Categories Earnings Call Transcripts, Other Industries

CSX Corp (CSX) Q4 2020 Earnings Call Transcript

CSX Earnings Call - Final Transcript

CSX Corp  (NASDAQ: CSX) Q4 2020 earnings call dated Jan. 21, 2021

Corporate Participants:

Bill Slater — Chief Investor Relations Officer

James M. Foote — President and Chief Executive Officer

Kevin Boone — Executive Vice President and Chief Financial Officer

Jamie Boychuk — Executive Vice President of Operations

Analysts:

Brandon Oglenski — Barclays — Analyst

Ken Hoexter — Bank of America — Analyst

Amit Mehrotra — Deutsche Bank — Analyst

Allison Landry — Credit Suisse — Analyst

Tom Wadewitz — UBS — Analyst

Justin Long — Stephens — Analyst

Scott Group — Wolfe Research — Analyst

Chris Wetherbee — Citigroup — Analyst

Bascome Majors — Susquehanna — Analyst

Brian Ossenbeck — JPMorgan — Analyst

David Vernon — Bernstein — Analyst

Jon Chappell — Evercore ISI — Analyst

Jordan Alliger — Goldman Sachs — Analyst

Jason Seidl — Cowen — Analyst

Ravi Shanker — Morgan Stanley — Analyst

Walter Spracklin — RBC Capital Markets — Analyst

David Ross — Stifel — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen and welcome to the CSX Corporation Q3 [Phonetic] 2020 Earnings Call. [Operator Instructions]

For opening remarks and introduction, I would 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 are Jim Foote, President and Chief Executive Officer; Kevin Boone, Chief Financial Officer; and 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

Thanks, Bill. And thank you to everyone listening in today. I want to begin by recognizing all of CSX’s employees who are continually responding to the challenges of 2020. Our results are a testament to our amazing people and the strength of our Company. The core principles instilled over the last few years, allowed us to act decisively with coordinated effort and alignment across the Company. Over the course of the year, we re-examined every process from the ground up to identify and eliminate unnecessary steps across the railroad. And as a result, uncovered significant opportunities to build upon the progress made during our transformation. These changes will provide benefits for years to come.

Now let’s turn to slide 5 of the presentation in our fourth quarter financial results. Operating income grew 5% to $1.2 billion, and the operating ratio improved 300 basis points to a new fourth quarter record of 57%. Our reported earnings per share were $0.99, but I want to point out that this figure includes a $0.05 per share charge related to the early retirement of debt. For the full year despite lower overall economic activity and historic demand volatility, CSX produced a full year operating ratio of 58.8% exceeding our initial guidance of a 59% operating ratio.

Moving to slide 6. Fourth quarter revenue declined 2% on 4% higher volumes as intermodal revenue growth was more than offset by lower fuel surcharge revenue and declines in coal. Merchandise revenue and volume were flat as revenue growth in chemicals, ag and food, metals and equipment and fertilizers was offset by declines in other markets in lower fuel surcharges. Intermodal revenue grew 6% on a 11% higher volumes to new quarterly record levels. This performance was driven by a combination of strong demand for transportation services due to inventory replenishment and volume growth from East Coast ports.

Coal revenue was down 18% and 9% lower volumes as the coal business continues to be negatively impacted by lower domestic utility demand, industrial production and global benchmark prices. Other revenue was down 6% as increased intermodal storage revenue was more than offset by a higher reserve for freight in transit and lower demurrage charges.

Turning to slide 7, we remain committed to being the safest railroad. In the fourth quarter, we achieved a new quarterly record low number of personal injuries and full year record lows for both personal injuries and train accidents. While our efforts to build a culture of safety can be seen in the annual performance trends, we can always be better. We have launched new near miss and workplace hazard reporting programs that encourage employees to report potential safety concerns. We are also working to increase awareness of incidents and trends by conducting joint terminal tours with CSX management and local labor representatives. This proactive approach to reporting and communications is helping drive increased employee engagement as we identify and eliminate unsafe practices across the railroad.

Turning to slide 8. We have previously discussed how the use of autonomous car and track inspection technologies is helping us meet our safety goals. And we will continue to invest in new programs to improve safety. However, we have a much water vision on the increased use of technology in our business. Technology is foundational to our growth. We are actively investing in new technologies across the railroad, but are barely scratching the surface of what is possible. We are making our intermodal yard smarter and more autonomous. We are piloting programs that will further fuel efficiency such as allowing us to optimize speed across the full trip of a train. And in the field, we’re getting rid of paper-based processes in converting to digital ones that allow faster communications, better data capture and improved safety compliance. As we look to the future, we are upgrading our dispatch system to lay the groundwork for enhanced network performance through dynamic real time routing decisions. We see opportunities to implement predictive analytics in our maintenance programs to both reduce mechanical failures and more systematically identify areas of track most in need of investment. Additionally, beyond the significant operating benefits, we are investing to improve our customer experience and create easier and more streamlined processes for our customers to do business with CSX. Every action we take is designed to make CSX smarter, faster and more reliable.

Turning to slide 9, we remain committed to sustainably managing our own business as well as helping our customers reduce their emission. In 2020, customer shipping with CSX avoided more than 10 million metric tons of carbon dioxide emissions. To put this into context, this figure is roughly equivalent to the emissions produced powering all the buildings in New York City for almost a full year. We remain focused on furthering these environmental benefits not only by continuing to improve the efficiency of our own operations, but also by providing a reliable alternative to trucking that allows our customers to meet their emissions goals without having to sacrifice the reliability of their supply chain. We have set ambitious long-term goals in order to remain leaders in sustainability and we are committed to expanding the benefits rail offers as the most sustainable mode of land based transportation.

Let’s turn to slide 10 and look at our operating performance for the quarter. Clearly, the simultaneous rapid increase in both volumes and COVID-related employee absences impacted the network. But overall, the railroad is running well and we were still able to drive incremental efficiencies. Locomotive productivity achieved a new quarterly record for GTMs for available horsepower, and we set a new fourth quarter record for fuel efficiency of 0.94 gallons per 1,000 gross ton-miles.

On slide 11, our improved efficiency is further illustrated which compares volumes and asset levels against the pre-COVID and prior-year periods. As volumes return, our revised operating plan is allowing us to operate at a sustainably higher level of asset utilization. This is reflected both in the sequential trends where volumes have increased at twice the rate of asset redeployment as well as double digit productivity gains we have maintained between year-over-year volume and asset levels in the second half.

While the team did an excellent job of working during this period to make the network more efficient, our number 1 priority remains providing our customers a high quality service product. There is still significant leverage built into the operating plan, but as volumes grow, we have been and will continue to add crews and locomotives as needed to serve our customers well.

