Janet Drysdale - Vice President of Investor Relations Claude Mongeau - Chief Executive Officer, President, Director, Chairman of Donations & Sponsorships Committee, Member of Strategic Planning Committee and Member of Investment Committee of CN’s Pension Trust Funds Vincenzo Vena - Chief Operating Officer and Executive Vice President Jean-Jacques Ruest - Chief Marketing Officer and Executive Vice President Luc Jobin - Chief Financial Officer and Executive Vice-President

Brandon R. Oglenski - Barclays Capital, Research Division Scott H.

Group - Wolfe Research, LLC Walter Spracklin - RBC Capital Markets, LLC, Research Division Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division Cherilyn Radbourne - TD Securities Equity Research Christian Wetherbee - Citigroup Inc, Research Division Jacob Bout - CIBC World Markets Inc., Research Division William J.

Greene - Morgan Stanley, Research Division Benoit Poirier - Desjardins Securities Inc., Research Division Ken Hoexter - BofA Merrill Lynch, Research Division Fadi Chamoun - BMO Capital Markets Canada Jason H. Seidl - Cowen and Company, LLC, Research Division Steven P.

Hansen - Raymond James Ltd., Research Division Matthew Troy - Susquehanna Financial Group, LLLP, Research Division Keith Schoonmaker - Morningstar Inc., Research Division

Thank you, Markus. Good afternoon, everyone and thank you for joining us.

I would like to remind you of the comments already made regarding forward-looking statements. With me today is Claude Mongeau, our President and Chief Executive Officer; Luc Jobin, our Executive Vice President and Chief Financial Officer; Jim Vena, our Executive Vice President and Chief Operating Officer; and J.J.

Ruest, our Executive Vice President and Chief Marketing Officer. [Operator Instructions] It's now my pleasure to turn the call over to CN's President and Chief Executive Officer, Mr.

Claude Mongeau.

Thank you, Janet, and thank you to all who are joining on this call. We are pleased to report very good third quarter results, clearly our transformation journey is continuing and the key elements of our agenda are gaining momentum.

If you look at it during the quarter, we had a slow start in June and July from a revenue standpoint, but all revenues rebounded nicely in September. And more important than that, we were able, throughout the quarter, to continue to outpace base market conditions.

That helped us deliver solid top line growth. J.J.

will give you the key numbers in a minute. We were able to accommodate that growth at very low incremental cost.

If you look at Jim's report, on his page where the key operating metrics are all laid out, it's basically all green. So this is solid operating performance, but also very good service outcomes for our customers.

So we are balancing operational and service excellence the way we are aiming for. Perhaps the most important number on this page is at the bottom of the page.

During the quarter, we had a very solid safety record. Our car accident ratio was 1.31, which is roughly 43% better than last year, for the third quarter.

This means that we have only 1.3 accidents for every 1 million train miles that we move across the country. Obviously we do have accidents from time to time.

We had a very serious one this weekend, with fire, involving propane cars in Alberta. I think our response, which was led by Jim, who just came back from the site, was comprehensive and we are focused, as we speak, on returning service levels to our customers.

Delivering safety and responsibility is the foundation for CN, and we are continuing to focus on improving our record in this regard. So very solid third quarter results.

Jim will start by the operating overview and J.J. and Luc will wrap it up with the revenue and financial performance.

Jim?

Okay, thank you very much, Claude. So how do we judge success and did the team perform?

Our goal is to balance operational excellence with solid customer service and have an unwavering commitment to safety. And as Claude just mentioned, we just had a incident in Western Canada, in Alberta, that we had to deal with.

And the processes and all the people that we had involved, I think -- we've had to deal with it, we've dealt with it, we've moved on. We're going to learn what we can.

We're going to make sure we understand what happened there and do everything we can to improve our safety record even further than what we've done over the last few years. So let's take a look at the operating metrics here in some detail.

And as Claude mentioned, the operating metrics, if we take a look at what we're able to perform in our productivity, in terminal dwell, how we're working through the terminals. I think good metrics, 13% in yard productivity.

Mainly we handled more cars, with the same number of hours and people. The terminal dwell, better.

We've been able to put them through at a rate of about 5% better, which is in the right direction. Our train productivity, we've been able to add more tons on the trains per mile.

So it means that the increase in business, that J.J. and the marketing team has been able to deliver, has allowed us to put the trains, the bigger size.

And also, we're working always hard to optimize the number of trains we have and using supply chain views to make sure that we're running them when we're supposed to be running them and make sure we run them efficiently when we operate. If we take a look at the metrics as far as locomotive utilization, again, a 4% improvement from where we were last year and the year before.

So it ties into the better handling of the train. Train velocity, a little bit better.

Not quite where I'd like to have it, but better than before. And of course, my favorite.

Anybody who has been listening to me since I got the job, the metric that tells me whether we've got the right systems in place and we're heading in the right direction is car velocity, and we ran at about 5% better, 223 miles per day. I'm very proud of the team.

I think I've got a lot of talent that works directly for me. But even more important, we have talent right through the whole team and the culture is headed in the right direction.

I think we're close. I think there's more to give.

But at the end of the day, it was -- on 4 of these 6 metrics, we had record performance. So good job by my whole team, right from top to bottom and bottom to top, excellent.

But it's a balancing -- it's truly a balancing act of what we try to do. You could get even better operation, operating numbers, if you didn't worry about service.

