Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Canadian National Railway Co (NYSE:CNI)
Q2 2020 Earnings Call
Jul 21, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

CN Second Quarter 2020 Financial Results Conference Call will begin momentarily. I would like to remind you that today's remarks contain forward-looking statements within the meaning of applicable securities laws. Such statements are based on assumptions that may not materialize and are subject to risks described in CN's second quarter 2020 financial results press release and analyst presentation documents that can be found on CN's website. As such, actual results could differ materially. Reconciliations for any non-GAAP measures are also posted on CN's website at www.cn.ca. Please stand by. Your call will begin shortly.

Welcome to CN Second Quarter 2020 Financial Results Conference Call.

I would now like to turn the meeting over to Paul Butcher, Vice President, Investor Relations. Ladies and gentlemen, Mr. Butcher.

Paul Butcher -- Vice President, Investor Relations

Well, thank you, Patrick. Good afternoon, everyone. And thank you for joining us for CN's second quarter 2020 earnings call. I would like to remind you about the comments already made regarding forward-looking statements.

With me today is JJ Ruest, our President and Chief Executive Officer; Ghislain Houle, our Executive Vice President and Chief Financial Officer; Rob Reilly, our Executive Vice President and Chief Operating Officer; Keith Reardon, our Senior Vice President, Consumer Product Supply Chain; and James Cairns, our Senior Vice President, Rail Centric Supply Chain.

I do want to remind you to please limit yourself to one question so that everyone has the opportunity to participate in the Q&A session. The IR team will be available after the call for any follow-up questions.

It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Mr. JJ Ruest.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you, Paul. And good afternoon, everyone, and welcome to our second quarter earnings call.

In keeping with our commitment to safety and essential services, our people have quickly pivoted to working safely under the new normal of COVID-19. In Q1, we told you about our proven ability to be resilient to any challenges. In Q2, we proved it again, and CN's operation never slowed down for the pandemic. And we will be ready and prepared if there is a second wave.

As we look back, this was among the toughest quarter of my career with heightened pandemic concern of our employees and a sharp drop in volume of 18% in revenue ton miles. But thanks to our people and our leaders, we performed very well. We take pride in delivering an essential services to our national economies. Our perennial financial strength is serving us very well in these current times. CN generated CAD1 billion free cash flow during a quarter of severe recession. We delivered an adjusted operating ratio of 60.4% and we continue to aim for a minimum of CAD2.5 billion of free cash flow this year. CN is built to last.

And even in these challenging times, I'm proud that we continue to demonstrate why ESG is a hallmark of CN. Namely, our carbon footprint continue to decrease having delivered another record of fuel efficiency. Today, we will speak to the short term, our costs and our resiliency to last this pandemic. And today, we will also speak to our investment in the long term and our contribution to the economic recovery.

Rob will walk you through the strength of our operation in this new normal. He will highlight progress we are continuing to make in cost takeout in bringing technology to the railroad industry and then the safety culture at CN. He will also highlight its outstanding performance in fuel efficiency.

James and Keith will speak to the expected sequential volume trend for the quarters ahead. And we know also, by now you know our long-term commitment to the grain business and the major investment that we've announced here today. Ghislain will give you color on our solid balance sheet and the special non-cash charge that we are using to push PSR further by trimming non-core parts of our network.

So in summary, a good quarter in the middle of a recession. We quickly learned how to operate under the new normal of COVID-19 for quarters to come. We proved again our cost resiliency that will help us deliver in the near term. And we reaffirm our confidence in the future by maintaining our dividend policy, reaffirming our CAD2.9 billion capex in 2020, and announcing a new CAD150 million investment for 2021, targeting the long-term grain export business.

On that note, I will pass it on to Rob. Rob?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

All right. Thank you, JJ. Our results in the second quarter are showing you the strength of our CN team and of our operating model. In these extraordinary times, the team reacted quickly and aggressively. We adjusted resources to declining volumes, increased productivity and efficiency, and served our customers, all of that while improving our overall safety record with less injuries and less accidents on a year-to-date basis. Finally, we will see some lasting structural changes following COVID-19 and I'll provide you with some of those examples.

I'm very proud of the CN team that proved again our culture of operational resiliency as we are leading the industry on many fronts. Now, let me walk you through some of the details. During the quarter, the team responded accordingly to the significant volume drops in rightsizing our resources, by idling four locomotive shops, as well as four additional switching yards. We laid up one out of every three locomotives, over 20,000 railcars were stored, while our active online car inventory was down 20%, and approximately 4,000 employees were furloughed this year.

From a productivity standpoint for the second quarter, the team set an all-time best ever fuel efficiency record while avoiding an additional 29,000 tons of CO2 emissions and saving an additional CAD7 million in fuel expense, directly from our fuel efficiency initiatives and execution. Sequentially, fuel efficiency improved 8% from last quarter. That means, we moved 8% more tonnage, the same distance with the same amount of fuel.

We continue to be the North American Class I railroad leader in fuel efficiency using a little more than eight-tenths of a gallon of fuel per 1,000 gross ton miles. Train weight and train lengths reached all-time historic levels as we're able to move more freight on every train start. Crew starts were reduced 21%, while RTMs were down 18%. Crew productivity exceeded all-time record levels and train speed was up 5% year-over-year. As I noted last quarter, we also took advantage of the additional time on our tracks with fewer trains operating to strengthen our infrastructure. As a result, we've seen our rail and tagging [Phonetic] productivity improve up to 25% year-over-year.

Also, as I've mentioned previously, from a mechanical standpoint, we reacted with a plan and a purpose by laying up our least reliable locomotives first and laying them up in good order status that allows us to get them back into service quicker, when needed. During the quarter we've seen locomotive reliability and availability percentages improved year-over-year, while locomotive dwell was reduced, fully utilizing our assets while doing it with fewer shops and less headcount. You can see that we once again demonstrated our culture of operational resiliency, even during a tough quarter, and we continue to look ahead to further improve our efficiency through challenging times.

Now, let me highlight some of the initiatives we are building on, and that will provide lasting structural changes. The idled locomotive shops and switching yards will remain closed. We will continue to improve train size year-over-year. Fuel efficiency initiatives will continue to produce record outcomes. More of our training will be performed virtually. And we continue to advance the capability of our handheld mobile devices that all train crews have now. Through this digitization process, we have and are eliminating some 30 million printed pages of paper annually at CN, removing hundreds of shared printers and kiosk terminals while reducing the COVID-related exposures associated with them. Further on a technology forefront, our automated track inspection program and automated inspection portals continue to provide benefits with our train accident ratio reduced 22% year-over-year.

Finally, our operations team is tied very closely with James and Keith's teams, matching resources to projected sequential volume return, and we are ready and prepared for additional waves of COVID.

With that, I will turn it over to James.

James Cairns -- Senior Vice President, Rail Centric Supply Chain

Thank you, Rob. Like all Class I railways, we saw a significant decrease in demand related to the pandemic. At the same time, thanks to our unique geographic reach, we set all-time record in the quarter for Canadian coal, Canadian grain, West Coast propane and wood pellets. Prince Rupert gives us a structural advantage that cannot be replicated and creates supply chain resiliency that helps our customers win in their end markets in good times and bad. We set new records for grain for the last four consecutive months. Our customers have invested heavily in new country elevators on CN and new export capacity in Vancouver. In order to support these investments, we will be acquiring 1,500 additional high-capacity hopper cars for 2021. That would create the capacity for us to continue to set new records for Western Canadian grain through next year.