Turning to slide 12. Our carload trip plan performance was 75% for the quarter and intermodal trip plan was 84%. Like all transportation and logistics companies, we have faced challenges from both the rising number of COVID cases along with broader supply chain disruptions from volatile demand, inventory shortages and imbalanced freight flows. This team has done an admiral job, navigating this environment. But we expect these trip plan figures will return to and then exceed our results from the beginning of 2020. While our performance is still at industry-leading levels, we hold ourselves to a higher standard.

I’ll now turn it over to Kevin, who’ll review the financials.

Kevin Boone — Executive Vice President and Chief Financial Officer

Thank you, Jim, and good afternoon, everyone. After a challenging year, we are all excited to turn the page on ’20 to 2021. That said, we accomplished a lot this past year which sets us up well as the economy recovers from the impact of the pandemic. While many markets remain challenged, we did see an improving business environment in the fourth quarter. And, as a result delivered both volume and operating income growth for the first time in 2020.

We manage costs through the year and made sustainable improvements to the train plan which will drive operating leverage as volumes return. We once again delivered a quarterly record operating ratio. Excluding real estate gains, this marked the third quarterly record in 2020, an extraordinary accomplishment by this entire team. This past year we focused on what we could control. Navigating the uncertain and volatile business environment while successfully driving efficiencies across the business. Our goal in 2021 and beyond is to leverage the growth ahead of us. By sustaining these efficiency gains and driving further improvement across the business.

Looking at the fourth quarter income statement, revenue was down 2%, as continued volume growth and pricing gains and our intermodal business were all set by the ongoing effects of weak coal demand and lower fuel recovery. Merchandise revenue was in mind with the fourth quarter of 2019. But we have seen positive momentum as revenue improved 5% sequentially from the third quarter above normal seasonality.

Total expenses were down 7% in the quarter on a 4% increase in volume. Walking down the expense line items, labor and fringe was 11% lower, reflecting the benefit of the train plan optimization and an 8% reduction in total headcount. Throughout 2020, our operating team continue to refine the train plan in response to the dynamic volume environment. These improvements enable significant efficiency in the fourth quarter as crew starts were down 11% while overall volumes were up 4%. Lower crew starts in the quarter also translated to fewer active trains, and as a result, reduce the need for locomotives. The smaller fleet drove a 14% [Phonetic] reduction in our locomotive labor expense. We were also able to hold the line on the significant reductions made earlier in the year through our engineering contract labor expense as well as our intermodal terminal workforce. Even as volumes continue to increase sequentially. Lifts per man-hours, a key measure of efficiency or intermodal workforce improved 23% when compared to the fourth quarter of 2019.

Moving forward, we are preparing for growth. The current environment remains challenging and unpredictable, but related mark-off significantly impacting pockets of our network. We wish the best for these employees and hope for their speedy recovery. Moving forward, we will hopefully begin to see improvement from current levels. We continue to focus on crew availability in our currently accelerating our first half hiring efforts to be prepared in the event of stronger demand.

We expect headcount will likely exceed attrition in the first half of the year to provide flexibility, the demand surprise positively particularly in the second half. We will manage it closely and adjust accordingly as we monitor, trajectory, the potential volume recovery. MS&O expense increased 4% or $19 million in the fourth quarter. Adjusting for the $20 million headwind on real estate gains, MS&O expense would have been roughly flat. As efficiency and volume related savings were offset by inflation and other items. The improvements to our train plan, I mentioned before also drove savings including lower crew travel and repositioning costs as well as lower locomotive materials and contracted service expense.

Real estate gains were minimal in the fourth quarter. Looking beyond 2020, we continue to manage a pipeline of future properties that we will monetize if conditions are favorable. Our base case is for real estate sales activity to be roughly flat. As I’ve said before, we will also continue to pursue opportunities to leverage our real estate, generate recurring revenue streams. Fuel expense was $77 million favorable, a 36% improvement year-over-year driven by a 33% decrease in the per gallon price and record fourth quarter fuel efficiency.

We continue to invest in technologies that will drive further improvement and fuel efficiency, widening the advantage over truck and demonstrating our continued commitment to sustainability. Looking at other expenses, depreciation increased $3 million or 1% in the quarter. This reflects a larger asset base as well as the impact of the road and track depreciation study. Depreciation expense is expected to be a $10 million to $20 million headwind in 2021. Equipment rents expense increased $4 million or 5% as higher days per load across all markets resulted in increased freight car rents.

Turning below the line. Interest expense was flat as higher net debt balances were offset by a lower weighted average coupon. Other income decreased $48 million reflecting a make-whole charge related to the early redemption $500 million of long-term notes that were set to mature in 2023. Income tax expense increased $24 million or 11% into higher pre-tax income as well as the cycling of certain state, federal tax benefits recognized in the fourth quarter. 2019.

Closing out the income statement, CSX delivered operating income of $1.2 billion reflecting a fourth quarter record, 57% operating ratio. Turning to the cash side of the equation on slide 15. On a full year basis, capital investment was relatively flat. Even during the pandemic, we remain committed to investments that prioritize the safety and reliability of our core track, bridge and signal infrastructure. This commitment will not changed and by level loading the maintenance spend, we are improving the safety and fluidity of our network without requiring a step up in core infrastructure spend going forward. Capital allocation remains a focus and we have a healthy pipeline of high return investments, we expect to invest in this year.

In 2020, free cash flow before dividends was $2.6 billion, down versus 2019, primarily reflecting lower operating income, but also impacted by lower proceeds from property sales. Free cash flow generation remains a key focus of this team. Even during 2020’s challenging environment free cash flow conversion on net income was about 95%. We expect to stay above 90% even with slightly higher capex in an increase in expected cash tax rate. Our cash and short-term investment balance remains strong ending the quarter at $3.1 billion. Our expectation remains that this balance will normalize over time. As we continue to invest in the business and return capital to shareholders from dividends and share repurchases.

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

James M. Foote — President and Chief Executive Officer

Great, thanks a lot, Kevin. Concluding with slide 17, we expect to return to growth in 2021 for both CSX and the US economy. While much debate remains around the pace of this growth as we’ve transitioned from COVID headwinds to potential stimulus fuel tailwinds, we believe CSX is well positioned to grow volumes faster than the prevailing GDP growth rate in 2021. Merchandise volumes should outpace industrial production growth as we convert additional truck volumes off the highway and on to CSX.

