in an extremely -- again, in most circumstances, how would you do this differently? How can you do this better? We can't put kiosks in place to do the work of a conductor or an engineer. But there's certainly technology out there that would allow us to do things more effectively, easier and probably with fewer employees. But we also work in an extremely heavily unionized environment that is also very heavily regulated with at times bent on telling us how we should do things. So, we're always in the middle of going through the process and -- but yeah, it's opened our eyes, and I think it's opened everybody's eyes in the transportation business about what we need to do to be more effective and handle these types of issues in the future.

[Walter Spracklin, Analyst at RBC Capital Markets]

Have you found that the automation question has been easier to enter into with unions in the current environment compared to previously?

[James M. Foote, President and Chief Executive Officer at CSX]

No.

[Walter Spracklin, Analyst at RBC Capital Markets]

No. Okay. Okay. I appreciate the time, Jim.

[James M. Foote, President and Chief Executive Officer at CSX]

You bet.

[Operator]

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

[David Vernon, Analyst at Sanford C. Bernstein & Co.]

Hey, guys. Good afternoon. Thanks for taking the time. Two from me. Jamie, could you talk a little bit about where you expect headcount to be as we exit sort of the 2022 time frame? And then, Jim, I'd love to get your perspective having had some time presumably to review Norfolk Gas [Phonetic] and the CP-KCS transaction. Kind of what do you think about that and what you think about the implications of that? What you think the implications of that ask would be for CSX in the long run?

[Jamie Boychuk, Executive Vice President of Operations at CSX]

Just touching, I think, Sean, talked a little bit about it. But look, we have 6% to 8% attrition per year. We have to remember that. So not only do we have to hire to cover attrition, we've got to hire to get that number where we need to be in our minds to be able to provide the service that's required and the growth that Ken and his group are going after. So, I'll leave it -- I'll kind of leave it at this. We are actively hiring. We have over 500 conductor trainees right now between Atlanta and what's out in the field and we're not stopping. We're going to continue to get folks out there qualified as conductors. And we've got a round of qualifying for locomotive engineers here at some point within the next year or two. So -- but we want to make sure that we can provide that service and grow this Company.

[James M. Foote, President and Chief Executive Officer at CSX]

Okay. As it relates to the other railroads' filings in the CP-KCS deal, I'm not surprised at all, but the other railroads -- some of the other railroads have weighed in with the requests to make sure that their franchises and their customers primarily are protected. And each railroad has its own unique requests and that process is just starting. We're just -- we didn't get involved in the substantive conversation around what the impacts are of that transaction. You may have seen that we took the position with the FTB that we didn't have enough information basically yet to formulate an opinion. And so, until we have gone on the record, so to speak, with what it is that we're going to ask for and we're still kind of looking at what it is we're going to ask for and what do other people ask for and what does that mean that sort of thing? It's really -- I'm not going to comment on any specific filing that any other railroad that made yet.

[David Vernon, Analyst at Sanford C. Bernstein & Co.]

That's fair. But, I guess, if I could just press a little bit. Is the scope of that Norfolk Gas surprising to you or are you -- or was that kind of as expected?

[James M. Foote, President and Chief Executive Officer at CSX]

Again, I'm not going to characterize [Speech Overlap].

[David Vernon, Analyst at Sanford C. Bernstein & Co.]

[Speech Overlap] no problem with it.

[James M. Foote, President and Chief Executive Officer at CSX]

No. Like I said, it's not appropriate to be a comment really one way or the other where I thought it was aggressive or not aggressive or it's -- we're trying to figure out what everybody is doing and that takes time. It's a long, long, long process here for us to gather information, for us to look at everything, and then we'll formulate what we think is the right thing for CSX to do. And then at that point in time, we finally will be in a better position to comment on what I think about whatever everybody else asked for.

[David Vernon, Analyst at Sanford C. Bernstein & Co.]

All right. That's fair. Thanks a lot for the time guys.

[Operator]

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

[Cherilyn Radbourne, Analyst at TD Securities]

Thanks very much. Good afternoon. We're starting to run a little long, so I'll just ask a quick one here in terms of coal and the producer outages that you experienced during the quarter and the new mine you have coming online, just wondering if you can help us frame that a little better in terms of the tonnage impact and the timing of when it could come back or come online initially in case of the new mine?

