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CSX Corp (CSX -0.14%)
Q3Â 2019 Earnings Call
Oct 16, 2019, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon, ladies and gentlemen, and welcome to the CSX Corporation Third Quarter 2019 Earnings Call. As a reminder, today's call is being recorded. [Operator Instructions] Following the presentation, we will be conducting a question-and-answer session. [Operator Instructions]
For opening remarks and introduction, I'd like to turn the call over to Mr. Bill Slater, Chief Investor Relations Officer for CSX Corporation.
Bill Slater -- Chief Investor Relations Officer
Thank you, and good afternoon, everyone. Joining me on today's call is Jim Foote, President and Chief Executive Officer; Mark Wallace, Executive Vice President of Sales and Marketing; Kevin Boone, Chief Financial Officer; Jamie Boychuk, Executive Vice President of Operations. On Slide 2 is our forward-looking disclosure followed by our non-GAAP disclosure on Slide 3.
With that, it is my pleasure to introduce, President and Chief Executive Officer, Jim Foote.
James M. Foote -- President and Chief Executive Officer
Good afternoon, and thank you, Bill. Before we begin the presentation, I'd like to first congratulate the over 21,000 strong CSX workforce for a great job in delivering a really good quarter. They again showed that they are the safest, most customer focused and best operators in the industry. Breaking their own record with an all-time low operating ratio for our US Class I railroad of 56.8% was no easy task, so hats off to all of them.
I'd also like to mention several recent leadership announcements beginning with the appointment of Kevin Boone to Chief Financial Officer and Jamie Boychuk to Executive Vice President of Operations. Both Kevin and Jamie are skilled leaders who have played big role in this Company's transformation and are excellent additions to our executive team. I'm very pleased that Ed Harris will remain a key part of the executive team, as we drive hard to get even better. CSX is lucky to have both Ed and Jamie, two of the best operators in our business.
We also announced changes in sales and marketing, as Mark built a new team that is intensely focused on identifying and capitalizing on opportunities to grow the top line. Adam Longson recently joined as Vice President of Energy. Adam's deep knowledge of the commodity market is a valuable addition. The recent appointments of Farrukh Bezar as Senior Vice President of Marketing and Arthur Adams as Vice President Merchandise Sales demonstrate our commitment to working with our merchandise customers to find new and creative ways to first, add value to our customers, which will then drive long-term profitable growth. CSX's service has never been this good. Now is the time to harvest the opportunities.
With that, let's turn to the presentation, beginning with Slide 5 and our financial results. The third quarter results are straightforward with only a few unique items, which Kevin will point out. Third quarter EPS increased 3% to $1.08 versus last year's figure of $1.05. Our Third quarter operating ratio improved by 190 basis points to, as I said, a new record of 56.8%.
Turning to Slide 6, our improved service is driving industry-leading merchandise volumes, as customers continue to trust CSX with a greater share of their freight. Despite the softer industrial economy, merchandise volumes held flat. However, the strength in merchandise was offset by declines in coal, intermodal and other revenue, resulting in a 5% decline in total revenue to $3 billion.
I'm encouraged by the performance of our merchandise franchise. Had it not been for the Philadelphia refinery explosion at the end of June, merchandise volumes would have been up approximately 2% for the quarter versus declining industry volumes. In total, merchandise revenue increased 1% on flat volumes, as pricing gains were partially offset by mix headwinds.
Intermodal revenue declined 11%, a 9% lower volumes. Much of this is associated with the impact of lane rationalizations implemented last fall and early this year. We have now lapped the first round of lane rationalizations and we'll lap the final 5% of rationalizations at the beginning of next year.
Coal revenue decreased 12% on 9% lower volumes with declines in both domestic and export markets due to lower natural gas prices and weaker export demand and lower benchmark prices. Finally, the decrease in other revenues was primarily driven by lower storage revenue at intermodal facilities and demurrage charges.
Moving on to Slide 7, I am pleased with the continued positive momentum in our safety performance. Our FRA personal injury rate was again the best in the industry. And we further improved upon the last quarter's record FRA train accident results to set new company records for both fewest train accidents and the lowest accident rate. We still have opportunities to improve. Technologies such as the increased use of automated track inspection cars and drones are helping to identify small problems before they become big issues and also help improving our day-to-day execution across the network. We constantly strive to make the railroad as safe as it can be.
Moving to Slide 8, let's quickly review our operating performance. Velocity improved both sequentially and year-over-year. Dwell increased slightly for the quarter, but we see opportunities to improve this metric going forward. We also set another fuel efficiency record. CSX is the only US Class I railroad to operate below 1 gallon of fuel per 1,000 gross ton miles. Not only does this reduce cost, but the environmental impact of this is significant. This has been partially enabled by the increased use of distributed power, which has been a focus of the operating team. This technology, which CSX had historically not deployed, allows us to disburse locomotives throughout the train, which improves fuel efficiency and enhance the safety and reliability by reducing, say, train separations. For the quarter, we averaged 87 distributed power trains per day, but we frequently operate with over 100.
On Slide 9, most importantly, as we focus on running a better railroad, we are creating better service for our customers. We continue to improve trip plan compliance figures for both carload and intermodal customers, with 75% of merchandise cars and 94% of intermodal containers hitting their hourly trip plan targets, both new quarterly records.
We are not providing individualized real-time trip plan tracking to our intermodal customers and we'll be rolling that information out the merchandise customers in the fourth quarter. These new tools again differentiate CSX from other rails and our customers are very excited about the tool.
I'll now hand it over to Kevin, who will take you through the financials.
Kevin Boone -- Executive Vice President and Chief Financial Officer
Thank you, Jim. Before I get started, I want to thank Jim and the Board for their support and confidence. I'm excited to continue to work with this great team.
Turning to Slide 11. I'll walk you through the highlights of the summary in income statement. As Jim mentioned, total revenue was down 5% in the third quarter, as the impact of intermodal and coal headwinds, as well as lower fuel recoveries and other revenue more than offset the benefit of pricing gains across nearly all markets. Expenses declined 8% year-over-year, really a great performance. The team continues to drive efficiencies across all areas of our business. Overall, third quarter expense results reflect the Company's sustained operating improvements, a significant progress in labor and asset efficiency.
Before running through the expense line items, I want to note a couple of unique items in the quarter, including a $22 million impairment related to an intermodal terminal sale agreement and a net headwind of $15 million related to state fuel tax matters. These two items totaling $37 million impacted MS&O and fuel expense, respectively.
Real estate saw $65 million in gains this quarter, an increase of $12 million year-over-year. We continue to see a pipeline of real estate opportunities, though the impact of these transactions will remain uneven from quarter-to-quarter and year-to-year. Labor and fringe expenses were 8% lower, with average headcount down 6%. Our ongoing refinement of the operating plan continues to drive savings from fewer crew starts, enabling a 9% year-over-year reduction in active train and engine employee base and driving a 6% improvement in crew utilization, as measured by gross ton miles per active train and engine employee.
T&E over time and released [Phonetic] are also down 12% and 77%, respectively, as we operate more efficiently. As I mentioned on the second quarter call, over time is a strong focus area across all operating departments, reward force efficiency and management execution, we reduced over time across all operating departments by nearly 14%, sequentially. Additionally, the active locomotive count was down 11% year-over-year in the quarter. The smaller fleet combined with fewer cars online and freight car repair efficiencies helped drive an 8% year-over-year reduction in our mechanical workforce.