We expect intermodal volumes to grow even faster than merchandise as the business continues to benefit from the ongoing inventory restocking and a tight truck market. And following an extremely challenging year, we expect the coal business to begin recovering from 2020 trough levels. As volumes increase, we will drive incremental operating leverage by efficiently absorbing the additional cars and containers into our revised train plan. We still have significant opportunity to add volumes onto the existing trains and we’ll add train starts as needed to maintain high levels of customer service. We project full year capex of $1.7 billion to $1.8 billion. This spend reflects ongoing investments in our core infrastructure combined with several high return growth investments for technology and sales and marketing initiatives.

We will continue to evaluate — evaluate attractive growth investment opportunities as they arise. But from a network perspective, we still have ample line of road and terminal capacity. Lastly, we remain committed to returning excess cash flow to shareholders. We will repurchase shares through our ongoing buyback program and we will look to be opportunistic with share repurchases as we utilize our roughly $6 billion of buyback authority. The actions taken in 2020 had positioned CSX for success. And we are taking the necessary steps to ensure that we are prepared to handle the expected growth in 2021. This past year is proof that although we have accomplished great things during our transformation, our team is still finding opportunities to push this Company to new heights. I enter this year as excited as I have ever been for what the future holds for CSX.

Thank you. And I’ll now turn it back to Bill for questions. As you may have noted at the beginning of the call, Mark Wallace is unfortunately not joining us today as he is dealing with a non-COVID personal health issue. The rest of the team will do its best to answer any marketing questions you may have.

Questions and Answers:

 

Operator

Thank you. We will now conduct our question-and-answer session. Your first question comes from the line of Brandon Oglenski from Barclays. Your line is open.

Brandon Oglenski — Barclays — Analyst

Hey. Good afternoon, everyone, and thanks for taking my question. Well, Jim, I guess maybe we can say that, unfortunate for Mark, he’s not here, but you guys do sound like you have some confidence that merchandise, I think, you’ve said will grow in excess of industrial production, intermodal even better than your merchandise outcomes. So I guess are there any specific examples you can give us where you’re winning in the network, delivering this new service product that we’ve heard about for a couple of years, how is that translating into confidence this year?

James M. Foote — President and Chief Executive Officer

Well, in many respects, the conversion of trucks off the highway back onto the rail system has been — we’ve talked about it for many years where our existing customers today, where we’re doing a lot of work with them already in their boxcar fleet. And so we know them very well, but we’ve never really had an opportunity to take a look at their book of business from what they’re doing on the other — on the doors on the other side of the plant, so to speak whether they’re sending it out in truck. And now that our service product has become more reliable, we’ve been able to capture more and more of that wallet share. And then that applies whether it’s in forest products, whether it’s in pulpboard, whether it’s in metals, whether it’s in chemicals, you name it, we’ve been able to do that. And I think that’s clearly the strategy that we will continue to pursue along with looking at ways through our trans flow opportunities where we can reach customers business that before we didn’t have the capability to handle because we didn’t focus on kind of the last mile business if we didn’t directly connect to a customer’s location.

So it’s a combination of different factors that spread out really across the entire spectrum of merchandise. And again principally, because our service now is as reliable as a truck and we obviously — maybe it’s the easy way, but let’s go to our customers that we already know and do business with and shake the tree there, and there is a ton of opportunity for us. And again, similarly in our intermodal franchise where we’re getting more businesses, we’re looking at lanes that before we couldn’t compete in because we had somewhat of a disjointed network and we’ve worked hard to rationalize and improve the service on the network and it’s bringing us additional business. So we’ve been building on this for a number of years and we expect it to continue to pay benefits in ’21.

Brandon Oglenski — Barclays — Analyst

Thank you, Jim.

Operator

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

Ken Hoexter — Bank of America — Analyst

Great. Good afternoon. Jim, maybe you could just talk a bit about the missed business opportunity, given COVID. Kevin kind of threw out some thoughts that there was some missed opportunity. Can you quantify your thoughts looking back and maybe what that means as how fast you bring employees back into ’21?

James M. Foote — President and Chief Executive Officer

In terms of missed opportunities, we have — we, CSX, are no different than anybody else in the country. And our employees have been infected by the virus to the same degree as everyone else, if not more, in the transportation sector, because they’re essential workers and they’re out there on the front lines in and out every single day making sure the goods get across the country and we can take care of people that have the luxury to sit home and ride this thing out. So if we’ve missed any opportunities, it’s been as the surge of traffic came back in the third quarter just about the time the virus began to tick up and then clearly it took off with the Thanksgiving holiday. So we are aware of that, we’re prepared for that and maybe we’ve missed something along the way.

I think what Kevin was more and more concerned was — and Kevin is not able to express his opinions on this. We think that based upon all the work we’ve done for the Company to make sure that we can grow this business and with the potential for a rebound in the economy and with the potential for maybe stimulus and with the potential for maybe additional transportation spend by the government. We don’t want to miss out on something if it comes along, we want to be ready to handle it. So we’re planning, we’re preparing, we’re making sure clearly we have track capacity, clearly we have assets in terms of locomotives etc. What we want to make sure is that we have the employees and this is not like we can go hire some guy off the street and put them to work the next day, it takes five, six months to train these people, to get them ready. So we’re aware of the curve, but we want to make sure that we’re managing to the curve. And so I think that is what Kevin was referring to, in any missed opportunity, was to make sure that we’re prepared to handle growth when it comes.

Ken Hoexter — Bank of America — Analyst

Thanks, Jim.

Operator

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

Amit Mehrotra — Deutsche Bank — Analyst

Thank you, operator. Hi everybody. Kevin, I guess, with the dynamic of intermodal growth outpacing merchandise growth this year, do you think yields can be up in 2021 versus 2020? And then if you can just also talk about the magnitude of OR improvement? How should we think about OR improvement given the benefits of higher volume, but then obviously some of the adverse mix that comes with the intermodal outpacing merchandise.

Kevin Boone — Executive Vice President and Chief Financial Officer

Yeah. I think, as I mentioned last quarter, we had the greatest contribution from our intermodal business, which has traditionally been viewed as a least profitable segment of our business. But yeah, we put up a record OR. I think we again proved that in the fourth quarter, you saw the intermodal business, obviously, having the strongest growth. And again, we were able to deliver record OR performance.

As we go into 2021 as with any year, there’s normal inflation costs that you have to offset and overcome as you want to improve your margins going into next year. We have labor inflation, a little bit higher than what we saw in 2020. We have health and welfare costs ticking up a little bit more than what we saw last year. But really inflation, when I look over the long-term average, it’s probably a little bit under that long-term average, so not a huge significant headwind. But really, the variable here is going to be the growth. I’m very confident if growth exceeds our expectations that we’ll drop that through at a very attractive incremental margin.