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Yeah. I wish I had a crystal ball. There's one particular mine that keeps on telling us that they're going to come back online, and it seems to get pushed out every week. And so, no, I don't have a lot of visibility. I have probably more confidence that as we get into the second, third, fourth quarter that we'll see some pickup there. The good news is they have a lot more cash to reinvest in their business, whether it's equipment and other things. So I would think we'll see some benefits of that as well. I mentioned one particular customer dealing with the strike. Those things have continued for quite a while, but eventually those things get resolved as well.

The other one, the mine that I mentioned that's coming online, it will be a slow ramp-up, and we would expect more volumes in the second half and that's mainly into the export market. So, we're positive there. We're -- it's a supportive market, obviously, and we're going to look for opportunities to move more coal as we get more crude availability into the second half.

[Cherilyn Radbourne, Analyst at TD Securities]

Thank you for the time.

[Operator]

Your last question comes from the line of Ravi Shanker with Morgan Stanley. Your line is now open.

[Ravi Shanker, Analyst at Morgan Stanley]

Thank you. Hello, everyone. One big picture question and one follow-up. The big picture question is on domestic intermodal. Just based on your conversations with your customers kind of do you have a sense of what it's going to take for shippers to move significant amount of volumes off-truck and trade [Phonetic] on the rail? Is it as simple as just clearing the congestion or are there more complex issues with speed and service and flexibility that kind of take longer to resolve?

And just sort of the follow-up, Kevin, you kind of mentioned the cadence of your contract renewals, we are seeing on the truck side that customers are trying to push for shorter contracts or more frequent price resets on the contract side, are you seeing anything similar? Thank you.

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

On the contract side, nothing has really changed. We're, obviously, working with customers to create more -- even cadence through the rail network and I work with Jamie all the time and we go out to customers and explain the challenges that they create and they can create more ratability of their volumes through our system. That's extremely helpful. And so, working with them a lot on that side, so that's a big opportunity there.

And then what was the first part of the question?

[Ravi Shanker, Analyst at Morgan Stanley]

Just intermodal and kind of what it takes to get [Speech Overlap]

[Kevin Boone, Executive Vice President of Sales and Marketing at CSX]

Okay. Yeah. Yeah. On the intermodal side, I think having spoken to you recently just one of our many customers, I think consumer behavior is actually going the other way. The expectation is not that they necessarily need something next day. So, I would say, the emphasis on speed is actually going the other way to some degree, and we're seeing conversations around maybe I don't need to move it over a truck and get it there in 24 hours, that 48, 72-hour option is valuable. It's obviously cost-effective, where a lot of our customers are looking to offset very, very high prices. I would say, on the domestic side, really the challenge has been equipment. It's not a lack of demand. We get calls every day. They want to put more volume on us. But if -- they can't get the volume out of the terminal, that's a problem and that's what we've been dealing with, but we think that will resolve itself, obviously going to be easier to get truck drivers that you can get home and night that are doing the short haul, and that really plays into our sweet spot. The long-haul truck charters that aren't there, you know, I don't think that the drivers are going to come back to that market, but we do think the shorter haul drivers are going to become more and more available, but it's not just the drivers, it's the chassis and we know there is a lot of orders out there and so that will resolve itself and then the container side, a lot of containers being ordered, right now. So we do think, as we get into second half we'll have a lot of tailwinds that will help us really accelerate growth.

[Ravi Shanker, Analyst at Morgan Stanley]

Great. Thank you.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Matthew Korn, CFA, Investor Relations
• James M. Foote, President and Chief Executive Officer
• Kevin Boone, Executive Vice President of Sales and Marketing
• Jamie Boychuk, Executive Vice President of Operations
• Sean Pelkey, Vice President and Acting Chief Financial Officer

Analysts

• Brandon Oglenski, Barclays PLC
• Brian Ossenbeck, J.P. Morgan
• Tom Wadewitz, UBS Group AG
• Christian Wetherbee, Smith Barney Citigroup
• Ken Hoexter, Bank of America Merrill Lynch
• Jon Chappell, Evercore ISI
• Amit Mehrotra, Deutsche Bank Aktiengesellschaft
• Benjamin Nolan, Stifel Financial
• Justin Long, Stephens
• Scott Group, Wolfe Research
• Bascome Majors, Susquehanna International Group
• Jason Seidl, Cowen and Company
• Jordan Alliger, The Goldman Sachs Group, Inc.
• Walter Spracklin, RBC Capital Markets
• David Vernon, Sanford C. Bernstein & Co.
• Cherilyn Radbourne, TD Securities
• Ravi Shanker, Morgan Stanley