These new high-capacity cars allow us to ship up to 20% more wheat and 40% more canola, using the same train resources, creating an overweighted benefit for CN, giving the commodity mix of our business. Wood pellets in particular was a good new story in Q2. Our year-over-year volume growth of about 15% has come from expansion projects across British Columbia and Alberta, with more production coming on line through the end of 2020. We set an all-time record for West Coast export propane volume in the second quarter and reached a new sustainable run rate of 70 cars per day, working with our partners Altagas and Ridley Terminals.

The CN Prince Rupert supply chain offers propane producers access to the best netback markets in Asia, and we expect to see continued growth in West Coast propane exports via Prince Rupert through the balance of this year and next, as Altagas continues to set new records and Pembina starts up their new facility early in 2021.

Coal unloads at Ridley terminals of 3.2 million tons for the quarter was an all-time record as well. West Coast coal volume was up over 22% in Q2 compared to the previous year. There is a slow sequential recovery in our manifest franchise, and we expect that May was the low watermark for our carload business.

Our lumber franchise in particular started to recover late in Q2 with commodity pricing improving by around 40% from April to June. We expect to see sequential growth for the balance of the year and now seeing demand at pre-COVID levels.

The crude oil price war and demand destruction caused by the pandemic severely impacted our crude, frac sand and fuels business much more than our general manifest and bulk business. We're seeing demand come back for diesel, ethanol and frac sand with sequential growth from Q2 into Q3. We continue to invest in lockstep with our customers to facilitate carload growth. This is made possible by our continued ability to price ahead of railway cost inflation across all business units at CN.

I'll now turn it over to Keith.

Keith Donald Reardon -- Senior Vice President, Consumer Product Supply Chain

Thanks, James. The reach and scale of our network and the variety of products and services that we offer have allowed for our consumer businesses to be resilient in the face of volatile demand. The acquisitions of H&R and TransX have amplified our industry-leading refrigerated services. This allowed us to grow in the consumer and grocery freight weights that we saw in Q2. CN's wholesale partners were also able to drive growth in these segments.

Our Q2 overseas business fared well in the face of lowered consumer demand and significant transpacific blank sailings by the ocean shipping industry. We see significant volumes for July and August on the West Coast. And Prince Rupert could see a record in July, as carriers reinstitute vessel calls previously scheduled for blanking in Q3. We also see additional vessels being scheduled for ad hoc service as containers sitting on the docks in Asia require more capacity. Strong customer relationships and our extensive network reach has helped CN to win a large portion of these reinstituted and ad hoc vessel calls for Q3.

Grain records were not only set in James' carload segment, in June we moved 60% more containerized grain versus Q2 of last year. The success of the grain container terminal in Regina has been a great addition to the network. Our CSX steel wheel interchanges from the ports of New York, New Jersey and Philadelphia sequentially grew in Q2. In automotive, we are now seeing a welcomed rebound in volumes with the majority of the plants we service continuing to produce during what would otherwise be the traditional summer shutdown. As JJ said, we're focusing on the long term, even as we deliver results during challenging times.

We're focusing on costs, rightsizing resources and assets in our multimodal operations. Initiatives are under way in intermodal terminals, our auto ports, as well as our subsidiary operations. Our supply chain partners continue to invest in the long-term future of our ecosystems. For example, in Vancouver DP World Centerm is bringing on more rail capacity as we speak. And in Halifax, the super post-Panamax crane was delivered to PSA a few weeks ago.

CN's reach and network scale, the diversity of service offerings and the structural and capacity improvements that we and our supply chain partners are implementing will produce mid to long-term growth from the consumer businesses.

I'll now pass on to Ghislain for the financial perspective.

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Yes. Thanks, Keith. Overall, the point I'd like to make is that our strong balance sheet and disciplined cost management allowed us to manage well during a challenging time, while continuing to invest for the future.

Starting on page 12 of the presentation, I will summarize the key financial highlights of our second quarter performance as we continue to provide essential services to move the North America -- the North American economy.

Revenues for the quarter were down 19% versus last year at just over CAD3.2 billion. As part of our continued efforts on PSR and asset rationalization, we recorded a non-cash charge of CAD486 million in the quarter, resulting from the decision to market for sale certain non-core lines for ongoing rail operations.

Our adjusted operating ratio is 60.4%, up 290 basis points versus last year. Adjusted net income was CAD908 million or CAD342 million lower than last year, with adjusted diluted EPS of CAD1.28, down 26% versus last year. The impact of foreign currency was favorable by CAD13 million on net income in the quarter or CAD0.02 of EPS.

Turning to page 13, let me highlight a few of our key expense categories on a constant currency basis. Labor and fringe benefit expense was 18% lower than last year. Overall headcount at the end of the second quarter was down 5,100, a 19% decrease year-over-year. Purchased services and material expense was 11% lower than last year. This was mostly the result of lower outsource services, trucking and transload and material expenses. Fuel expense was 49% lower than last year, driven by a 39% decrease in price, 20% lower workload and an all-time record fuel efficiency.

Now, moving to cash on page 14. Despite a very challenging demand environment, I'm extremely pleased that we generated over CAD1 billion of free cash flow in the quarter and close to CAD1.6 billion through the end of June, nearly double the amount generated for the same period last year. We are the best railroad to go through this unprecedented pandemic with the highest investment grade credit rating in the industry. And in late June, Moody's reaffirmed CN's credit rating of A2 with stable outlook.

In fact, our leverage in terms of adjusted debt to adjusted EBITDA at the end of June was lower versus what we reported at the end of Q1. We have plenty of liquidity. And we continue to issue commercial paper at rates that are lower than LIBOR. We opportunistically priced on April 29, a CAD600 million 30 year bond at a coupon of 2.45%, the lowest rate achieved by a Class I railroad and the second lowest ever by any corporate in the US debt capital markets. The company will continue deposit share repurchases in these economic circumstances and will reassess on an ongoing basis.

Let me finish by saying that as you know, we withdrew our guidance for the year on our last earnings call. We are still not providing guidance at this time, which is consistent with most companies in North America. Our scenario analysis for free cash flow that we provided in Q1 still holds.

So, to sum up, during this quarter from a financial perspective, we have clearly demonstrated the resiliency of our franchise, delivering value to our long-term shareholders. On this note, back to you JJ?

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you, team, and thank you, Ghislain. Let me wrap this up before the Q&A.

So, as we speak here, our operations are fluid, volume is sequentially slowly improving, and we are carefully recalling some train crews and about to resume some training for the 2021 demand. As we look ahead, we remain bullish and we also have a culture of resiliency. This quarter should give you no doubt that we are ready for anything. Whether or not the world goes back to normal in six months or we have a prolonged pandemic, we have the team to get this done.

With that, Patrick will now take it over to get questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from Fadi Chamoun from BMO. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Good afternoon, Fadi.

Fadi Chamoun -- BMO Capital Markets -- Analyst

Good afternoon. Thanks for taking my question here. Just quickly, if you can give us some insights into the yield and the petroleum and the materials segment were up 23%, what's kind of behind this? And if you can maybe help us identify that there were liquidated damages on the crude by rail business? And kind of how should we think about the rollout of these liquidated damages as we go into 2021?