Also, while velocity, on-time originations and on-time arrivals improved sequentially quarter-over-quarter, Jamie and the operating team are confident there remains additional opportunity to continue to improve train speed and dwell, which further deliver cost savings. MS&O expense improved 12% or $59 million versus the prior year, driven by efficiency in operation support cost and savings related to lower volumes. We continue to see efficiencies attributed to lower active locomotive count, driving savings and locomotive materials and maintenance costs.
Freight car repair costs were also lower, driven by significantly fewer train accidents in the quarter. In addition, we are intensely focused on driving engineering efficiency. This led to significant savings in the third quarter on materials, travel, vehicles and outside services. Our continued train plan refinements also drove savings and improved travel and repositioning expenses, which were down 10% year-over-year. Fuel expense was down $45 million or 17% year-over-year in this quarter. These savings were driven by a 13% decrease in the per gallon price, record efficiency and lower volume.
Our focus on utilization of distributed power and energy management software combined with train handling rules compliance drove another quarter of record fuel efficiency. As I noted earlier, there was also a unique item related to State fuel tax matters that had a $15 million unfavorable impact in the quarter.
Looking at other expenses. Depreciation increased 1% due to the impact of a larger net asset base. Going forward, we expect a sequential increase of approximately $15 million to depreciation in the fourth quarter, mainly related to Group Life depreciation study on equipment assets that occurs every three years. Losses associated with previous asset sales are amortized over the life of the remaining assets. This obviously has no impact to free cash flow.
Equipment rents expense increased 17%, as the impact of inflation and other items more than offset the benefit of lower volume-related costs and efficiency gains. As we reduced dwell and improved days per load, we should see further improvement. Equity earnings increased $3 million in the quarter, due to higher net earnings at our affiliates.
Looking below the line, interest expense increased primarily due to higher average debt balances. Income tax expense increased $13 million, primarily due to the cycling of 2018 benefits related to the settling of state tax matters. Absent unique items, we would expect an effective tax rate of approximately 24.5% going forward. Closing out the P&L, as Jim highlighted in his opening remarks, CSX delivered nearly $1.3 billion of operating income in the third quarter, in line with 2018, despite a weaker volume environment. We also delivered a record operating ratio of 58.6% -- 56.8%, an improvement of 190 basis points and earnings per share of $1.08, representing a 3% improvement over third quarter 2018.
Turning to the cash flow side of the equation on Slide 12. We continue to invest in our core track infrastructure to provide safe and reliable train operations. Year-to-date, capital investment was down $49 million or 4% year-over-year. Overall, our reduced asset intensity has enabled us to sustain lower levels of capital investment without compromising safety or reliability. The level of PTC spending has also come down significantly in the last two years. Free cash flow remains a focus for this team. Generating operating improvements while driving better capital efficiency has produced differentiated free cash flow growth. Growth in CSX's core operating cash flow generation, including improvements in working capital drove a 15% increase in adjusted free cash flow to $2.8 billion through the third quarter. Year-to-date, we have returned nearly $3.4 billion to shareholders, including approximately $2.8 billion in buybacks and $600 million in dividends. Dividend payments in the quarter reflect a 9% increase from $0.22 to $0.24 per share we announced in February this year, net of the lower share count.
With that, let me turn it back to Jim for his closing remarks.
James M. Foote -- President and Chief Executive Officer
Great, thank you, Kevin. Turning to Slide 14, let's wrap this up by reviewing our outlook for the year. Freight demand is generally in line with the expectations set out at the end of last quarter when we adjusted our forecast to reflect what we felt was a realistic view of softer underlying economic activity. Nothing in the industrial economy has really changed since then. Despite the swing from a plus 1% to 2% growth environment to a down 1% to 2% environment, we are maintaining our full-year operating ratio guidance of below 60% and we are still on course for record operating cash flow. These are impressive accomplishments.
We have fundamentally changed CSX over the last two years, not just in how the Company operates, but also the way we approach our business and our customers. We are encouraged by our customers' positive response to our improved service and are working tirelessly to find innovative new ways to better serve their needs. Despite the significant progress made to date, we are still -- there are still meaningful opportunities to operate more efficiently and reliably as we move toward our goal of being the best-run railroad in North America.
Thank you. And I'll turn it back to Bill.
Bill Slater -- Chief Investor Relations Officer
Thank you, Jim. In the interest of time, I would ask, everyone limit themselves to one question and one follow-up only if necessary. With that, we will now take questions.
Questions and Answers:
Operator
Thank you. We will now be conducting a question-and-answer session. And our first question comes from Chris Wetherbee with Citi Research. Your line is open.
Chris Wetherbee -- Citi Research -- Analyst
Great, thanks. Good afternoon, guys. Maybe, if we could start on sort of the OR, obviously significant progress here yet again, in spite of meaningful volume declines. I guess when you think about sort of the outlook, maybe if we can go beyond sort of the near-term target of sub-60 and the efficiency and other opportunities that you've highlighted are still on the table, how can we start thinking about things? I guess, maybe putting your hat on for 2020 and thinking about what the world may look like, is this going to be more of a return to volume, I mean, a little bit less operating ratio when you think about 2020 or maybe a little bit more operating ratio? Just want to get a sense of maybe how you're thinking about sort of guiding the business into 2020, which hopefully has a more stable volume outlook.
James M. Foote -- President and Chief Executive Officer
Hey Chris. Well, first of all, we're not heading into 2020 just yet. We'll wrap up the fourth quarter here and then we'll start trying to give guidance as to what 2020 is going to look like. I guess only just two general comments and then either maybe, Kevin or Mark want to jump in with some additional commentary, but just two general comments. It's difficult, still very, very difficult to gauge where the overall economy is going. I think we've -- we feel very confident for the fourth quarter, as we call what we thought was a pretty soft outlook going forward.
And so, we're going to have to wait to see to start figuring out what the revenue is going to look like next year. But again, generally speaking, our plan is to grow this business and to the extent that we can grow this business, we're going to do it. And then secondly, our plan is to running this company as efficiently as we possibly can. And we're going to continue to focus on that. So this is not a -- they are not mutually exclusive. We're going to do both at the same time and that's what we've been showing we can do this year.
Chris Wetherbee -- Citi Research -- Analyst
Okay, that's very helpful. If you allow me, a quick follow-up sort of along those lines. You made some changes within some of the sales positions of the business and it seems like merchandise is an interesting, potentially big opportunity for you as you move forward. Can you talk a little bit about sort of the opportunities that you see, maybe put some sizing around some of them as we move forward 2020 and beyond? Just got to get a sense of what you see as the opportunity for CSX in merchandise.
Mark Wallace -- Executive Vice President of Sales and Marketing
Sure, Chris. Hey, it's Mark. Listen, this is not something, this is new. We've been talking about it for quite some time now. As we look at the future of this business, we see a huge opportunity in our merchandise segment, two-thirds of our business. I think, going back a quarter or two, when we initially put Kevin as the head of marketing, we highlighted the fact that we were going to grow our marketing department, because traditionally CSX did not have one, a traditional marketing department.
Kevin did a great job in the short time that he was there, bringing in some people both externally and internally looking at some things differently and focusing on growth. We've now with these recent additions, moved Farrukh over as Senior VP of Strategy into the Head of Marketing department. So he is going to carry on and we split out the sales and marketing roles from a lot of our directors. Some people used to wear dual headed hats. Now, we've got the Directors of Sales and in Farrukh's group, we have got Directors of Marketing.