Our goal here is to be prepared for the growth to grow operating income. That’s really the goal of what we’re talking about around here. It’s exciting to talk about and prepare for growth. And so that’s what we’re looking at. I mentioned in the first half of the year, we’ll accelerate our hiring to make sure we’re prepared for whatever environment comes in the second half. And Jamie will quickly adjust accordingly if things change on us, which as we know, this has been a dynamic environment and we just want to be ahead of the curve. And be prepared for it and be able to deliver. I think we all say, shame on us, if we can’t deliver the growth when it comes. And so that’s what we’re talking about here internally.

Amit Mehrotra — Deutsche Bank — Analyst

Could you just answer the yield question in terms of whether you think yields will be up year-over-year in ’21?

Kevin Boone — Executive Vice President and Chief Financial Officer

Yeah. I think when you look at the first half of the year, we’ll have some fuel surcharge. Fuel will still be a headwind really in the first quarter, will start — that will start to moderate as you get in the second quarter. So, second half of the year, you’ll see a little bit less fuel surcharge headwind. Coal in the first half of the year, probably on a yield basis will be a little bit of headwind. Obviously, you know that market is pretty dynamic, particularly on the export side. But see some support going in the second half of the year. So, I would say, definitely expect second half to be improved over first half, but that always goes back to mix as well as we see some of our higher RPU business, whether it’s chemicals or other areas, see continued strength, that certainly helps the dynamic there. But the coal dynamic should moderate first half of the year and really not be as much of a headwind going forward.

Amit Mehrotra — Deutsche Bank — Analyst

Okay. Thank you very much.

Operator

Your next question comes from the line of Allison Landry from Credit Suisse. Your line is open.

Allison Landry — Credit Suisse — Analyst

Thanks. Good afternoon and great job on the quarter. Without specifically focusing on where the OR can go in 2021, I sort of wanted to ask a longer-term question. I mean, it sort of seems feasible to do a 55 [Phonetic] OR this year. But, I mean, it just seems like you guys are pushing the boundaries of what we thought might have been either remotely possible for an eastern rail. So I would just love to hear your thoughts on how you view the potential for the longer term profitability of the business. I assume, obviously, you guys are gaining share. And Jim, you highlighted a number of efficiencies that will come in the future from technology investments. So any thought there? And then just sort of lastly, Jim, if you could sort of tell us what you think about the difference between a long-haul and a short-haul railroad as it comes down to — it’s a long-term profitability and if there are truly already any structural differences? Thank you.

James M. Foote — President and Chief Executive Officer

Great, Allison. Good one question. So, a couple three years ago, it was just only a couple of three years ago when we were in New York talking about how we were going to take this wore out, beat up, run down railroad and have a 60% operating ratio in a couple of three years, and everybody said, you guys are crazy, can’t be done. And now I think you said you want double nickels here win next year. We’re trying to grow operating income and earnings per share, so that we can reward our shareholders and not just get singularly focused on these operating ratio. So the operating ratio pretty much will be what it is.

Obviously, you saw what we can do when we get our hands dirty and we get focused on what needs to be done in order to run the Company better. I truly believe as Jamie and his team get in collaboration with Mark and the sales and marketing team collaborate on how we need to get this Company running more, even much, much, much more reliably and faster in the future in order to provide a better quality product to our customers. The necessary result — the ultimate result of all of that is that we take a lot of crazy unnecessary activities out of the system that we do today, and that drives down the cost. So without focusing on a specific reduction in the operating ratio, I firmly believe that we will continue to drive efficiency, but as we — and we’ll do that as we focus on — and we’ll focus — as we focus on driving — building a better product for our customers.

In terms of — in terms of short-haul railroads with — versus long-haul railroads with — in the operating ratio, again, every railroad is slightly different, every railroad has its nuances. Usually — we used to have some really, really, really nice long-haul routes across Western Canada back in the day when I used to work there. And it was very nice to ride along and take a look at the moose, some greenfields and a little bit of this, a little bit of that, go for a couple of thousand miles. But there weren’t any customers. Here, we’re like winding around and maybe got a little shorter haul, a little more challenges. And in — we’re stopping all the time, because we’ve got customers all over the place. So they come — it comes with what it is. This is — there’s a lot of business activity in the east that we have the opportunity here to take advantage of. And that’s a good thing.

And another part of my history goes back to my days at the Chicago Northwestern when we built the line into the Powder River Basin coal fields subsidiary called Western Railroad properties which is about 200 miles long, hit an operating ratio that started with a four handle. So every piece — every railroad property is different. Every railroad property is unique. Our goal is to have the best quality product and do it in the most efficient way. And if we do those two things, the thing that happens is we make a lot of money doing it.

Allison Landry — Credit Suisse — Analyst

Thank you.

Operator

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

Tom Wadewitz — UBS — Analyst

Yeah, good afternoon. I wanted to see if you could give a sense about — I think, Kevin, you said you’re going to add headcount above the pace of attrition. I know there’s a lead time to have T&Y, get them recruited and get them trained up and on the system. So I would assume you have pretty good visibility to what that number is. If you look at the next quarter or two. And wanted to see if you could give us a sense, is that sequentially 1% increase or 3%, or just kind of magnitude? Is it a big step up, or is it something that’s pretty gradual and is that something we should think about in terms of our margin modeling in first half of the year, or is it just kind of small, so it doesn’t really affect how you do with incrementals or margins?

Kevin Boone — Executive Vice President and Chief Financial Officer

No. This is — and maybe I’ll hand it over to Jamie to talk a little bit about his strategy and what he’s really planning for here. But no, these aren’t in order of magnitude, huge step-up in our hiring process. A lot of it to get ahead of the attrition rates that we see coming ahead in 2021. Really, I think we’re pretty confident that, again, we’re going to have the operating leverage that we’ve continued to deliver. So I wouldn’t expect headcount to go up more than the volumes that we’re going to see and the revenue increases, and we’ll adjust the model accordingly as I think we have more visibility, hopefully, going forward on where volumes are trending. We’ve seen a lot of volatility in every market out there. And hopefully, the volatility starts to diminish here a bit as we move to the second half of the year. Jamie?

James M. Foote — President and Chief Executive Officer

Yeah, thanks. Look, if I was to look at percentages, when you think about it, our attrition rate is somewhere around 8% per year, so what we want to do is kind of front-load that attrition rate, keep a good eye on our discussions with Mark and his team to make sure we’re ahead of that business that might be coming our way as we progress through the year, which then allows us to backfill the rest of that attrition towards the back end of the year. If the business doesn’t come, we’ll be in a situation where we can at least attrit out to the end of the year and go from there. So, look at as Jim said, it takes four to six months to make a conductor. So, we don’t get ahead of this now and the business comes along, we’re going to be leaving it on the ground, and that’s the last thing we want to do.