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. I think James will put that in more -- in detail. But broadly speaking, I'm not sure exactly what data you're referring, but we are collecting liquidated damage, and it's going into our revenue. So, James?

James Cairns -- Senior Vice President, Rail Centric Supply Chain

Yes. Fadi, as you recall, when we got back into the crude by rail segment in 2018 we secured long-term contracts with associated liquidated damages that pay out over the life of the contract. So these payments come in, kind of every month, every quarter until these contracts run out or hopefully the customer start shifting at their prescribed contract levels. On the yield mix question, Fadi, what were you driving out there? Maybe provide more detail on that question.

Fadi Chamoun -- BMO Capital Markets -- Analyst

I'm just looking at the freight revenue per RTM that you've reported for the petroleum and metals and minerals that were up pretty significantly on a year-over-year basis. What's kind of behind those increases that you had in the quarter?

James Cairns -- Senior Vice President, Rail Centric Supply Chain

Well, we had a significant change of mix on the frac sand and crude oil side. These tend to be very, very long haul moves, very heavy RTM moves that just are not with us at this time of time because of the -- primarily because of the crude oil price crash associated with the demand disruption and COVID.

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. So, we're not doing as much crude, we're not doing as much as long haul crude, not doing as much frac sand. And we're still collecting the take or pay portion of some of that contract commitment customers made with us. Hopefully this helped you with your question, Fadi.

Fadi Chamoun -- BMO Capital Markets -- Analyst

Yes. Thank you.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Ravi Shankar from Morgan Stanley. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Good afternoon, Ravi.

Ravi Shankar -- Morgan Stanley -- Analyst

Thanks. Good evening, everyone. JJ, international intermodal has really been a growth engine for the company for the last several years. Can you help us understand how you're thinking of near shoring as a potential -- maybe even a risk to the growth of international intermodal over time? How does CN and your port partners kind of continue to add value? And maybe if you can share kind of what kind of discussions you're having with your shipper customers on potentially moving their supply chains to North America?

Jean-Jacques Ruest -- President and Chief Executive Officer

Okay. So, let me start. So, we are very bullish on the strength of the consumer in North America, even more so on the consumer living in the US, in the big city, because we have a three course network and we can access some highly populated area. And the consumer disposable income is really key to CN's future. And the product that's most-suited to exploit the consumer spending and disposable income is intermodal. And the business coming by the port is definitely one of our mid to long-term strategy to increase our business in that space, in two ways. One is to try to earn market share. It is a North American market. The border does not exist when it comes to supply chain. And therefore, we're looking to outperform that economy, which would be outperform -- the part of the GDP that's related to the consumer and play a big role in the US market and competing hard with the East Coast and West Coast railroad at East Coast and West Coast port.

I don't know if you want to add some color to some feedback you're getting from, specifically customers, Keith?

Keith Donald Reardon -- Senior Vice President, Consumer Product Supply Chain

Sure. Those that supply their needs, whether it's retail or manufacturing in North America, they've been not only looking to China over the years, but they've also been sourcing products from Southeast Asia, and that is still growing. Those plants are still being built. And what we're seeing is, the further south you go, the more economically feasible it is to maybe go through the Suez Canal and then going to the East Coast. So that is one of our strategies, as you know, is the three coast access that we have at CN, which is unique to -- than -- any other railroad does not have that. And, that is why we have the strategies in place of Halifax, Quebec City, that's why we see all of these infrastructure projects on the East Coast for us as risk mitigation I guess, and as an aggressive standpoint to go attract that business to North America through the gateways that we service on our three coasts.

Jean-Jacques Ruest -- President and Chief Executive Officer

So, maybe to wrap this up, Ravi, to answer your question directly, as opposed to regarding near shoring. I think, the reality is, they will be in-country sourcing for all the stuff that's deemed to be essential for a country, medical device, eventually vaccine and anything related that's bought by a government who are going to be willing to pay more for those goods that are essential to the current time. But, when it comes to consumer product, it's still going to be quality price. And the consumer is going to look at the price tag, number one; the quality, number two and the country of origin, maybe sometime and maybe most of the time, probably not. So I think, near-shoring of day-to-day consumer goods, especially the lower value one, that's not going to happen. But, if it's a very-high value goods, something electronic or a computer chip, yes, the labor cost, you could do that. Remember, the US dollar is very strong. And that's a bit of a challenge to bring in manufacturing back in North America. Thank you...

Ravi Shankar -- Morgan Stanley -- Analyst

Very helpful. Thank you.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Cherilyn Radbourne from TD Securities. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Good afternoon, Cherilyn.

Cherilyn Radbourne -- TD Securities -- Analyst

Thanks very much. Good afternoon. So, on your Q1 conference call, we talked about how at that time you were recalibrating resources weekly and in some cases even twice a week. So, I was just curious whether that's still the case, or whether at this stage shippers are able to give you a bit more visibility than that?

Jean-Jacques Ruest -- President and Chief Executive Officer

Rob is on top of that, Rob?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

Yes. We continue to be very tight with James and Keith's teams in terms of the expectations out there. And that's been part of our success here in the second quarter and how we've been able to quickly right-size our resources. We are doing it weekly, biweekly in terms of keeping our employees cut in, that are on furlough. And as far as our locomotives, we did that with the purpose. As we laid up locomotives, we laid up the least reliable, and we laid them up in places where we could get to them quickly. So, we remain very tactical throughout this, Cherilyn, and we're ready for whichever way it -- whichever way it may go here.

Jean-Jacques Ruest -- President and Chief Executive Officer

If I may add to what Rob said. In June, we pulled car out of storage for the automotive sector, when we recalled some crews in Michigan. And as we speak, in July the lumber business has picked up and we're calling back crews for -- in the lumber geographic market and putting cars in service. And the business out of Rupert right now is very strong. That's another area where we are -- we have been recalling some crews selectively. Be very mindful of the cost, but at the same time, we are an enabler of the economy, we're an enabler of the recovery. And when some of these segments start to come back, we need to be there for them, and we are.

Cherilyn Radbourne -- TD Securities -- Analyst

Great. Thank you for the time.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Ken Hoexter from Bank of America. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Hi, Ken.

Cherilyn Radbourne -- TD Securities -- Analyst

Hi, great. Good afternoon. JJ, maybe digging into that, your thoughts on employees. You're down 5,100 year-over-year. Maybe just talk about your -- or Rob, your thoughts on increasing that sequentially. And then, cost per employee was flat year-over-year. Your thoughts on were there lots of one-time costs that you held back on in the quarter that we should see going forward? Maybe just talk about the pace of return of costs? Thanks.

Jean-Jacques Ruest -- President and Chief Executive Officer

Rob?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

Yes. So, we have -- since our low, we saw the trough in terms of volumes in late May, and that's really where we spiked or saw our most employees on furlough. As we got into the summer season with vacations and also an increase in volume, we selectively called back employees. But, it's not on a one to one basis as volumes come back in. And we're very methodical about bringing them back, especially as we go into the third quarter. And just as Ghislain talked about, we're still trying to figure out what the future volume is going to be. So we're very, very careful with all of our assets, not just employee resources, but also our locomotives and cars as well.

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. And some of these differential are -- some of them are furlough that is what we hope that we will have enough business at some point to call them back, and some are not furloughed, meaning they're permanent. So we don't have over 5,000 people in furloughed. It's more like 3,000 -- 3,000...