And so, as Jim said in his opening remarks, an intense focus on the merchandise sector, clearly, if we look at the size of the opportunity in the North American spend for transportation every year, there is a lot of truck volume out there. And we believe that by renewing our focus on the merchandise segment and looking for truck conversion opportunities that we're going to go out there and capture that market share. So, a huge focus for us going forward. And we're pretty excited by the work that's already been started.
Chris Wetherbee -- Citi Research -- Analyst
Got it. Thanks very much for the time. I appreciate it.
Operator
Thank you. And our next question comes from Allison Landry with Credit Suisse. Your line is open.
Allison Landry -- Credit Suisse -- Analyst
Thanks, good afternoon. Good job on the OR during the quarter. I wanted to ask about the coal yields, they seem to have held up a little bit better sequentially than I would have expected, given deep export benchmarks. So maybe if you could talk about the mix trends within the segment in the quarter and compare that to what you saw in the second quarter and then if you could just maybe comment on how we should be thinking about Q4?
Mark Wallace -- Executive Vice President of Sales and Marketing
Yes. Let me highlight the mix, Allison, but I always get the mix question. So let me address that overall and we can get into coal if you want, but overall, we experienced negative mix within most of our business segments this quarter. And as I've talked about it many, many times and as usual, you see within each business segment and again in coal, there was always ups and downs between the commodities. They hold the different RPUs and we'll continue to see these mix issues quarter-to-quarter.
I don't -- we don't manage the business to so far how mix falls in any given quarter, and we're focused on delivering long-term sustainable growth. But clearly on the coal side, we did have negative mix on coal. A lot of that was a shorter haul business to some utilities in the north. I think there was a phenomena we saw in the second quarter and we also had some growth to some shorter-haul growth to mobile and at the mines in Alabama, so -- and less growing export, as the export volumes were impacted by the benchmarks.
So as I said, a lot of mix issues going in overall in each of the commodities, but again in coal, just given the decline in some of the longer-haul exports and then we picked up some shorter-haul utility business. So, that phenomena continued.
Allison Landry -- Credit Suisse -- Analyst
Okay, perfect. And do you have any thoughts on Q4, just given the one quarter look back on the benchmark for the export of met?
Mark Wallace -- Executive Vice President of Sales and Marketing
Well, I'll tell you. Q3, I would say that export, the met side, which again is two-thirds of our export coal, the business was soft, but the global steel markets continue to weaken with the industrial slowdown and some of the sourcing issues in Europe impacted obviously the benchmark prices. As you know, the majority of our contracts reprice quarterly. So in Q3, we were less impacted by price, because the price of the export, the Mitch [Phonetic] benchmarks in Q2 were relatively strong, but as we move into Q4 and given the year where the benchmarks were in Q3 and where they are today of about $150, clearly there's going to be some RPU impact in Q4.
Allison Landry -- Credit Suisse -- Analyst
Perfect, OK. Thank you.
Operator
The next question comes from Tom Wadewitz with UBS. Your line is open.
Tom Wadewitz -- UBS -- Analyst
Yes, good afternoon, it's Tom. I wanted to ask you on the over time initiatives, Kevin. It sounds like you're getting a lot of traction on that pretty quickly, which is great, wanted to see if you could give us kind of a ballpark of maybe on an annual basis, how large is the opportunity for cost savings from reduced over time. Is it $50 million? Is it -- just some kind of a ballpark for that. And perhaps, how much of that you would have captured on run rate basis in the third quarter?
Kevin Boone -- Executive Vice President and Chief Financial Officer
Yes, we haven't gotten real specific, but it's not single-million digits, it's tens of millions of dollars, if we execute across the mechanical engineering and the T&E employees out in the field. So it's a large opportunity for us still going forward, where we've just begun, and I'm sure Jamie can talk more to all the efforts that we started probably in the late second quarter, as we saw some of the volumes come down and we started the focus on this item.
James M. Foote -- President and Chief Executive Officer
Yes, Tom. One of the -- obviously, what we've really seen some good traction is on that engineering and mechanical side. We have seen some traction on the transportation end, but that's where our bigger opportunity is and as the team spends time out in the field, visiting locations and continuing to look for opportunities, that's one of the larger opportunities that we see out there, still left on the table going forward.
Kevin Boone -- Executive Vice President and Chief Financial Officer
But, Tom, going back to the magnitude of the size, I think previously I mentioned, many categories were 30% plus over time as a percent of straight time. So the opportunity is still pretty significant there.
Tom Wadewitz -- UBS -- Analyst
Okay. And then I guess a related question to that. And the per-worker comp and benefits in the quarter were a little bit lower than we expected, down about 2% year-over-year. Was that primarily a function of lower over time? Was there something going on that incentive comp or something else? And is that something we should model in fourth quarter in terms of lower per-worker cost?
Kevin Boone -- Executive Vice President and Chief Financial Officer
No, I'd say it was a combination. I think you got a right certainly over time played a factor in that. You did see some -- slightly lower incentive comp year-over-year as well. We'll continue on a good trend here going forward.
Tom Wadewitz -- UBS -- Analyst
Okay , great. Thanks for the time and good quarter.
James M. Foote -- President and Chief Executive Officer
Thanks, Tom.
Kevin Boone -- Executive Vice President and Chief Financial Officer
Thank you.
Operator
Thank you. The next call comes from Ken Hoexter of Bank of America Merrill Lynch. Your line is open.
Ken Hoexter -- Bank of America Merrill Lynch -- Analyst
Hey, great. Good afternoon and congrats on a solid operating ratio. Great to see. Jim, maybe just your thoughts on if you -- you mentioned kind of nothing has changed in the outlook, but maybe get a little more specific, if there is anything shifting in particular coal, metals, fertilizer taking a step down. Is there anything in the market that you look out that alters your view as you look out?
James M. Foote -- President and Chief Executive Officer
No. All of the external metrics to try and get a sense for where the business is going have seen to somewhat stabilized at this lower softer numbers. It took -- my personal opinion is, it took a while for them to get there. And if they're going to turn it round, it's going to take a while for them to turn back up. And while there is some sense, more sense today of optimism, then maybe there was 10 days ago. These metrics and these numbers are not going to turn around in a couple of weeks. So we see this kind of a slow-growth environment throughout the quarter and as we get near to the end of the year, hopefully, we can see --have a little more light shown on the pathway beyond the end of this year and we'll be in a better to opine on it.
Ken Hoexter -- Bank of America Merrill Lynch -- Analyst
Appreciate that. And I guess for my follow-up then, since you're sticking with your 60% -- sub-60% OR, are you somewhat indicating a step up in hard fourth quarter margin or any reason, you're not taking it down, just given the run rate for the three quarters is sub-58%, yet you're not going to a sub-59% or even out of 58%? Are you indicating something is going to happen in the fourth quarter or just being keeping a high number as a easy bogey?
James M. Foote -- President and Chief Executive Officer
Boy, when we are in New York, a couple of -- well, it was about 18 months ago, Kenny, when I said we're going to get to a 60% in 2020, yes, I didn't hear you say, boy, that's an easy question. So, yes, we're going to get to our target, we said we would beat our target a year early, and clearly had not put in our plan this kind of softening in the overall economy, not only in the US but globally impacting all of our business units here kind of a one-time.