Tom Wadewitz — UBS — Analyst

So, the headcount increases sequentially early in the year. And then if the business is in there, the attrition could kick in and it could fall back off. Is that essentially what you’re saying?

James M. Foote — President and Chief Executive Officer

Absolutely. That’s how we’re setting it up. You got it.

Tom Wadewitz — UBS — Analyst

Okay. Thank you.

Operator

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

Justin Long — Stephens — Analyst

Thanks and good afternoon. Wanted to ask about comp for employee. Kevin, any color you can provide on what you’re expecting there over the course of 2021? And then maybe for Jamie, I was wondering if we could get an update on the number of locomotives in storage today and what you’re anticipating for that utilization rate going forward?

Kevin Boone — Executive Vice President and Chief Financial Officer

Yeah, I’ll take the comp per employee. Look, as I talked about in my opening remarks, we’re going to see a little bit of more labor inflation this year. We’ll see the management increase take effect here, January 1, which is a little bit different than what we’ve seen in previous years. So, that will be effective in the first quarter. But overall, I think historically, we talked about this 3% increase and without knowing what really incentive comp can move around quarter-to-quarter all those things, I think a 3% kind of range is a good starting point.

James M. Foote — President and Chief Executive Officer

And look, on the asset side, in particular, locomotives, we started this back in 2017 with almost 4,000 locomotives, our fleets down $21.50, I think, today, right around that area. So we’ve got hundreds of locomotives still in storage ready to pull out when needed. But we’re also continuing to invest in our locomotive fleet. I mean our capex coming up this year. We’re going to continue to rebuild locomotives. We’ve got 67 in the plan this year, and continuing to do that as we go forward. It’s really important that we continue to invest in the assets that we have. And that allows us to put trip optimizer, distributed power, fuel savings as well as reliability. So, we’re comfortable with the assets that we have now. We just want to continue to invest in rebuilding what we have going forward.

Justin Long — Stephens — Analyst

Okay, great. Thanks for the time.

Operator

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

Scott Group — Wolfe Research — Analyst

Hey, thanks, afternoon, guys. So, Kevin, any color you can give us on MS&O costs that you expect for the year? I know it’s volatile, but any color there? And then on the OR, I know we’re not getting guidance, but almost always the full year OR is better than fourth quarter. Is there anything wrong with that line of thinking right now?

Kevin Boone — Executive Vice President and Chief Financial Officer

The first quarter, better than the fourth quarter.

Scott Group — Wolfe Research — Analyst

No. Meaning, if you look at a full year, it’s almost always better than the fourth quarter you just had. And the fourth quarter…

Kevin Boone — Executive Vice President and Chief Financial Officer

Yeah. Again, I think we gave relative revenue guidance because there is a little bit of uncertainty, I think, as you get into the second half, hopefully, some of these initiatives that Jim talked about will take hold and we’ll see the economy strengthened through the back half of the year. I think we’re real comfortable just saying that we’re pretty confident in the incremental margins that we’ve been able to deliver, and we’ll continue to do that, particularly if we get stronger revenue growth than we expect there. So that’s the opportunity.

On the MS&O, when you look at the fourth quarter, really, we’re able to deliver what we thought we’re going to do when we guided in the third quarter. Real estate sales going into ’21 will be flat, so not a real big factor or driver on those costs on a year-over-year basis. We do expect inflation to hit us in ’21 there. But again, it’s an area where we have a lot of focus, and we’ll continue to try to find opportunities to take out costs. So I think expect some normal inflation impact to that line item, but nothing real impactful there moving into ’21. It will move also with volume. So if volume is a little bit higher than what we expect, you would see some variable costs move up with that as well.

Scott Group — Wolfe Research — Analyst

Okay. Thank you, guys.

Operator

Your next question comes from the line of Chris Wetherbee from Citi. Your line is open.

Chris Wetherbee — Citigroup — Analyst

Yeah, hey, thanks. Good afternoon. I guess, one last question about service. We think about the second half of the year, obviously, service was a little bit more challenge still quite good, but down from where you were in the first half of the year, and when you think about sort of headcount and maybe resources, is there a level, I guess, number 1, on the service, or a level where you feel like you’re comfortable or maybe you need to address it to move the needle-moving back up? And then second, when you think about maybe a little bit of the front-load from a headcount perspective, does that have an impact on the service or would you expect that to have an impact on the services as you move into the first half of the year?

James M. Foote — President and Chief Executive Officer

Yeah. Let me just make a general comment and then Jamie can answer you into details about where we are in terms of headcount. I think the railroads are not unique in the second half of the year. This phenomena with everyone trying to keep up with this unprecedented volume is creating issues whether it be in foreign ports, whether it be in ocean vessels, whether it be in the West Coast ports, the East Coast ports, the railroads, the trucks, logistics service providers, you name it. Everybody is dealing with a situation where volumes are unprecedented and volatile.

At the same time, when we have hundreds, literally hundreds of employees are sick or in quarantine. In one day, it’s on the west side of the railroad. The next day, it’s on the east side of the rail. The next day, it’s in the north side of the rail, next day it’s in Florida. And so for us to be doing the job from a service standpoint right now, I don’t think anybody is saying, they’re having problems, because the railroads are screwed up. We’re doing a really, really, really good job of managing our way through this. And I’ll let Jamie talk in some more detail about what it is we’re doing.

Jamie Boychuk — Executive Vice President of Operations

I think, Jim, really nailed it with respect to some of the pockets we’re seeing and why some of the levels aren’t where they were historically. But you really look at some of the stuff that we have gained though as well. When you look at — to a 19% all-time record train length, the increase year-over-year, the fuel efficiency, everything else that we’ve been able to keep and maintain and continue to move forward as we talk about 2021.

I can tell you today, as we see — Jim said, hundreds and hundreds of employees are off, that’s correct. And as we start to see 100 employees less, let’s say, today than we were a few weeks ago, yeah, we’re starting to feel that we’re getting even more fluid. So as those numbers come down, we feel like we have the right number of people out there, if we — if everyone returned to work.

Now I wish, I could predict where the next pocket was going to be and try to send people that way, but it’s difficult to do that. So yeah, we’re going to hit some bumps and bruises, I think, over the next quarter or so. On some of our service levels, but we are pushing. And is there a limit where we’re happy? No, absolutely not. We’ve got — if anyone wants to ask the question, is there anything left? What else are you going to continue to do, it’s normally a question we get asked. Well, our dwell and velocity isn’t where it needs to be. That’s an opportunity.