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

And your thoughts on the cost per...?

Jean-Jacques Ruest -- President and Chief Executive Officer

Could you say that again?

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

The cost per -- also the back half of it was, just your thoughts on the cost per employee, which was flat. I just want to know, if there were one-timers that you pulled out during the quarter that are going to come back as we move through the rest of the year?

Jean-Jacques Ruest -- President and Chief Executive Officer

Ghislain, do you have any color on that?

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Well, the -- there is a bit of incentive compensation that created a benefit in the quarter, Ken. And maybe that's because when you look at employee and when you look at inflation, it's still running around 2% wage inflation, so -- but there is some benefit related to incentive compensation that has provided some benefits in the quarter.

Cherilyn Radbourne -- TD Securities -- Analyst

Thank you, guys.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you.

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Thank you, Ken.

Operator

Thank you. The next question is from Chris Wetherbee from Citi. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Hi, Chris.

Chris Wetherbee -- Citigroup -- Analyst

Hi. Just kind of curious, if you could give a little bit more color on the line sales that you announced? And then, maybe if you think forward, if they're non-core, maybe what that might mean from a cost savings perspective, would this be accretive from an OR standpoint as we go into the back half the year?

Jean-Jacques Ruest -- President and Chief Executive Officer

So, they are non-core. Ghislain, do you want to pick that up, you work on that project pretty much.

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Yes. Hi, Chris. So, yes, they are non-cores. As you remember, many years ago, we did rationalize our network in Canada. And we've never really done it in the US. And these noncore lines came with -- when we bought the WC. They're really noncore lines in Wisconsin, there were noncore lines in Michigan and noncore lines in Ontario. Again, with the cost structure of a smaller operator, not a Class I railroad like us, and the ability that sometimes they have to get some funding from the government. I think they will be better suited to run these lines than we are. And as you know, these lines will continue to feed in into our main line and continue to -- and will continue to benefit from the long haul.

So, in terms of OR benefit and so on and so forth, I would say, Chris, stay tuned. I think that this is a good step. And as you know, this is part of PSR. Part of PSR as you rationalize some of your network, and you have better operators in terms of their cost structure, operate some of the noncore lines than we are but then still keeping the line haul and business coming to your main line. So, we're quite excited about this. And it just shows you and the market that we're pushing on PSR in every front that we can.

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. It's on the fundamental of making sure we have a network that has a capital call where it's needed. And in some cases, short line operator could actually get capital from state province or government, which we don't have access. So, it's a better model for those noncore lines that we're selling.

Chris Wetherbee -- Citigroup -- Analyst

Okay. That's helpful. Thank you very much.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Benoit Poirier from Desjardins Capital. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Good afternoon, Benoit.

Benoit Poirier -- Desjardins Capital -- Analyst

Yeah, thank you very -- good afternoon. Could you maybe provide some color on the latest question with respect to the potential proceeds for the assets? And whether you would use the amount to buy back some shares or any thoughts about the proceeds you might use?

Jean-Jacques Ruest -- President and Chief Executive Officer

Ghislain?

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Yeah, I mean, listen, we're going to try to get as much as we can for these lines. Obviously, we -- we're hiring bankers to help us market them and so on. And so, I'm not going to lay out what we expect, because again, we're going to shoot ourselves in the foot when we auction these lines out and what we get for it. But hopefully, we get a good amount, we get what they're worth. And then, we'll see what we do with the cash. Again, our use of cash policy doesn't change at CN, Benoit, as you know. First use of cash is toward the business. And then, we look at shareholder distribution first and foremost, dividend. And I'm quite proud of our 7% dividend growth this year. I'm quite proud of the consistency of our dividend, which is 16% CAGR, since we privatized.

And as you know, we've used share buyback to get to a targeted leverage level, because this is the flexible tool. So, the cash will come and when it does, then we'll figure out what we do, but our use of cash strategy remains the same.

Jean-Jacques Ruest -- President and Chief Executive Officer

That's right. It's investing in the business, dividend and share buyback. Thanks for the question, Benoit.

Benoit Poirier -- Desjardins Capital -- Analyst

That's great. Thank you.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Scott Group from Wolfe Research. Please go ahead.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks. Afternoon guys. So you had a slide with some structural cost changes, any way to quantify how much that is? And then, on the yield side, yields overall were down anyway to think about some of the moving pieces for the third quarter on either rev per car rep or rev per RTM?

Jean-Jacques Ruest -- President and Chief Executive Officer

So, maybe Rob can talk -- give some color into where we think the permanent takedown in our costs. And regarding the RTM question, I think cent per RTM, maybe Ghislain can add to that. Well, let's start with Rob.

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

Yes. Thanks for the question, Scott. So, I mentioned some of that in my opening comments in terms of some of the shops and some of the yards that will remain closed. We don't anticipate those being opened back up. In terms of locomotive fuel efficiency, of course, I quantified that in there in terms of what we got on the quarter. And we'll continue to see record fuel efficiency here with some of the measures we have in place. So, we'll continue to see that going forward. The train design in terms of what we're doing with train length and train weight, that'll continue. We'll continue to see those improvements year-over-year into the quarter. So, those are some of the structural changes we're looking at and we see that continuing here for the near future.

Jean-Jacques Ruest -- President and Chief Executive Officer

And Ghislain?

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Yeah, I think, Scott, in terms of cent per RTM. I think we're not going to provide guidance on cent per RTM on a quarterly basis. But all I can tell you, we don't necessarily manage the business on cent per RTM, the mix that we have is the mix that we deal with. I think, what we manage is price. And we're quite good and Keith and James and their teams have done quite a good job actually to manage price. I mean, the price that we're getting is still above rail inflation, it's solid pricing. We continue that way. And that's -- so you can expect that to continue in the third quarter and the fourth quarter and going forward.

Jean-Jacques Ruest -- President and Chief Executive Officer

That's right. So, some of the takeout will be permanent. And definitely especially in the month of June our mix changed because the automotive business, as you know Scott, which is really lightweight, high revenue, that business was almost disappeared. So that had big impact in the second quarter. It makes what's happening in the automotive business, mainly as an example. Thank you.

Scott Group -- Wolfe Research -- Analyst

JJ to your point that -- OK, thank you.

Jean-Jacques Ruest -- President and Chief Executive Officer

Go ahead.

Scott Group -- Wolfe Research -- Analyst

Okay. To your point on the auto piece of the yield should start to get better as auto is coming back?

Jean-Jacques Ruest -- President and Chief Executive Officer

No, the point is more is that, I mean I think in May we were down 90% in automotive. So if you look at the impact on the CN total book of business, we had an impact on the -- the distortion, for example, between gross ton-mile and revenue ton-mile and what it does to our so-called mix of business. But what's important for us is, for each carload to make money and we measure that to revenue to cost ratio, the RCR, which is a reverse of an operating ratio. And when it comes to pricing, we don't look, as you know, on cent per RTM, because when you look at cent per RTM you are looking at noise what is exchange, mix, length of haul, you name it. I provide the car -- the customer provides the car.

What's really important when it comes to price is same-store price, which is the same thing as a retailer does. The sales this year compared to the same sales last year, what's my spread. And anything that doesn't -- is not a same-store sales it doesn't go into calculation of same-store price, because now it's a different sales, they are not a comparable. And a lot of these different sales have a huge impact on the -- on what you call the cent per RTM. So that's why we're not focused on cent per RTM, we're focused on same-store sales and we're focused on the revenue to cost ratio, which is a reverse of that operating ratio, but per unit, per customer.