So we're kind of in a -- are we being cautious? No, I think we're being -- we have the same realistic viewpoint of the economy today that we had three months ago when we told everybody we didn't see a hockey stick coming into the second half of the year in terms of growth. We all saw a what is traditionally the fourth quarter from a seasonality perspective. We expect similar kinds of behavior on the cost side this year. So, that's just I think -- it's just a realistic assumption as we always do. We hope we do better than that, but putting and to say that we're going to have an annual operating ratio of below 60% this year is a pretty good achievements in a difficult time.
Ken Hoexter -- Bank of America Merrill Lynch -- Analyst
I don't disagree. Just you're three quarters in, you're already at 58%. So it just seems like -- I didn't know if you were sending a signal that you expected to deterioration in fourth quarter beyond normal. But I appreciate the insight. Thanks, Jim.
James M. Foote -- President and Chief Executive Officer
All right.
Operator
The next question comes from Amit Mehrotra with Deutsche Bank. Your line is open.
Amit Mehrotra -- Deutsche Bank -- Analyst
Thanks, operator. By the way congrats, Kevin and Jamie on the new appointments, well deserved. I wanted to ask a question about the operating ratio shockingly and just the Company's ability to maintain or grow profits in a down revenue environment, because this is supposed to be a business with theoretically high incrementals and decrementals, it's capital-intensive business. So I'm just trying to understand how much runway you have on the cost and efficiency side because you decided to put that in extra this time on the looking -- the forward looking slide.
And so, I'm just trying to understand how much room there is on the cost and efficiency side that's going to allow you to continue to hold the line on profits or grow profits on a year-over-year basis in an environment where revenue continue to be challenging or down?
James M. Foote -- President and Chief Executive Officer
Well, just a clarification, so I can answer the question correctly. I think our slide in terms of what we're talking about in terms of efficiency and operating ratio, it's the exact slide that we used three months ago. And I think it's -- that's the exact slide we used the quarter before that.
Amit Mehrotra -- Deutsche Bank -- Analyst
Well, unless I'm mistaken, I think you added significant remaining opportunities to further improve -- I mean, we're nitpicking here, but I think you added another bullet regarding efficiencies -- service and efficiency further improvement there.
James M. Foote -- President and Chief Executive Officer
Well, like I said, we're always trying to -- we always try to get better and we believe there is a lot of opportunity out there for us to continue to get better. It will be a hell of a lot better easier to get to a better number with a little bit more robust economic and environment. So we're going to continue to always, always, always focus on the efficiency and run in road in the best way we possibly can.
And we believe that there are many, many opportunities out there for us to continue to do that and I don't think that's anything different than I've ever said before and comment in terms of other opportunities here. That might be a little more difficult to find, identify and execute on, but there are always tons of opportunities out there for us to get better. We've always believed that, we've always been optimistic and bold in our convictions and where we thought we could take the Company. And I don't think anything's really changed.
Amit Mehrotra -- Deutsche Bank -- Analyst
Jim, would you be -- I'm just trying to understand this. Just a follow-up to this question, as you look out over the next 12 months, I know you're not talking about 2020, but just conceptually, given the opportunity you see on the cost side, could revenues -- if revenues are flat to down next year, do you think you could see year-on-year OR improvement in 2020?
James M. Foote -- President and Chief Executive Officer
Well, again, we'll give you a more solid view of that at the end of the quarter. Aspirationally, do I think that with this team, can repeat the fantastic job they did this year with the revenues? Again, as I said in my comment, we started the year thinking the revenues were going to be up as much as 2% and now we're saying the revenues could be down as much as 2%. And for us, to have that delivered this operating -- 56% something operating ratio, it was nothing short of amazing. Am I going to challenge this group and as this group going to accept the challenge to try to do the same thing again next year? I certainly hope so, but in terms of putting it in the books and saying that that's our forecast, we're going to wait three months before we make that kind of bold statement.
Amit Mehrotra -- Deutsche Bank -- Analyst
Yes, that's very fair. Then, my second question is just on the pricing environment. When I just look at revenue per RTM kind of adjusted for other income and ex-fuel, it continues to moderate, and I know it's not a perfect metric to a proxy for pricing, because there's a lot of stuff that goes into it, especially mix, but can you just talk about kind of when we should see revenue per RTM? What is that a proxy for and can we extrapolate that into the overall pricing environment, just making it harder to get pricing in the volume environment? Any comments around that would be helpful.
Mark Wallace -- Executive Vice President of Sales and Marketing
Yes, Amit, it's Mark. Well, so, I won't repeat what I told Allison when I talked about the mix, but clearly that has a significant impact on the revenue per RTM, but let me address the pricing, because I always get this question on price. And let me be crystal clear here, we're not sacrificing volume for price or price for volume. And within merchandise and intermodal, our same-store sales pricing in Q3 was the strongest that we've seen in the past three years.
And on our contracts that come up for renewal in the quarter, we exceeded our same-store sales pricing, so and we're going to continue to price to the value of the business and price to the value of the service that we provide and -- but again, on RPU and then revenue per RTM, you're always going to see these mix issue. So, but don't read into it that it's a pricing issue. We're still continuing to generate the best price for the value of our product.
Amit Mehrotra -- Deutsche Bank -- Analyst
Okay, that's very helpful. Thanks, guys, and congrats on the great results. Appreciate it.
James M. Foote -- President and Chief Executive Officer
Thanks you.
Mark Wallace -- Executive Vice President of Sales and Marketing
Thanks.
Operator
The next question comes from Brandon Oglenski from Barclays. Your line is open.
Brandon Oglenski -- Barclays -- Analyst
Good afternoon, everyone, and congrats again, Kevin and Jamie. Well deserved. So Jim, maybe just to clarify last line of question, I think some investors have gotten really focused on maybe more glossy, quote unquote, PSR presentation of that your competitors. And the -- maybe the common thought here is that CSX really has nothing more to go on precision scheduled railroading, so maybe in that context, you guys have head count down roughly in line with attrition this year, I think you're sticking with that. I mean, should we be thinking that when we get back to a growth environment, there is still more to go on the cost side or can you scale into this new level of cost with a lot more growth? I guess, how can you help us on that line?
James M. Foote -- President and Chief Executive Officer
Well, yes, we don't have good slogans, but we're working on making that -- fixing that whenever we can. What we're doing is, yes, I mean we're responding to a softer environment and looking for every opportunity we can, where we don't impact service or safety. And what we're doing here is that we're building an enormous amount of operating leverage into this organization. So, when the economy, not if, but when the economy begins to turn around and we begin to see a slight uptick in a better environment to work in, we're going to see the impacts of that leverage and we are not going to -- we have tons -- we have like the way we run the company today has created a tremendous amount of potential growth opportunity for us on the capital side. One, because we freed up a tremendous amount of capacity, because of the way we run the railroad today and we said many times, we could probably put 30% growth at the end of the organization without adding any additional capital and the same is true on the operating side.
We've got capacity on our existing trains today, where we could put a lot of growth on the railroad incrementally and not have to start adding that expenses. And so, both from a the cash perspective and then operating perspective, I think we're well positioned to perform well in either direction, either in a soft environment or in a strong environment.
Brandon Oglenski -- Barclays -- Analyst
Appreciate it, Jim. I'll keep it to one.