So as we continue to maintain all the hard work that we’ve done with the new plan, and the team that I’ve got out there working hard day in and day out on dwell and velocity and what’s going on in the terminals, we’re going to get that much better. And as business comes back and as we do some hiring, it helps us move the new commodities that we have come online. But really, what we have today is just a matter of dealing with the pockets that are out there. I can tell you, it is a daily exercise in trying to understand how some terminals we work around 40% of our employees being off on COVID. It doesn’t just normally hit a small percentage. We do have it across the property. But we have some pockets where 40% of our employees are gone for a period of time.

We’ve got a great team that moves into there, helps out. We work ourselves through it. We work around it, which is great about the network we have as we can do that, and continue to move the product. Look, we will see our numbers continue to improve as we move forward. But again, it’s — sometimes it’s a daily exercise depending on where we’re having our COVID issues.

Scott Group — Wolfe Research — Analyst

Got it. Thanks for the color guys. Appreciate it.

Operator

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

Bascome Majors — Susquehanna — Analyst

Yes, good afternoon. Kevin, you talked about your excess cash balance and looking to normalize it overtime, is that something you’re targeting for this year or could that be more gradual? Just any thoughts on how you want to manage your liquidity and balance sheet with the cash flow you expect to generate this year would be helpful? Thanks.

Kevin Boone — Executive Vice President and Chief Financial Officer

Yeah. I think, look, I would expect something lower by the time we exit this year. So yeah, I think that’s probably a this year event. We’ll watch it closely here. Certainly, as we get more comfortable with the trajectory of the economy and those things, we’ll have those discussions internally here on what makes sense. We always want to be opportunistic. So we’ll be there opportunistically in the stock as well. So it gives us a lot of flexibility. We’re going to generate a lot of cash this year as well. So it’s a good position to be in. It’s a position of strength. And we’ll do the best we can.

Bascome Majors — Susquehanna — Analyst

Thank you.

Operator

Your next question comes from the line of Brian Ossenbeck from JPMorgan. Your line is open.

Brian Ossenbeck — JPMorgan — Analyst

Hey, good evening. Thanks for taking the question. Jamie, maybe I’ll take you up on the dwell and velocity one. They have deteriorated for while here. Obviously, volumes have been quite volatile. They have longer trains to help offset that challenge. It doesn’t seem to be a headwind financially now, but we’ve also seen cars online come up quite a bit. So maybe you can dig in a little bit deeper and give us a sense as to what has been the challenge outside of labor and what you see sort of the opportunities, maybe a time frame as to seeing some improvement.

And then, Jimmy, if you can comment on the growth opportunities you’re seeing for the truck conversion side. That doesn’t sound like any of the service challenges now or in recent quarters are really affecting anything, but maybe if you can just clarify that for us as well, if the customers are just needing capacity and you have it, and it’s really just tough out there for everybody.

Jamie Boychuk — Executive Vice President of Operations

Okay. I’ll try to take a stab at — you’re hard to hear, but let me try to work down with respect to where we’re sitting with some of our metrics. So, yeah, our dwell and our velocity definitely has been impacted here over the past couple — probably, a couple of months, but we’ve seen probably more of a deterioration really over the past month, if you take a look at some of our numbers. And again, a lot of that’s COVID related. But for us, it’s really important to show that as an opportunity as well. As we continue to move things faster and we get our dwell to where we know it can be and will be. Those are costs that are going to continue to come out as we look at our plan. Cars online, our target, we’re a little bit above where our target — where we really want it to be. But you got to think, when we started this back in 2017, we were over 150,000 cars online. Now, we’re somewhere around 100,000, maybe 120,000 depending on where you’re looking at it.

We have done some things differently on that. There was a time, I would say, a year ago where we were shooting for a 90% fill rate, because we didn’t necessarily understand whether the fill rate was correct? Whether the customers were ordering and not ordering. Mark and his team have done an unbelievable job working with us to understand that, that fill rate now, pushing it to 100%, gives us that extra business that Jim has been talking about, about knocking on our customers’ doors to say, hey, why are you trucking when you got rail service, give it to us and allow us that reliability. That means at some point, you’re going to have to bring on some cars online, as you take a look at fulfilling 100% fill rate.

So that’s what we’re pushing towards in our model. We’re comfortable with that. We’re keeping a good eye on what those cars look like as they move around. And if anything, the opportunity, as we look at the car fleet we have, now as we start picking up that velocity, we’re going to get more loads out of those cars that are out there, which is more opportunity for us to be able to spin the customer cars. Some of the highest numbers that we have year-over-year are private cars. So that’s an opportunity there for customers to spin their cars faster and give us four or five more loads a year as we get quicker. So, yes, it’s opportunity, opportunity, opportunity as we move forward with the plan that we put in.

James M. Foote — President and Chief Executive Officer

Yeah. And by doing all those things correctly in a coordinated fashion between operations and sales and marketing, that’s what’s driving this business from the highway onto the rail.

Brian Ossenbeck — JPMorgan — Analyst

Got it. Thank you.

Operator

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

David Vernon — Bernstein — Analyst

Hi, guys. Thanks for taking the question. So Jamie, I was wondering if you could kind of help us understand that rate of resource addition in relation to volume growth. I think you guys are laying out a picture that says somewhere in the mid-single digits on volume. And I’m not asking you to confirm that as a volume guide. I’m just trying to get a sense for, if we’re going to be at that level of volume growth, what level of resource do you need to add into the network from today’s levels to kind of keep pace with that at the service level you want to provide?

Jamie Boychuk — Executive Vice President of Operations

Look, when we talk about hard assets with respect to locomotives, we’re in a good spot. We’re going to need to use some more locomotives as some volume starts to come back. Yeah. When you look at bulk business, definitely, those are per train starts. When you look at our car fleet, I’m comfortable that as our dwell continues to come down as we move forward, we’ll need less boxcars.

But we’re going to make sure that we hit that fulfillment rate of 100%, right? That’s a 10% difference when you really think about 90% was a target a year-or-so ago. Now it’s 100% as we move forward with our customers, showing the reliability of being there with the car supply we say we’re going to be. Yeah, you’re going to see a bit of an increase. But where we’re at right now is a good spot. As we move faster, as I mentioned, we’ll get that many more loads out of the cars that are out there, which is going to help that growth as we continue to move forward. And I think we’ve really touched on the people side of things. Front loading is the right thing to do. It gives us that four to six months to do that hiring practice and deal with the attrition that we see out there and prepare us for what’s going to happen towards the second half.