Benoit Poirier -- Desjardins Capital -- Analyst

Thank you, guys.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Konark Gupta from Scotiabank. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Hi, Konark.

Konark Gupta -- Scotiabank -- Analyst

Thanks. Good afternoon. My question is just going back to your previous target for operating ratio that you discussed at the investor day before. How do you think about the operating leverage and capital intensity heading into 2021, as volumes recover further and you bring back more employees and pull out some fleet from the storage?

Jean-Jacques Ruest -- President and Chief Executive Officer

Well, right now -- maybe I can start and Rob can add in. Right now, we do have capacity on our network, capacity that we built the last two years, capacity that could have -- we could have used this year if the economy and the pandemic did not hit us. So, obviously, we have capacity to grow. We also have qualified people, whether to maintain equipment, fix locomotive or run train, and these people are on furlough. And I feel for them, and we hope the business come back to a point where we can recall many of them, eventually, hopefully, most of them by 2021. As we get much more efficient, and Rob talked about train length and train weight. No, the number of people per ton mile if you wish, goes down, that's a significant savings. The overall philosophy in operating ratio is not to be lowest, not to be the worst. We want to have an operating ratio, which is very cost -- very competitive, but at the same time allows us to be able to grow organically with our customers, as customers have business to offer to us. I know, Rob you want to maybe share your philosophy on operating ratio?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

Yes. So, in terms of operating leverage going forward here into the third quarter, I mentioned some of the things we're doing and will continue to do. We're not bringing back resources on a one-to-one basis. And that will continue to provide benefits for us. When you go through a quarter like we did, we're able to test and really press the edges in terms of what we're capable of. And we found some of these opportunities through that process. Again, I talked about fuel efficiency, train length. These are things that -- when you talk about sending records at CN, that's something -- that's saying something, right? This is a storied, long storied history of operational excellence. And when you start to set records and we set a number of them here in second quarter, that really speaks to the team, that speaks to the operating model. And we've really done a nice job and we continue to leverage that here going into third quarter.

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. So, competitive operating ratio, but also focused on business growth and focused also on inorganic growth, things beyond just rail, things -- but things that would be accredited to rail. That's why we have made some acquisitions and joint ventures. Thank you.

Konark Gupta -- Scotiabank -- Analyst

Thank you.

Operator

Thank you. The next question is from Brian Ossenbeck from JP Morgan. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Hi, Brian.

Brian Ossenbeck -- JP Morgan -- Analyst

Hey, good evening. Thank you. A question for Rob on the technology and the operating side. Can you give us an update on the inspection cars? It looks like you're moving to Phase II under the FRA next month with some reductions on visual inspections, you got Transport Canada on board. It looks like growing up through some subdivisions. So, maybe you can just give us an update on how this is progressing relative to patients? And at what point do you think you'd be able to quantify some of the benefits, either from accident reduction perspective, workforce perspective or even capacity additions in the future?

Jean-Jacques Ruest -- President and Chief Executive Officer

Very timely question. Rob, do you want to...

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

Yes. I'd love to take that one. Thank you for the question. So, we continue to make progress. Just as you talked about, in the US, of course, we have a pilot program going on with the FRA. We are transitioning to Phase II, as you speak -- as we speak here, as we go into August. What that will mean is, 50% less manual inspections. And what that means for us is that, all around our autonomous track inspection program, it's really about, having a safer, more reliable network, it does reduce cost and it unlocks capacity on our network by embedding these in revenue service trains versus a human being on the track.

So, in terms of quantifying it, we've seen our train accident ratio down 22% year-over-year. And certainly some of that can be traced back to that. We've tested the line in the US 17 times more than traditional testing right now. So, in terms of strengthening the line, in terms of turning our employees into fixers versus finders, all of that is coming true. And then, in Canada, we're starting to see the results of our work with Transport Canada. So, we do have an exemption there to begin testing that and we'll continue to follow the same pattern that we had in the US. Again, ultimately, this makes us safer, more reliable network. We do see cost fall out just from the safety aspects of it, and it does unlock capacity as we go on.

Jean-Jacques Ruest -- President and Chief Executive Officer

Huge potential and you're going to hear from us in the months to come that we're adding resource. We want to help out Rob with top tier talent as to how we implement and roll out technology for the rail operations. So, more to come on that. Thank you, Brian.

Brian Ossenbeck -- JP Morgan -- Analyst

Okay. Thanks for the update.

Operator

Thank you. The next question is from Walter Spracklin from RBC Capital Markets. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Hello, Walter.

Walter Spracklin -- RBC Capital Markets -- Analyst

Hey. Good afternoon, everyone. So just on incremental costs here, you guys did a pretty good job of keeping costs contained in the quarter. So, the OR degradation was less than 300 basis points. Just curious, obviously, your cost efforts didn't -- it obviously probably improved through the course of the quarter. And so as you exited the quarter, would it be safe to say that you're -- your ability to limit OR impact from continued volume declines here in the third quarter, potentially the fourth will be moderated such that we don't see a degradation in the operating ratio or we -- or are they coming out in a way that it's still likely to see some degree of OR degradation as we go through the quarter here, excluding fourth quarter with the strike last year, just focusing here on the third?

Jean-Jacques Ruest -- President and Chief Executive Officer

So, Ghislain, you want to look in your crystal ball and take that one.

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Yes, I can look at my crystal ball, Walter. First of all, I mean at the end of the day what we do on cost and what the team did to your point on the second quarter is quite remarkable. And we've got to remember that we have some headwinds that are quite fixed that we have to deal with. And I've mentioned that at the beginning of the year. We have about CAD130 million of depreciation that we have to deal with. And we have another, used to be CAD70 million on pension, now with the betterment in pensionable payroll, it's down to CAD50 million, but it's still CAD50 million, so we have CAD180 million of headwind. And if you slice that every quarter, this is the cost that we have to deal with.

So I think that -- the proof will be in the pudding in Q3. I mean, as you know, and JJ made the point, we've never been enamored with the OR at CN. I think that we'd rather be a CAD20 billion, 60% OR than the CAD15 billion at 59%, just do the math. So I think that at the end of the day we will continue to manage cost and we manage both the short-term and the long-term.

So we do make decisions on the -- to make sure that we know that our report card coming out every three months and the report card will come out in October and you guys will look at the OR and all of the metrics. But we're making decisions as well to make sure that we were well prepared for the winter coming at us, and whether we like it or not, we have a winter in Canada and for 2021. So yes, we -- so stay tuned. I didn't really answer your question on how the OR will look like, because I'm not. But at the end of the day, we are very pleased with our OR in Q2 and I'm telling you to stay tuned for Q3.

Jean-Jacques Ruest -- President and Chief Executive Officer

And maybe just on the headwind from depreciation. It's a headwind short-term because of the capital program we did the last two years, but at the same time, it says that we're ready to handle much more business. So that headwind eventually becomes how are we going to be able to grow with the economy when the economy grows or as we create product that can gain market share. So, that's the whole card for 2021.

And James has this program that we announced today on the grain. So, these railcars would be built between now -- most of them between now and Christmas and delivered to CN the first 15 days of January. So, they'll be very helpful to contribute to the revenue of the next winter. Thank you, Walter.