James M. Foote -- President and Chief Executive Officer
Thank you.
Operator
The next question is from Brian Ossenbeck with JP Morgan. Your line is open.
Brian Ossenbeck -- JP Morgan -- Analyst
Hey, good evening. Thanks for taking the question. First one, just a follow-up on the extra capacity theme. Mark, what are you thinking in terms of some of the bigger chunks of truckload conversion and how some of the larger shippers or maybe in some of the industries receive better service, the better tools, increased visibility? How -- what's your sense as to when you can start to make some of those conversions even at a smaller scale?
Mark Wallace -- Executive Vice President of Sales and Marketing
Brian, we're seeing it today, we're seeing it every day. I would say, I'm blessed, and my team is blessed. The work that Ed and Jamie and their teams have done, Jamie deserve to be sitting at this table today and the work that he's done over the last 2.5 years to really give us the service product that my team now has the ability to grow and sell and we think we will tap into the truck conversion opportunities that this franchise has never been able to, to go after in the past is exciting. And so, we're seeing those truck conversions today. We're seeing it across the board, all across our merchandise segments.
Large things to talk about right now, no, but we're seeing incremental volumes from existing customers, Dane and Dale, we're talking to customers who may be used to ship by rail, but because of the poor service that they experienced over the last couple of decades, abandoned rail is a thought and have been using truck ever since. Those are the kinds of shippers that we're talking to and we're penetrating that those markets in that business and we're being successful.
Listen, we're also on the technology side, as Jim mentioned in his opening, trip plan compliance is a huge, huge game changer for our customers. They know and as we said we rolled this out for intermodal on October 1 and our merchandise customers will see trip plan compliance visibility December 1 on ship CSX. This is a game changer for them. They will see every car that they ship on CSX in every lane in our performance against the trip plans.
We rolled sort of couple of weeks ago at our customer engagement forum and I can tell you customers are excited. So, we've got great visibility into their service, no other railroad is doing this. We've got -- we're blessed with a great service that we've got that the operating team has worked very hard to deliver to us. And so, right now it's for us to go out and identify that those opportunities and convert on them with the new team that I put in place here over the past week.
Brian Ossenbeck -- JP Morgan -- Analyst
All right. Thanks, Mark. Appreciate all the detail there. Kevin, maybe a quick housekeeping for you. The revenue line continues to come down for the reasons you mentioned on the demurrage and the storage. Is this current run rate that you expect for the rest of this year? I'm just wondering, as shippers sort of figure out to deal with the new operating model sort of being rolled out through the US, do you think the states demurrage in general -- do you think it's state is structurally higher, as some shippers just use the storage as part of the cost of doing business or do you think this eventually goes back to sort of where it was pre-PSR?
Kevin Boone -- Executive Vice President and Chief Financial Officer
Yes, I think, look, I think we told you we expected that to come down and it's kind of trended in that direction in terms of the run rate going forward, somewhere between the second quarter run rate and the third quarter is probably where we land, so in that $110 million to $120 million range is probably the new normal, unless something dramatically changes from here. I might let Mark talk to you the additional opportunities. But look, it's -- I think we expect to this without something meaningfully changing from here, probably at the same run rate.
Brian Ossenbeck -- JP Morgan -- Analyst
Okay, thank you.
Operator
The next question comes from Scott Group with Wolfe Research. Your line is open.
Scott Group -- Wolfe Research -- Analyst
Hey, thanks. Afternoon guys. So I want to ask the productivity question, maybe a little bit more directly. Do you think you can do another mid single-digit reduction in headcount from here. And then, does a 57% OR with revenue down 5% give you more confidence that ultimately you can run this business, not next year, but longer term closer to mid-50s OR if you're growing revenue?
Kevin Boone -- Executive Vice President and Chief Financial Officer
Scott, this is Kevin. Look, I know the focus has been on headcount. I know we report headcount numbers every quarter. Labor represents roughly 35% of our cost base. There is a lot of other cost to go after as well.We're looking at those, I think we saw great improvement in MS&O, which is a huge cost line item for us. There's other ways to reduce costs than pure headcount reductions. We've talked about over time. It's a huge, huge category for us.
So we're getting -- there is a lot of other areas for us to go after than just simply headcount. But if the volumes continue to be challenging, we'll look for new ways to drive cost down. We run faster and take down dwell, the assets drop out and the costs go down significantly, so we'll look at every way to go out -- go after these costs.
Scott Group -- Wolfe Research -- Analyst
And the OR more broadly?
Kevin Boone -- Executive Vice President and Chief Financial Officer
Sorry? And the OR --
James M. Foote -- President and Chief Executive Officer
Scott, again, we're not going to get into 2020. As we've said, we think we have opportunities to continue to improve on the efficiency side. We said that we would improve our efficiency in a good environment and in a bad environment when we started the year and we've done it. Some people didn't think we could, but we shown the world that there is no limit to what part of work an ingenuity can produce.
Scott Group -- Wolfe Research -- Analyst
Okay, that's fair. And just, Jim, just one other. It's been a busy three months in Washington with rate case proposals and accessorial proposals and the lawsuit from you guys on one-man crews. Maybe just give us a lay of the land as you see it in DC, and any other proposals from the Board a real concern, your thought and maybe some color on this lawsuit on the one-person crew, so just DC broadly as you see it.
James M. Foote -- President and Chief Executive Officer
Well, I would now -- open my -- let you know my real thoughts are about what's going on in Washington DC, so I'll just stick with what's going on at the STB. The STB after a number of years is not being like really fully staffed. It's stepping up and taking care of some issues that have been lingering out there for a long time and I think that they're just doing their job and they put forward some suggestions which have been kicked around for a long times in terms of is there a way to change, simplify, modify some of the procedural steps that shippers have to go through if they have the complaints.
And I think the industry -- we have thoughts on what they want to talk about and the rest of the industry does as well. And I think we'll work through all of that in due course. And it's similarly on trying to begin to have some discussions at least about what revenue adequacy might be. That's a long-term process. So I just think that the STB is kind of work -- is back to work and being in a business in an industry that's regulated. You just work with the regulator in due course.
So I'm not freaked out about anything that's going on there. And, hey, we're starting -- and your comment about litigation over labor negotiations, we're just now starting a long process to begin the new round of industrywide bargaining and everybody starts out trying to posture and get themselves in the right position. And so, again, nothing out of the normal course of business there. So I think, it's just business as usual and we'll continue to remain vigilant and active in that area, but I said Nathan in the D.C., I try enough to go there and absolutely [Indecipherable] have to.
Scott Group -- Wolfe Research -- Analyst
Thanks for the time guys.
Operator
The next question comes from Ben Hartford with Baird. Your line is open.
Ben Hartford -- Baird -- Analyst
Hey, good evening guys. Jamie, maybe just some perspective on your view looking into 2020 from an ops perspective. This quarter, a good progress on train velocity improvement but dwell hours were flat. Any specific projects into 2020 that you have on the horizon that you think can really affect change, particularly on the dwell hours side? I mean maybe talk us through how you see the next 12 months progressing from an operations point of view. Thanks.
James M. Foote -- President and Chief Executive Officer
Yes, for sure. Thanks for the question, Ben. We -- the operating team is completely focused on controlling costs, but providing the best service as Mark mentioned and not only providing the best service for doing it safely. So as we continue to assess the market conditions and making sure that we're nimble enough to make the moves that we need to heading into the next quarters, we are getting out there as an operating team. It's been able to work really close with the guys over the last couple of years and developed a fantastic team of railroaders out there.