James M. Foote — President and Chief Executive Officer

Yeah, David, the hiring is really offsetting the attrition that we expect through the full year. But really front-end loading that so we can get ahead of it and react to any volume upside that could occur in the second half.

David Vernon — Bernstein — Analyst

Yeah. I’m just trying to point, do we need to be at this 2019 to — can we — could we accommodate a 5% volume growth with the current headcount level, or does it need to be a little bit higher than that? And what’s the proportion of which the headcount would need to be added back?

Kevin Boone — Executive Vice President and Chief Financial Officer

Well, I think a lot of this, I think, is going to give us the ability to hit the hot pockets where we were low on crews right now and it’s really redistributing Jamie, correct me if I’m wrong, redistributing a lot of the employees to where we were going to need and where we see the growth coming.

Jamie Boychuk — Executive Vice President of Operations

Yeah. It’s based off of — obviously, we look at our attrition rate and where it’s at and where we expect those employees to attrit out. But this is working very close with the marketing team. This is very — as Jim mentioned earlier, the closer that Mark and myself and our teams work together, we know and have an idea where this business growth is going to come from. Could it throw us a curveball? Sure, it could. But you want to — as it stands right now, we’re preparing in those areas that we need to, and we’re going to make sure that we hire in those — to make sure we can capture that growth.

And look at cars online, really, when you look at year-over-year, the percentage is 12%. But really, we’re down 4% full year versus prior full year. So we’re not talking about a big percentage points here. And it’s really important that we give the reliability of getting that box card to 100% fulfillment, if we want those customers convert over.

David Vernon — Bernstein — Analyst

Thank you.

Operator

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

Jon Chappell — Evercore ISI — Analyst

Thank you. Good evening, everyone. Thanks for confirming the view on coal improving from the 2020 trough levels. I wanted to get your views on how much of that is anticipation of the domestic market versus the export market? And as it relates to the latter, we’re seeing shortages in certain regions of the world because of the bitter winter weather and some trade issues. Have you seen any uptick in your export coal opportunities given some of those issues?

Kevin Boone — Executive Vice President and Chief Financial Officer

Yeah. I think when you look at our coal business, fourth quarter was — showed a little bit of strength versus previous three. So, we’re exiting the year at a little bit better position than what we saw, call it, the middle of the year here.

Going into next year, probably the strength that we anticipate will really be on the domestic side with a little bit of the utility stockpiles below normal levels. So, we see some opportunity there. You see the same benchmark prices on the export side that we see. They stabilize, which is a good sign. They’re still well below the levels that we saw pre-pandemic, whether that’s an opportunity from here, we hope so. I think the risk-reward is probably a little bit more balanced than it has been in previous years or particularly coming into 2020.

So, you’re probably referencing the China, Australia, spat they have on the coal side right now, not helping the global prices right now and so not really helping us. So, hopefully, that gets resolved and we’ll see some maybe net price upside here going forward, but that’s a very difficult market for us to predict. On the thermal side, if you look at our business today in the fourth quarter, really, that export business is 75% med and 25% thermal. If you get some of these polar vortex impacting some of the global markets and get a cold wave here. Maybe that’s an opportunity because we’re delivering very little to Europe and other areas today. So, we’re going into the year cautiously optimistic. I don’t see a huge upside case, but see a little bit of stability and strength off of the fourth quarter.

Jon Chappell — Evercore ISI — Analyst

Sounds great. Thanks, Kevin.

Operator

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

Jordan Alliger — Goldman Sachs — Analyst

Yeah, hi. Just one quick question. To the extent you have it, do you have the — your economic thoughts that sort of underpin the commentary you made on volume, in other words, volumes greater than GDP, merchandise greater than industrial production. What’s your economic guys saying around those two measures?

Kevin Boone — Executive Vice President and Chief Financial Officer

Well, as I said, there’s — there are a lot of different views on what the underlying number is going to be. And so right now, we’re not — we’re trying to find what is the most reliable number for us to look at. And also at the same time, as you know, everybody is adjusting their numbers and to a large degree, from — they’re adjusting them down.

So, our guys don’t necessarily have — our guys have a — I’m sure they have — they have an independent view, but it’s not something that we’re going to put out there as what we think right now is something that we’re willing to bet the pharma, and so to speak, and how we’re going to run the Company. We’re trying to look at all the different viewpoints and as we move further into 2021, hopefully, things get clearer and clearer for us as we progress.

Jordan Alliger — Goldman Sachs — Analyst

Okay. Thanks so much.

Operator

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

Jason Seidl — Cowen — Analyst

Thank you, operator. Hey, gentlemen, my best to Mark, hope he feels better. I wanted to talk a little bit about your trip plan compliance. It looks like things are going in the right direction on the carload side. Talk a little bit about what you guys are doing there to improve that? And then is there really anything that the railroad can do right now to materially move the intermodal trip plan compliance, or is this all just, sort of congestion needs to work through some of the ports and some of the inland facilities?

James M. Foote — President and Chief Executive Officer

Let me start with the look at the trip plans on the intermodal side. Look, we have — we considered probably on both ends, the most stringent trip plans out there with respect to always making sure that we measure both loads and empties, whether that’s intermodal or on the merchandise side. And I’d like to say our times are probably some of the most stringent times out there where, on the intermodal side, you’re arriving to the minute.

Over the past couple of months or a month or so, UPS peak was amazing. It was a big, big quarter. I don’t think that’s a surprise. And as we felt some pressure at different ports in different areas, we got the opportunity to move even more UPS traffic than we expected to. So some of our international traffic may have — that isn’t as time-sensitive, may have taken a little longer to get off the port than we normally would to make sure we move the time sensitive traffic. But going forward, I fully look at our numbers with respect to the intermodal side, 90% above is where we should be getting. I mean, we’re shooting for above 95% on that, and I’m confident that our team is there. And we’re starting to see some of those numbers hit already as we’ve moved past some of that UPS peak.

On the carload side, again, you missed by two hours on the carload side, that’s it. It’s failed, whether it’s a loader or empty, and our connections are tight from terminal to terminal. And if you have some of those COVID pockets, we’re 40% of your terminals off, and it takes you an extra six or eight or 10 hours to get a car to a terminal, that’s a failure. We’re not willing to change our standards and our metrics with respect to where they sit to getting to that last mile. So we’re going to work through this, which we have. We’ve seen some improvement on the numbers. Not as quick as I would like to see some of those continue to move forward. But we do have the best metrics with respect to those who look at trip plans out there today.

So we’re confident that moving forward, we’re going to see that number get up into the 80s. And our target will continue to be to push forward with that, which will allow that reliability for Mark and his team to go up there and continue to sell this product that we’ve built.