Walter Spracklin -- RBC Capital Markets -- Analyst

Thank you.

Operator

Thank you. The next question is from Brandon Oglenski from Barclays. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Hello, Brandon.

Brandon Oglenski -- Barclays -- Analyst

Hey, good afternoon, everyone. Yeah, thank you for taking my question. Keith, you sounded, I should phrase it, relatively bullish about intermodal prospects looking into I guess "Peak season." Can you talk about some of the opportunities you mentioned in your prepared remarks, to think about your carriers adding back rotations. And that you are winning some of that incremental business?

Keith Donald Reardon -- Senior Vice President, Consumer Product Supply Chain

Sure.

Jean-Jacques Ruest -- President and Chief Executive Officer

Keith. And as I said earlier, we believe in the strength of the consumer in North America, and the market, where that shows the most number one is intermodal. You see that a bit in lumber and automotive, but where there is something to really exploit, whether the product is really tailor-made to drive the economy, consumer economy as intermodal. Keith?

Keith Donald Reardon -- Senior Vice President, Consumer Product Supply Chain

Sure. It wasn't fun going through the beginning of the second quarter and hearing about blank sailings and also the challenges that our customers were having and the fact that they thought that was going to be going into the third quarter as well. So, it's great that we've seen a lot of the blanks that they had for Q3. They've reinstituted those calls. And right now, on the West Coast, we have much less noise around the blank sailings than we did during Q2. In fact, they're adding 11 extra loaders in Q3 on the West Coast -- nine on the West Coast and two on the East Coast.

Those types of things in the discussions that we have with our customers and the fact that our boots-on-the ground folks in Asia are telling us the strength of what's going on with orders from North America. Those give us the confidence that I can sit and talk to Rob and ask him -- have that discussion about being prepared. As I said, Rupert's probably going to have a record in July. And we see the same thing for August, as far as the volume solid on the West Coast.

Jean-Jacques Ruest -- President and Chief Executive Officer

Ghislain, maybe you want to add something about TransX and a year after the acquisition, should be able to accomplish the transaction?

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

That's another -- sure, JJ. That's another piece of business that we're quite bullish. And I'm happy to report that after a year. And I think Keith and the team is doing and did an outstanding job integrating TransX with our overall CN family. As you know, Brandon, big projects or investments, we typically have internal auditor going in and auditing the business case and auditing the return and reporting directly to the Board. So, they're not all done yet, but close. And I'm happy to report that the return of the investments, both in TransX and H&R will deliver higher than our typical ROI threshold that we use at CN of 12%.

So, this is a good accretive acquisition and we're quite pleased. And as I said before, Keith and the team is doing a hell of a job managing this. And frankly, their OR, as we speak, is now the best-in-class for these types of companies. Like, if you look at J.B. Hunt or some of the others that are best-in-class, TransX is right there with them.

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. The mandate of TransX is to compete with the best of the best, like J.B. Hunt in the OR. They're not a trucking firm, they are an intermodal firm. And they're increasing the amount of rail they do since last year.Thank you, Brandon.

Brandon Oglenski -- Barclays -- Analyst

Yeah. Thank you, JJ.

Operator

Thank you. The next question is from David Vernon from Bernstein. Please go ahead.

David Vernon -- Bernstein -- Analyst

Hey. Good afternoon, everybody. Rob, I wanted to focus in on the train length and train weight gains that you had in the second quarter. Could you talk to whether some changes in mix or maybe just lower volume on the network allowed you to kind of extend that? And then, what the outlook should be kind of from here? Should we be expecting in this 9,000, 9,500 feet length range for the rest of the year, even through the winter months, or should we be expecting this to kind of maybe come off as volume comes back.

Jean-Jacques Ruest -- President and Chief Executive Officer

Rob?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

Yes. Winter all bets are off. We'll see what winter brings and then we can have that discussion at that point. As far as the changes we've made, we do view those as structural and mix or no mix. What we've done is really take what has been delivered to us and make the best out of it. So we're looking at a significant volume drop that we saw this quarter, and we took action. Part of that was increasing train size and reducing crew starts, and a lot of things come with that when you do that. The bigger trains lead to greater train fuel efficiency, leads to better utilization of your locomotives, and we saw train velocity improve all during this period as well, 5% year-over-year. So we plan on keeping trains big and looking for more opportunities that are out there. Thanks for the question

David Vernon -- Bernstein -- Analyst

No physical constraints that may come back into the network as volume kind of recovers?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

We continue to invest in capacity investments, particularly in Western Canada. I think, you'll see us continue to do that, that will allow us to continue to maximize our train size. So, right now, our plans are to continue to keep trains big.

Jean-Jacques Ruest -- President and Chief Executive Officer

That's right. We have construction activities, right, as we speak here around the Port of Vancouver, Port of Rupert, as well as the North Vancouver to Rupert where we adding signing during this summer. Thank you for your question.

David Vernon -- Bernstein -- Analyst

Thanks, guys.

Operator

Thank you. The next question is from Seldon Clarke from Deutsche Bank. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Hi, Seldon.

Seldon Clarke -- Deutsche Bank -- Analyst

Hey. Thanks for the question. As it relates to the 1,500-grain hoppers that you plan on purchasing 2021, is there any way to put some numbers around that opportunity next year as it relates to either volumes or productivity? And how that differs from some of the previous long-term guidance you've given around grain? And does this maintain capex in your more normalized range for 2021 or how should we think about it from that perspective?

Jean-Jacques Ruest -- President and Chief Executive Officer

So maybe I'll take the first part and Ghislain can talk about the capex for 2021. Without getting to deepen the detail. So definitely these railcars more productive. Therefore you can move -- as you know, the Canadian grain cap, you get paid by the ton-mile. So the more you can put in a car, you get more revenue per car, so obviously the yield of the car, which has a higher payload or the profit yield of a train that a higher payload because each car is heavier and each car is shorter you make the business more profitable. That's why, the business case is compelling to readily invest long-term in the grain business, so it is profitable. It is -- it has a good return. And the new formula of the grain caps says, there is a compelling case to renew your fleet. But as long as that fleet has a higher payload, higher payload per train, higher payload per car.

CN is a little more north than my competitor in terms of where we are in the Canadian prairies and a little more north in these little more canola. Canola is a lighter crop and the impact on the revenue per car of a lighter crop of this different car is actually beneficial to us, we have -- we even have a better return than if we were moving a lot of wheat, for example.

In term of revenue impact without getting too deep in the detail, you look at our book of business on Canadian grain, how we do usually, and obviously we'd like to do more of that. And I think, James, there was a decision issued by the Canadian government on the grain cap and it's sort of favorable to the CN as it -- this year in terms of the MRE.

James Cairns -- Senior Vice President, Rail Centric Supply Chain

Yes. I think we had an out weighted benefit on the MRE, compared to the other railway in Canada by about 5%. So, we're very happy with the outcome of the MRE for next crop.

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. As of August 1st, the MRE is revised. And it's turned out that CN has a 5% favorable spread on that. Ghislain regarding the capex for next year?

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Yes, capex for next year. Listen, I think Seldon, as I said in my opening remarks. I mean, we're not providing guidance. Still, I think we're going to see -- we're going to look to see how the recovery and how the recovery sticks. It's still -- I think we see signs of it. But at this point, it's a little bit choppy. So, I would say, stay tuned on that one. I mean, we'll see in Q3 and then early Q4. We'll go through all of our bottom up, top down exercise. And obviously, we need to go to our Board and make sure that they approve our capital envelope.