And to your point, dwell is one of those metrics that isn't where we want it to be, particularly on the network side of dwell and that comes along with car hire. And car hire is a big expense that we want to continue to work toward going into the next few quarters and just getting out in the field, being out there, traveling with the guys, I've spent the past couple of years really performing most of my work or a lot of my work here in the network center with the team. Now, we're kind of spreading our wings again out there and working with those, the operating guys on the ground and making sure that the team has taken a look at every opportunity we have out there to continue to bring those costs where they need to be, but ultimately this is about providing the best service we can and giving our marketing team a product that they can go out there and continuing to sell, while we continue to drop those costs.
Ben Hartford -- Baird -- Analyst
Any notable projects on the immediate horizon or is this going to be kind of iterative from here forward?
James M. Foote -- President and Chief Executive Officer
I think there's a lot of projects out there with respect to getting out, as I mentioned, getting on the ground, trying every -- minimum every two weeks, taking a team out, flying in different terminals. Last week, we made a trip over to St. Louis unannounced, sat down with the operating team and came up with some ideas on how we can move cars quicker, faster and reduced head count. So those opportunities are what we're going to continue to push and drive forward. The Senior Vice Presidents, both Bob Frulla and Brian Barr are travelling with me out there. And we're finding the external talent we have -- sorry, internal talent we have within our company and moving boxcar as quick as we can and most efficient. That's where we're going to continue to do pushing forward with the assets.
Operator
Justin Long with Stephens. Your line is open.
Justin Long -- Stephens -- Analyst
Thanks and congrats on the quarter. Jim, you mentioned the industrial environment and your view that things really haven't changed relative to your expectations last quarter, but could you comment on what you're expecting on the retail side of the equation, and just curious to get any updated thoughts around peak season and maybe what intermodal volumes could look like once we lap all the rationalizations and start to see more normalized numbers in 2020?
James M. Foote -- President and Chief Executive Officer
Yes, sure Justin. And again, one of the reasons -- one of the issues we've been struggling with throughout the year is the fact that everything, whether it's the stock, whether is interest rates, whether it's all of these consumer-driven sides of the economy, we're all doing so well. And we saw very early in the year the industrial economy was separating and was not performing very well at all. And so, last quarter when I said this was confusing, we still -- I think we had a pretty good sense of where things were going and it's proving out as we move through the second half.
With that, I'll let Mark. Mark, who is totally on top of intermodal and what the -- whether or not we're going to have a peak or not to answer your other question.
Mark Wallace -- Executive Vice President of Sales and Marketing
Hey, Justin. Yeah. I mean, our expectations for peak are somewhat muted this year. I think we'll see a little bit of a bump, but not the traditional ball peak. I mean, stuff is still coming into the -- sort of the -- consumer economy is still doing relatively well. So the apparel, the toys and the plastic Christmas trees and stuff for coming -- still coming in, but as we all know, intermodal carries a lot more than just that kind of stuff, they carry a lot of stuff that goes into the industrial economy, machinery and auto parts and whole bunch of other stuff. So because of the economy, the industrial economy being soft and IDP being so weak, yeah, it's affected a lot of the intermodal volumes.
Fourth quarter, because of the economy and because of the consumer economy, we're hoping to have a relatively good post-Thanksgiving holiday peak. So into the Christmas time frame. Hopefully, people order a lot of stuff online and we have the pleasure and the honor of moving a lot of that stuff. So, I think that will help our intermodal volumes this quarter. But going into next year, as we said, we're not going to give you a lot of guidance there. But it really depends on what's driving the economy and where we are. But longer term as we get through all these lane rationalizations and get through all this mess in a good solid economy, I would expect intermodal to do very well.
Justin Long -- Stephens -- Analyst
Okay, great. And maybe as a quick follow-up for Kevin. Gains on sale, there was a step up relative to what we saw in the first half on the quarterly run rate. Could you talk about what you're expecting from gains on sale perspective in the fourth quarter? And then, any early read on what we should be looking at in 2020?
Kevin Boone -- Executive Vice President and Chief Financial Officer
Yeah. I mean, $65 million was a little bit above the normal run rate that you've seen historically. I would expect something well below that in the fourth quarter, something more on the normalized rate in that mid-20s, low-20s range for the fourth quarter. We'll wait -- we'll hold off on 2020 to go through. We still have a great pipeline. Timing is always difficult to predict on when those transactions will hit. But I know Mark and his team continue to see a really good pipeline going forward.
Justin Long -- Stephens -- Analyst
Okay, great. I'll leave it at that. Thanks for the time.
Operator
Jordan Alliger with Goldman Sachs. Your line is open.
Jordan Alliger -- Goldman Sachs -- Analyst
Yeah, hi. Just a real quick question, I know, it may be tough because of the de-marketing of the lanes and intermodal. But I'm just curious when you look at domestic versus the international intermodal, can you give a little color on both those pieces of business relative, order of magnitude, weakness or thereabouts? Thanks.
Mark Wallace -- Executive Vice President of Sales and Marketing
Our international business has been stronger than the domestic business. So the domestic -- as I talked about just a minute ago, the domestic business has been impacted by a number of factors, the economy is certainly one of them. But I think, clearly, a lot of capacity. We saw a very tight truck capacity last year. Clearly, a lot of new trucks came into the market, a lot of new drivers opened up a lot of additional capacity. And so, I think intermodal has been competing with that truck capacity this year. Prices, obviously, in truck spot prices have come down since -- from last year. There is still a bulk sort of the five-year average. But clearly, prices have come down. So I think the domestic business, while good, it's just been soft and -- but our international business is still relatively OK.
Jordan Alliger -- Goldman Sachs -- Analyst
Just a real quick follow-up, just for perspective, do you have a sense for what proportion is just international versus domestic of the total carloads or revenue in the intermodal?
Mark Wallace -- Executive Vice President of Sales and Marketing
Yeah. It's about 50-50. It's about 50-50.
Jordan Alliger -- Goldman Sachs -- Analyst
Thanks very much.
Mark Wallace -- Executive Vice President of Sales and Marketing
Absolutely.
Operator
Next question is from Fadi Chamoun. Your line is open.
Kevin Boone -- Executive Vice President and Chief Financial Officer
I always say 40%. So actually it's a useful answer in the future.
Mark Wallace -- Executive Vice President of Sales and Marketing
Perfect.
Kevin Boone -- Executive Vice President and Chief Financial Officer
Yeah.
Operator
Fadi...
Kevin Boone -- Executive Vice President and Chief Financial Officer
Whose Fadi?
Mark Wallace -- Executive Vice President of Sales and Marketing
Sorry, you're on -- maybe take your phone off, Boone.
Kevin Boone -- Executive Vice President and Chief Financial Officer
What -- I guess, for the [Indecipherable]. Sorry.
Operator
And you are ready for the next question, correct?
Kevin Boone -- Executive Vice President and Chief Financial Officer
(Multiple Speakers)
James M. Foote -- President and Chief Executive Officer
Yes, please. Next question.
Operator
That is Fadi Chamoun with BMO Capital Markets. Your line is open.
Fadi Chamoun -- BMO Capital Markets -- Analyst
Okay. Thank you. There's a lot of noise and feedback, so.