Jason Seidl — Cowen — Analyst

That’s great color, and I’m glad to hear things are moving in the right direction on the numbers, and everyone be safe out there. Appreciate the time as always.

Operator

Your next question comes from the line of Ravi Shanker from Morgan Stanley. Your line is open.

Ravi Shanker — Morgan Stanley — Analyst

Thanks. Good evening, everyone. So just to kind of wind up here, the — am I expecting a bit of a tone shift from the OR here. I think over time, you guys have kind of clearly mentioned that you are going to be pursuing growth to a great extent going forward. But kind of as we think of that three to five year OR algorithm going forward, again, you’re starting to sound a little bit more like the Canadian rails who are saying, hey, we’re going to — OR is not the only thing as a standalone, we’re going to be looking at growth and growing EBIT dollars here. So are you targeting sticking to a high 50s OR, but pushing the top line much higher from here?

James M. Foote — President and Chief Executive Officer

Well, we — again, we’ve never said that we are singularly focused on one thing only, and that’s trying to get the operating ratio down. And just in simplistic terms, if you want at a 50 operating ratio, we’d have a 50 operating ratio. We do it like quickly. I’m not sure what would be left to the Company in the process. But — so it’s always a balance between trying to do things as efficiently as you possibly can. While you’re delivering a good product to the customer, so you can grow the business. And that’s always from day one, since I walked in the door here being the plan. And it just takes a while to get the railroad to run right because you can start to be able to generate some new business.

So the algorithm going forward is the algorithm that we’ve had in place for the last three going on four years, focused on delivering a really high-quality, good, reliable product to the customer, which allows you to get more business. And if you do that, you drive a whole bunch of unnecessary costs out of the Company and you increase efficiency. When you do that, you make a lot of money and you make a lot of money, shareholders are happy. That’s our simple business plan.

Ravi Shanker — Morgan Stanley — Analyst

Great. And maybe as a quick follow-up. We have a new administration this morning. Are there any kind of two or three things you’re looking for from DC something you’re watching out for either as a tailwind or a headwind?

James M. Foote — President and Chief Executive Officer

Government stability that too much to ask for. I would be — that would be a good start. So let’s give them a couple of weeks to figure out whether or not we’re going to have debt, and then we can start figuring out, if there’s any significant real change in anybody’s agenda.

We’re used to working with not only on the federal level. But we operate in 22, 23 states. Some of them are led by a Democratic Governor and some are led by a Republican Governor. So we’re used to dealing with all kinds of philosophies in viewpoints as it relates to government relations with business. And so, it’s not new to us. We’ll just figure out what to do and how to interact, and then we’ll get along fine with everybody.

Ravi Shanker — Morgan Stanley — Analyst

Great. Thanks, guys.

Operator

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

Walter Spracklin — RBC Capital Markets — Analyst

Yeah, thanks so much. Hi, good evening. Just to follow-up on that question with regards to Washington. And looking back, a swing in favor, swing of power in favor of the Democrat has not been a good thing from a railroad regulatory standpoint. And now that your ORs are trending where they are, Jim, do you see any risk that regulators start to put close attention on the returns you’re getting now and introduce new risk of changes or more leniency or favoritism towards the customer here?

James M. Foote — President and Chief Executive Officer

No, not necessarily. I mean, again, there’s a mix — there’s a remix. There’s a mix on the STB that goes back and forth in terms of whether it’s — now, I guess it’s two-three versus what it was before, maybe two-three, versus maybe what it was at one point in time. So, again, this is something we’re always dealing with.

We’re not unique in the sense that we’re a regulated — or we have a regulator. And so, it’s not like every airline railroad, telephone company, TV company, you name it, anybody that’s got a regulator, all of a sudden is worried about the end of days. We just adapt, and we figure out what it is their concerns are. And we work appropriately with them. And we’ve been doing this for a couple of hundred years and doing it successfully.

Walter Spracklin — RBC Capital Markets — Analyst

Okay. Understood. And if I could, just a clarification question for Kevin here. On the question of yield, I know you answered that kind of on a segmented basis. If I lump it all together, am I right in interpreting what you said, that yield is going to be negative in the early part of the year and possibly turn positive in the back half. Is that the right way to look at yield? Because it’s been so negative this year, it will obviously have a pretty big impact, depending on which direction we go on the magnitude of the yield here.

Kevin Boone — Executive Vice President and Chief Financial Officer

Yeah. Like I said, the revenue — or the fuel surcharge will be a headwind in the first quarter. That will weigh on the yield similarly to what we saw in the fourth quarter here. That will moderate in the second quarter and then I think you’ll see some improvement. I always have to caveat it with mix matters, right? And depending on what markets, hopefully, the strong markets, like our chemical business and others, continue to have some upside, and that will obviously be a huge impact to our yield performance.

If the coal export market strengthens, as you know, our contracts are structured to participate in the commodity prices, if they strengthen. So that would be also an opportunity for us into the back half of the year. Offsetting that, I think, we are still very bullish on, as you heard us talk about on the intermodal side, it’s a really good business for us. It happens to have a lower RPU, but we make good money there. And so we would — Jamie is ready to handle more growth there, and we have a great team going after more opportunities. So, although, it’s equal, where we see it today, which will change probably tomorrow. Yeah, a little bit of headwind in the first quarter, probably strengthening into the back half of the year.

Walter Spracklin — RBC Capital Markets — Analyst

Okay. Appreciate the time. Thank you.

Operator

Your next question comes from the line of David Ross from Stifel. Your line is open.

David Ross — Stifel — Analyst

Thank you. Love the enthusiasm, operator. Kevin, I wanted to follow-up on your last comment there about intermodal, specifically related to intermodal pricing. Is the expectation for better than normal intermodal pricing, given what’s going on in the truckload market, or is it going to be more of a cost recovery, low-single-digit type yield improvement story?

Kevin Boone — Executive Vice President and Chief Financial Officer

Well, we don’t see real time — some of our partners see in terms of price. We’ll generally see a lag there. There’s also inflation adjusters that occur on a lag basis as well. So, again, it kind of fits with my commentary around probably second half, hopefully showing some improvement over the first half.

Unfortunately, in strong markets, we don’t get to reprice our entire book of business. Today, these things happen over time. We’ll need the markets to remain strong and supportive. And so that yes, I think we’re somewhat optimistic, but there’s a lot of — time will tell. What happens going forward, if the economy can strengthen in the back half of the year that certainly will help the discussions our sales and marketing team are having. So they’re out there selling the business hard right now.

David Ross — Stifel — Analyst

Good. Thanks.

Operator

[Operator Closing Remarks]

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