But, what I'm going to say to you is, the big two years of our capex investments of 25% of revenue is behind us. And I think that going forward, it'll be lower than that. And as you know, our historical rate has always been in the 20% range. But, we'll see. I mean, if we don't need to invest, we won't. And to JJ's point, right now, with volumes that we have and two years of significant investments we've made, we've got plenty of capacity. And we're still now putting some this year on very-targeted areas in Rupert and very-targeted areas in Vancouver. And we have -- we're very pleased to have the help of the other government or the port of Vancouver, same thing in Rupert with the government. So -- and those are dealing with specific pinch points that we have.

And again, we think of the long term. And those pinch points have been with us for a long time. We're happy that now we got attention of people to help us, fund for some of these things. And that will create value to us for the next five, 10, 15 years.

Jean-Jacques Ruest -- President and Chief Executive Officer

We love to find projects like this project at a pretty good return. And we love to find projects where the capital -- this capital for 2021 that slides on CAD50 [Phonetic] million is already approved by the Board. So, we can place the order here in the coming weeks. And what's important is, the asset will come to us at the time we need it, first week of January. So, we're accredited for the next winter movement of grain, which is typically peak time and will also be accredited to the fall of 2021, which is also a peak time. So, it's capital level go to work right in the first two weeks of the year.

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

JJ, I might just add there, from an operational efficiency standpoint, we'll be able to move 8% more cars on the same length train that we do now with these new cars and move an additional 20% to 30% more grain, depending on the commodity per train. So, we get immediate benefits from it.

Jean-Jacques Ruest -- President and Chief Executive Officer

It creates cargo capacity right away. Thank you for your question, Seldon.

Operator

Thank you. The next question is from Jon Chappell from Evercore ISI. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Good afternoon.

Jon Chappell -- Evercore ISI -- Analyst

Good afternoon. JJ, you faced three pretty unique challenges in the last three quarters with the strike, the blockade and the really steep recession, and you've managed it incredibly well. As you look to headwinds maybe finally becoming tailwind for the first time in a year, how do you feel about the capacity service, customer positioning and wins to return to growth and really grow the bottom line at a greater pace than even the top line when the carloads inflect?

Jean-Jacques Ruest -- President and Chief Executive Officer

Well, definitely, it has been special time between our labor disruption in November, the rail blockade where we felt that we weren't getting whole lot of support even though we had injunction everywhere, and then right away having the pandemic. I think what it shows is, CN resiliency is very strong. I mean, the management team that we have are down to people who run train, people who run train during the pandemic. People who -- a lot of people have the opportunity to stay home because of we're safer at home. We had to work very hard to make the working conditions such that everybody would keep coming to work. And by the way, even though our headquarters is somewhat empty, a lot of us kept coming in here. On average, I think we had 200 people report in this building here every day from day one and they still report to work every day since the beginning of this pandemic.

So, what it does is, it creates confidence. I think, it creates confidence that we can do with whatever comes at us. Whether we have a second wave of pandemic, which is possible, and we're ready and prepared for that or we have strong recovery, which we're ready and prepared for and hoping for. That would be a good thing. But we don't plan for the best; we plan for the worst, but then are ready to be exploiting whatever it might come out of.

CN is focused on growth. So, we are always thinking in that line. So, as much as we work on our costs, because being a cost leader is quite important. We're also working on a pipeline of inorganic growth. And you heard that we have a new Chief Strategy Officer at CN. And Maureen, one of our Board members is heading a new Board committee on long-term strategy. And these two things are really to address some of the fundamental challenge there is in railroad. Yes, from time-to-time we'll have disruption, pandemic, rail strike or a blockade. But, the real fundamental issue is how do we grow long-term as an industry, beyond coal, beyond the cyclicality of crude, and some of that has to come from inorganic growth, has to come from initiatives that we need to initiate as opposed to wait for customers to bring business to us.

So, I think putting all that in is kind of where we're at right now, is we have our eyes in the short term, but we also have a lot of specific effort on long-term. And I did mention earlier that Rob should get help over the next few months here in terms of the other talent joining CN that will help us really beef up the technology side. Thank you.

Jon Chappell -- Evercore ISI -- Analyst

Great. Thank you.

Operator

Thank you. The next question is from Jason Seidl from Cowen. Please go ahead.

Jason Seidl -- Cowen and Company -- Analyst

Thank you, operator. I think you guys before talked about some of the shops and locations that you've idled due to the slowdown from COVID. Can you talk about the outlook on when you think you're going to be reopening and those business comes back and how we should think about those costs as they layer through the quarters?

Jean-Jacques Ruest -- President and Chief Executive Officer

So, Rob has had merchandise yard shops. Rob, do you want to take that?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

Yes, sure, I will. I think I mentioned it there in the beginning, that is part of our structural changes. So, we don't anticipate opening those up again, if -- and certainly, it won't be anytime soon, it'll take something more than what's going on right now...

Jean-Jacques Ruest -- President and Chief Executive Officer

That was some yards, right?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

But absolutely, we shut four yards and four or five shops down. So, what we've seen with the rationalization of our locomotive footprint, it actually gets locomotives in the right place to begin with, gets it to where our materials and inventory -- online inventory is, actually reduces materials in the long run by having it there. And we're seeing it in terms of reliability and availability, in terms of getting the locomotives in the right shop with the right people to work on them and get them back in service. So, we see it as structure. I appreciate the question. I appreciate the question.

Jason Seidl -- Cowen and Company -- Analyst

Yes. So these were -- so, OK. So, those were closed because. I think you used the words closed and idled. And I didn't know if they were -- some could be reopened. So, these are closed permanently then?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

Yes. That's permanent.

Jean-Jacques Ruest -- President and Chief Executive Officer

And along those lines, you could see the same logic as to why we are doing -- putting for sale some short line. That's also a structural change along the line of idling or closing some merchandise yard and or shop is when we look at a US network, we decided that some part of the network is better than of others. And that's also part of looking out the long-term for PSR. That's part of decision why we did that at this time back in this quarter.

Jason Seidl -- Cowen and Company -- Analyst

Do you think those sales will close this year?

Jean-Jacques Ruest -- President and Chief Executive Officer

Well, I think we -- Ghislain, do you want to?

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Well, I mean, we'll do our best, we're hoping, obviously. But, as I said, we've hired bankers to help us package this thing. And we will be very disciplined and auction -- go out and auction out and so on. And we'll see how it's going to go. So, if we can close this year, trust me, we will. But we want to be disciplined and we want we to be -- we want to have the best value for them. Because, again, remember that this business will continue to be fed on our main lines. So, we need to have the best operators to come in because they will continue to manage these non-core lines and that business will come to us on our main line. So, I think we're quite pleased about this and we'll see.

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. I think realistically six months might be a little short time. Six to 12 months these things should come together.

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

But the key is to be disciplined and the key is to have a good auction process, and the key is to maximize the value and get the right operators. That's the key.

Jason Seidl -- Cowen and Company -- Analyst

All right. I appreciate the time, gentlemen. Stay safe.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Allison Landry from Credit Suisse. Please go ahead.

Allison Landry -- Credit Suisse -- Analyst

Thanks for squeezing me in.

Jean-Jacques Ruest -- President and Chief Executive Officer

Hello.