Mark Wallace -- Executive Vice President of Sales and Marketing
Sorry, Fadi.
Fadi Chamoun -- BMO Capital Markets -- Analyst
Apologize about that. But just to follow up on this intermodal conversation. Maybe one, I mean, your service product is obviously getting a lot better and the network is highly efficient. And correct me if I'm wrong, in intermodal, you tend to have less capital intensity as far as how you run the business. Is there over the medium term given the truck opportunity, a potential to reinvest kind of OR to accelerate growth or do you don't think that's needed strategy to grow intermodal?
Mark Wallace -- Executive Vice President of Sales and Marketing
Well, you know Fadi, it's Mark. This Company has spent a lot of capital dollars over this year -- over the past decade or so to grow intermodal volumes. And it was not very successful. And so, today we have spent the last year and a half, two years reengineering the traditional hub-and-spoke intermodal franchise that was built over the past little while.
So to answer your question, no. I don't believe and I don't think we believe that we need to spend any significant capital dollars to continue to grow our intermodal franchise. The team's focus right now is about taking touches out of the system. As you know the more you touch and handle an intermodal container your cost go up and the profitability goes down. And so, we're focused on streamlining that business and getting it as efficient as possible and bringing on additional capacity. But we've got ample capacity now to grow intermodal. And when the volumes will return to Jim's point, the economy will turn around and when intermodal volumes do come back, we have ample capacity in and right now without spending any additional capital to move that product.
Fadi Chamoun -- BMO Capital Markets -- Analyst
Okay. And just also a follow-up on the previous question. So, if contract rates -- truckload contract rate, say, flat or slightly down in the next 12 months. Can you still grow domestic intermodal in the environment?
Mark Wallace -- Executive Vice President of Sales and Marketing
Well, our -- the majority of our intermodal business is locked up in long-term contracts, Fadi. So, we don't have any short-term opportunities to replace a lot of the business. So, again, a lot of the focus has been on the cost side and the efficiency side. But clearly, as the economy comes back and we handle more intermodal business and our handling in a more efficient way, yeah, I mean, we'll -- we can grow the business that way.
Fadi Chamoun -- BMO Capital Markets -- Analyst
Okay. Thank you.
Operator
The next question comes from Ravi Shanker with Morgan Stanley. Your line is open.
Ravi Shanker -- Morgan Stanley -- Analyst
Thanks. Good evening, everyone. Just a clarification, at the start of the call, Jim, I think you said something along the lines of a 5% rationalization in lanes. Can you just clarify that a little bit? Is this more intermodal lane rationalization in 2020? Is this what leftover from 2019 ones? What exactly you are implying?
Mark Wallace -- Executive Vice President of Sales and Marketing
Ravi, it's Mark. Let me be clear and just so everybody has all the facts here. January of 2018 we began the rationalization of about 7% of the franchise. Last October -- October 1 of last year we took out an additional 3% -- rationalized additional 3% of the lanes and then in January of this year we did another 5%. And so, we -- as to Jim's earlier comment, we will be lapping in the fourth quarter the 3% rationalization that we took out last year. And then in January we'll be -- the lane rationalizations will be completely behind us.
Ravi Shanker -- Morgan Stanley -- Analyst
Got it. So no more rationalizations in 2020?
Mark Wallace -- Executive Vice President of Sales and Marketing
No.
Ravi Shanker -- Morgan Stanley -- Analyst
Okay. And just as a follow-up, thanks for the color on the export coal pricing and the quarterly reset into next quarter. I think in the past you guys have said that you have take or pays in the export coal business to a certain extent until your contracts renew. Is that again on the same quarterly cadence you're talking about or is that more of an annual thing and kind of -- did that have any impact in 3Q?
Mark Wallace -- Executive Vice President of Sales and Marketing
No. Both Ravi on -- both on the thermal side and on the met side we have built into the contracts -- contract minimums. So, as I mentioned, I think in Q2, given the weakness in API2 and everything that was going on globally with thermal coal we are experiencing the slowdown in volumes and we saw our customer shipping their contract minimums, that is not changed given the continued weakness in export coal benchmarks. I will say something that hasn't come up, we still expect our export coal volumes to hit sort of the 39 million to 40 million ton range for the year. Last year we did about 43 million tons and -- but even with everything that's going on, we still expect to be between 39 million to 40 million this year.
James M. Foote -- President and Chief Executive Officer
And Ravi, just to clarify, we didn't have any liquidated damages in the third quarter.
Mark Wallace -- Executive Vice President of Sales and Marketing
Correct.
Ravi Shanker -- Morgan Stanley -- Analyst
Understood. You articulated much better than I did in terms of the minimum volumes shipped. So, Mark, just to kind of -- I know you guys not talking about 2020. But if the benchmark were to stay at current levels you would expect that 40 million to be lower next year once the minimum shipment levels reset?
Mark Wallace -- Executive Vice President of Sales and Marketing
If I could only predict what's going to happen to things that are completely out of my control, met benchmarks and API2s and I don't have a clue. I don't have a clue what's going to the economy and I don't have a clue what's going to happen to export benchmarks. So, hey, I get my hands and knees [Phonetic] every night and [Indecipherable] but clearly, yeah, it's a headwind right now.
Ravi Shanker -- Morgan Stanley -- Analyst
You and me both, Mark, that's understandable. Thank you so much.
Operator
Bascome Majors with Susquehanna Financial Group. Your line is open.
Bascome Majors -- Susquehanna Financial Group -- Analyst
Hey, Kevin, now that you're firmly in the CFO seat, can you share your priorities for the finance organization be it balance sheet management, capital deployment? And over the next two, three years, what could change and what definitely won't? Thank you.
Kevin Boone -- Executive Vice President and Chief Financial Officer
Thank you for the question. My priority is cash. I think when we look across the organization, and I am -- as I was talking to my team last week, sometimes we prioritized OE over capital. And I think we have a lot of ability to look at our capital spend and focus there and make that a lot more efficient. There is opportunities. Jamie and I now said right across from each other, we're talking every day about -- and sharing information about where we see the opportunities, whether it's over time like we mentioned time and time again, that was a new initiative and he is working closer and closer with all the people in finance, and just to uncover those opportunities.
There is opportunities everywhere. There are small buckets that they can add up to a lot of dollars over time. But that's my priority is really looking at, particularly just the return on capital. If there is really high-return projects out there that we can invest in we generated a lot of cash flow today. I wouldn't love nothing better for my organization to come with me with 20%-plus return projects that we can invest in our business to drive value over time. That's really where I'm focused on the next few months. Procurement also has been my area and I know that group is doing a great job of finding additional cost savings from our suppliers, working with them, but we're not afraid of investing in the business going forward.
Bascome Majors -- Susquehanna Financial Group -- Analyst
Thank you and congrats.
Operator
David Vernon from Bernstein. Your line is open.
David Vernon -- Sanford C. Bernstein -- Analyst
Hey, guys. Thanks for taking the time. So, Mark, I wanted to ask you the export coal question a little bit differently. If you think about 2Q to 3Q, did we see any weakness in the rates you guys were getting on the export shipments that you still retained or any sort of increase or decrease? Just kind of how that has moved? And just wondering kind of what percentage of the tonnage you guys are moving right now is hedged at prices from earlier in the year?