Allison Landry -- Credit Suisse -- Analyst

Hi. So, the dwelled numbers have deteriorated pretty meaningfully year-over-year and also versus 2018 in the last several weeks. And velocity caused a lot to go in the wrong direction. Presumably, this is at least partly driven by the uptick in volumes. But is there something from a mix standpoint or you're focus on train length and weight or the selective yard closures that are driving this deterioration? And how do we reconcile these weekly public metrics with the structural improvement that you made in the quarter? And if you could just sort of speak to where you are from a network fluidity standpoint? Thank you,

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. So Rob will pick it up, but what did on dwell was a conscious decision as it relates to how we optimize costs. Rob?

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

Yes. Thanks for the question. Allison, I'd love to answer that one. And really, from my perspective, it's not a concern. In fact, it was part of our planned response to the significant volume drops we saw here in the quarter. When you look at the increase in dwell we have on a very low base to begin with. So, you got to take that into consideration. We're talking about adding an hour or so to the car cycle. That's measured in days and sometimes weeks when it goes offline to the railroads. And then, you look at what we were able to do with train length and train weight, all time records. Bigger trains drive greater fuel efficiency and utilization of our locomotives. And as a result, we were able to reduce crew starts 21% greater than volume reduction. Our active online inventory was reduced as much as 20% in the quarter.

So, increased dwell did not drive additional cars online. Train velocity improved 5%. It's a big part of a car cycle. So, we made up time there. And then, you look at our employee productivity, it eclipsed all time highs from a service standpoint, three straight months of delivering all-time grain to the ports. And then, our domestic intermodal service really has never run better. So, we made the right calls in the quarter and we'll continue to focus in on what's important. Thanks for the question.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you.

Allison Landry -- Credit Suisse -- Analyst

Thank you.

Operator

Thank you. The next question is from Tom Wadewitz from UBS. Please go ahead.

Jean-Jacques Ruest -- President and Chief Executive Officer

Hello, Tom.

Tom Wadewitz -- UBS -- Analyst

Yes. Hi. Thanks for the question. I want -- you talked about, I think some optimism on intermodal improving, international intermodal and some constructive comments on the sailings that you see happening in third quarter. Obviously, you have quite a few longer term drivers of growth. I was just wondering if you could give some broad comments on how you would think about volumes in third quarter, fourth quarter. Can you -- should we think about volumes down mid single in third? And is there any chance you could -- a path to get the volume growth in fourth quarter? Obviously, I recognize there is not a lot of visibility, but just wanted to see if you could offer some broader thoughts on how volumes might play out in second half.

Jean-Jacques Ruest -- President and Chief Executive Officer

Yes. Maybe I can start and Keith can chime in. So, import is strong. Export is not as strong. Comment made earlier by Keith that we have more loaders. Loaders is basically reverse of a blank. When shipping line add loaders, that means that they are actually adding vessel in the schedule, because of the strong import. But the export is not as strong right now from North America. Do you want to look out in times for the next few months what things look like, Keith?

Keith Donald Reardon -- Senior Vice President, Consumer Product Supply Chain

Yes. As JJ said, the addition of these extra loaders is kind of the reverse of the blanks. And that's a positive thing for us. And then, talking to several of our customers, whether they're North American based or overseas, they've done a really good job managing their capacity, and they've done a really good job of creating a market where they've been able to keep the rates in good stead. So, there is pent up demand right now. We are kind of in a peak season I would say right now. And if the discretionary income of the people that are doing all this buying, whether it's at the home -- the DIY folks that are putting in the decks or painting, if that keeps up, and if the strong business that we've been handling, like the refrigerated goods that are happening now, whether we're in a pandemic or not that, I think that's going to continue to grow with what we brought on with TransX and H&R and our other wholesale partners that are keeping that business strong. I don't think that we're going to see -- unless there's another wave of the pandemic, I think that -- the contacts that I talked to, they're seeing it stay strong into at least in the beginning of the fourth quarter. We'll see how it goes. But that's kind of what we're planning for right now with them as they give us a heads up over the next two to three months.

Jean-Jacques Ruest -- President and Chief Executive Officer

There is a surge from the retailer, which is reflecting back in shipping line and back into the port activities into a different consumption, which is I would call it a stay at home consumption. People are building a deck, they're renovating their house, they're painting. They're spending money in their backyard. They're putting a pool. I mean, these are the things there is a high amount of disposable income that goes into it. So, some supply chain out of whack, some supply chain and warehouse is full, because people don't want to buy those stuffs. And some of the warehouse that relate to what I just said, sort of the stay at home expense around the house and on the backyard, I mean these supply chains are empty. And you try to get a barbecue, you may not quite get the kind that you're looking for. You're just going to have to buy whatever is left at Home Depot. So, we see some of that too where some container needs to move fast because of consumer is spending his money differently this summer. Thanks for your question.

Tom Wadewitz -- UBS -- Analyst

Okay. Thank you.

Operator

Thank you. I would like to turn the meeting back over to Mr. Ruest.

Jean-Jacques Ruest -- President and Chief Executive Officer

Thank you, operator. Thanks for joining us today. Maybe I can just use some closing comments. We're very proud of our end-of-quarter results here. The team has been able to do the best of what came out as very quickly. We kept everybody safe. We unfortunately had to do quite a few layoffs. Good news is, we started we call some people back to work. We also started to get some asset back in the business. You see from our cars at RTM every week that there is some sequential growth. We would love to see more of it. But, we'll track the economy. In the meantime, Rob is working very hard on this cost, and we're lucky and staying focus on long-term business. I mentioned the work that we do on strategy and the work that we're doing with -- things related to organic growth, which have nothing to do with most of what we talked about here today.

So, stay tuned. CN is ready for anything, whether we have a slow recovery or second wave of pandemic or a better business outlook sometime in October-November. So, we'll see. Thank you for joining us today. This is the end of the call. Thank you, Patrick.

Operator

[Operator Closing Remarks]

Duration: 74 minutes

Call participants:

Paul Butcher -- Vice President, Investor Relations

Jean-Jacques Ruest -- President and Chief Executive Officer

Robert E. Reilly -- Executive Vice President and Chief Operating Officer

James Cairns -- Senior Vice President, Rail Centric Supply Chain

Keith Donald Reardon -- Senior Vice President, Consumer Product Supply Chain

Ghislain Houle -- Executive Vice-President and Chief Financial Officer

Fadi Chamoun -- BMO Capital Markets -- Analyst

Ravi Shankar -- Morgan Stanley -- Analyst

Cherilyn Radbourne -- TD Securities -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Chris Wetherbee -- Citigroup -- Analyst

Benoit Poirier -- Desjardins Capital -- Analyst

Scott Group -- Wolfe Research -- Analyst

Konark Gupta -- Scotiabank -- Analyst

Brian Ossenbeck -- JP Morgan -- Analyst

Walter Spracklin -- RBC Capital Markets -- Analyst

Brandon Oglenski -- Barclays -- Analyst

David Vernon -- Bernstein -- Analyst

Seldon Clarke -- Deutsche Bank -- Analyst

Jon Chappell -- Evercore ISI -- Analyst

Jason Seidl -- Cowen and Company -- Analyst

Allison Landry -- Credit Suisse -- Analyst

Tom Wadewitz -- UBS -- Analyst

More CNI analysis

All earnings call transcripts

AlphaStreet Logo