Mark Wallace -- Executive Vice President of Sales and Marketing
Well, again on the thermal side, these contracts are annual contracts, so they were -- for this year, they were negotiated late last year, early into 2019. So those -- they were set, they're tied to the benchmarks and the benchmark for API2 is a lot higher at the beginning of the year and late last year. On the met side, as I said, they get repriced quarterly most of them, some of them are monthly but majority are quarterly. And as I said, in Q2, the benchmark prices was over $200, Q3 fell to $160-ish. And so, we're going to feel that impact heading into Q4.
David Vernon -- Sanford C. Bernstein -- Analyst
But did we see that from 2Q to 3Q? Or is this going to be showing up in 4Q?
Mark Wallace -- Executive Vice President of Sales and Marketing
No. We saw it in -- on thermal on the volumes in Q3. And we saw it in volumes in met as well.
David Vernon -- Sanford C. Bernstein -- Analyst
But not in the rate, right?
Kevin Boone -- Executive Vice President and Chief Financial Officer
We saw some impact of the rates.
Mark Wallace -- Executive Vice President of Sales and Marketing
Yeah, clearly.
James M. Foote -- President and Chief Executive Officer
It's the beginning of the process, where we work -- because of the lag it's just the beginning of the process and yeah, we'll see more of it as we go into the fourth quarter and next year.
Mark Wallace -- Executive Vice President of Sales and Marketing
The rates were set -- for thermal the rates were set and really it's been a volume play.
David Vernon -- Sanford C. Bernstein -- Analyst
Okay. And maybe just on the petroleum products business, can you give us a sense for what you're running right now in terms of the split between crude and NGLs? And for the crude shipments, kind of, is this mostly Bakken origination coming into the East Coast, like what -- give us some idea of what the flow is on the crude that's still in the business?
Mark Wallace -- Executive Vice President of Sales and Marketing
Yeah. I don't want to speak too specifically because others are listening. But we're moving crude today, mostly from the Bakken. We've had obviously with the refinery explosion and we've seen some slowdown there, which has impacted us for the remainder of the year. But it's probably as much as I want to go. We -- I should mention, both on coal and on all the crude business and we brought in, Adam, who is our new VP of Energy. He has taken a fresh look at all these portfolios and tasked with figuring this all for us. Clearly, these are interesting commodities to manage. But Adam is a very, very smart guy and he's doing a great job looking at different things to help us out longer term. So, look forward to updating everyone on the future on that.
David Vernon -- Sanford C. Bernstein -- Analyst
Any split on the crude versus NGL?
Mark Wallace -- Executive Vice President of Sales and Marketing
No, I don't want to get into that. Not, right now. We won't [Indecipherable].
Operator
The last question today comes from Walter Spracklin with RBC Capital Markets. Your line is open.
Walter Spracklin -- RBC Capital Markets -- Analyst
Yeah, thanks very much. Thanks for squeezing me in here. Jim, you made reference to some technological innovations that you might or are currently looking toward implementing. I know there is at least one other rail that's investing significantly in those technologies. How much would you say and maybe there is a better question for Kevin, how much of your current CapEx envelope is dedicated to, let's call it, these pure technological innovation type of projects? And what's your strategy there, is it more to see what others develop and then if it works we'll devote dollars to it or would you see yourselves adding more incremental dollars to your capital envelope to look for these technological innovation opportunities?
James M. Foote -- President and Chief Executive Officer
Yeah. Walter, hi, thanks for asking the question. Right now our -- yes, a bunch of questions. I'll try to answer them all. What we spent today out of the total amount is a very small amount, but it had a meaningful impact on what we do. In many respects, historically speaking, the rail industry and CSX being no differently, we were kind of beholden to the supplier to come up with new ideas and new technology. I think now we work more collaboratively with the way to do things and we talk among ourselves in the rail industry about what works and what doesn't work and how we can do things more effectively and efficiently and leverage technology, and technology is changing all the time. So creating new opportunities for us.
So, it probably -- number one probably should and therefore probably will that dollar amount that we spend on technology to help us run the railroad more efficiently will be become bigger, but it's clearly -- it's never going to get to the point where it's equal to what we spend on a rail. So and we're all over everything whether it's automated artificial intelligence to help us do dispatching using more and more technology in a locomotives, not just B2C, but other technology that's available out there to help us do things more effectively and efficiently.
I mean just this little amount we've got three of these cars that are out there running around the railroad doing constant inspection of our rail and the subsystem and everything else. We've seen -- we've seen a big improvement in our -- reducing our slow orders, our incidents of rail breakage, all of this because we captured earlier that we would have -- when we weren't doing as much. So, we're leveraging the heck out of that as much as we can and we're going to add more again in the next year and next year and next year and next year, because it's hard to -- I mean it's hard to put a dollar value on what can happen if you have a big derailment with associated with a rail break.
If you knew you had a railcar, they could have found it before that happened. So, we're all over it -- we're going to continue to do that and it's, I would say there would be in -- it will creep up over time.
Walter Spracklin -- RBC Capital Markets -- Analyst
Looking at way out, is there anything and maybe Jamie you might have seen some of that hasn't crossed Jim's desk. Is there anything way on the horizon conceptual that if implemented really could hit the ball out of the park here in terms of those type of disruptive technologies?
James M. Foote -- President and Chief Executive Officer
Look, I know I think a lot of the technology that we're on to the only thing that I would really mention on top of train inspection portals, not only we're looking at the track, we're also making sure that we x-ray vision and take camera footage of cars run by through inspection portals, but we've got a very strong IT development department within CSX, probably the most impressive I have seen in the industry. We are developing some yard intelligence, crew intelligence. The crew intelligence is really something that I truly believe as we've been working on it for about a year now, almost done that project that's going to allow us to look 12 to 24 hours advance to make sure that our crews are lined up where they need to be and in position where they need to be. So as much as we bounce the railroad, you still got to worry about availability and that crew intelligence and some of the yard intelligence that our team is on working here at CSX is going to really help us carry forward.
Walter Spracklin -- RBC Capital Markets -- Analyst
I appreciate the time.
Operator
Thank you. I will turn the call back over to the speakers.
James M. Foote -- President and Chief Executive Officer
Thank you everyone for joining. I believe that concludes our call for today.
Operator
[Operator Closing Remarks]
Duration: 79 minutes
Call participants:
Bill Slater -- Chief Investor Relations Officer
James M. Foote -- President and Chief Executive Officer
Kevin Boone -- Executive Vice President and Chief Financial Officer
Mark Wallace -- Executive Vice President of Sales and Marketing
Chris Wetherbee -- Citi Research -- Analyst
Allison Landry -- Credit Suisse -- Analyst
Tom Wadewitz -- UBS -- Analyst
Ken Hoexter -- Bank of America Merrill Lynch -- Analyst
Amit Mehrotra -- Deutsche Bank -- Analyst
Brandon Oglenski -- Barclays -- Analyst
Brian Ossenbeck -- JP Morgan -- Analyst
Scott Group -- Wolfe Research -- Analyst
Ben Hartford -- Baird -- Analyst
Justin Long -- Stephens -- Analyst
Jordan Alliger -- Goldman Sachs -- Analyst
Fadi Chamoun -- BMO Capital Markets -- Analyst
Ravi Shanker -- Morgan Stanley -- Analyst
Bascome Majors -- Susquehanna Financial Group -- Analyst
David Vernon -- Sanford C. Bernstein -- Analyst
Walter Spracklin -- RBC Capital Markets -- Analyst