But at the end of day, you don’t get customers if you don’t have service. So, for us, it's the balancing of the two.

And we have been pushing hard, as part of our cultural shift, to make sure that we drive the decision-making down to the front line. We want our employees at the front line to be capable to make the right decisions and at the right levels so that we get even more push and more value out of our operating metrics.

The network and the capital that we put in, and I'm sure that Luc's going to talk about here in a minute, is very important to us. It allows us to be able to move the traffic in an efficient manner.

We committed to put in a CAD 100 million more in the key Edmonton, the Winnepeg corridor, and have it completed by the end of the year and it's nice to report that we are on track and I'd expect, in the next 4 or 5 weeks, to be on there. I guess the nice challenge, J.J., before I pass it on to you, is we got a record grain crop.

And it'll be interesting to see how well our supply chain view of how we move products from origin to destination, and how we look at it more than just on the railroad, how well we do. So it'll be interesting to see what happens, and with that, J.J., I'll pass it over to you.

Well, thank you, Jim. And building up on what Jim just mentioned, in terms of efficiencies are very strong asset utilization.

The revenue in the last quarter increased 8%, which is a new call it record, as it should be. The team is on track.

You service to grow the business, that is service as defined by customers while making decision every quarter and every month. Volume and mix, which was 2.5% of the overall third quarter growth.

The exchange rate added 2.5%. Fuel surcharge another 1%, and same-store price on same-store sales, including coal, was 3.0%.

CN is focused on better product, not cheaper price. Product which produce a lower supply chain cost for the customer, and product that becomes a competitive edge for our customers and help them win in their own marketplace.

I will now do a quick rundown of quarter. As usual, on the FX adjusted basis.

I will start with Petroleum and Chemical, which revenue was up 13% on flat carload. Chemical revenue was up 9% with solid growth from basic chemical and Plastic pallets, in line with the positive auto and construction sector.

Crude revenue also experienced very strong growth. The run rate for the third quarter was about 70,000 carloads annualized, and about 80% of our business mix, currently, is what we call heavier crude.

Metals and minerals revenue was up 7%, led by frac sand revenue, which grew a very solid 60%. We continue to see production ramp-up in Wisconsin, on our Barron Sub, mainly the Superior Silica Sands 2.4 million ton plant which started up last year and the CSP [ph] plant which is currently under construction.

At least 2 new plants should be built on our Wisconsin division in 2014. Gross product revenue was up 5%.

Our lumber and panel to the U.S. was up 10% and 17% respectively.

Our Asian lumber export were also up 23%. CN will largely dominate, for years to come, the lumber and panel originating space in Canada.

Pulp and paper commodities were flat through last year. Our coal franchise was relatively stable in the quarter, revenue decreased only 3%.

And remember, our coal makes up only 7% of the CN total book of business. Both the met coal and pet coal business were positive in last quarter.

Thermal coal was negative. We have secured a new thermal contract which will help shore up our thermal coal results in early 2014.

Grain and Fertilizer revenue was down 5%. However, as Jim mentioned, we experienced in September a positive sharp transition in the grain, after a very weak July and August.

The grain exports supply chain is now running at maximum capacity and the fertilizer revenue were flat on currently very confused world products market. It should be noted, the pricing for the regulated Canadian green cap will transition from the plus 9.5% that it was last year, to a minus 1.8% as of August 1, 2013.

This will create a year-over-year headwind comparable for grain same-store pricing. Automotive revenue was up 4%.

The consumer vehicle sales in the city on our network drove our business, mainly import from Vancouver was better. We estimate CN currently move about 50% of the new finished vehicles sold in Canada.

That is before the addition of Chrysler in mid-2014. Intermodal revenue kept its relentless pace of growth.

Revenue was up 12%, unit were up 8%. The International segment grew 13%, domestic grew about 10%, which is a nice balance.

Our recent investment in destination terminal are producing good result. I especially like our progress in the market of Detroit, Saskatoon, Joliet and Calgary.

The way we redefined supply chain transportation time has changed the Canadian Port business. As a result, as you know, in 2013 we attracted the business of APL of Singapore and Well [ph] of Hong Kong, UASE [ph] of Dubai, and therefore, our third quarter revenue for the port of Vancouver was up about 30%.

On domestic, we benefited from new supply chain product, namely coal supply chain, some new customers like Target Canada and Hudson Bay, as well as a double-digit growth in the industrial sector. Our carload and regional sales force gives us more intermodal boots on the ground than anybody else in the country when it comes to the industrial sector.

Now moving to the outlook. The fourth quarter carload and RTM will growth.

They will grow sequentially from the third quarter and they will grow from versus last year. Our volume in the fourth quarter will be driven by housing starts, automotive sales, a better grain crop in both Canada and the U.S., ethane and natural gas feedstock which are more affordable than ever for the petrochemical customers, energy consumable like frac sand and crude.

As is usually the case in our well-balanced and diversified portfolio, some pocket will be weaker, namely some of the coal, potash, sulphur and pet coke. The Western Canadian crop production is estimated to be in excess of 60 million ton, and our Canadian grain supply chain will run at full capacity during the fourth quarter.

Also worth noting, our underutilized network between Chicago and Halifax will gradually benefit from new and profitable business, namely crude; recent Canadian refineries; OOCL container as of January in Port of Montréal; and later next summer, Chrysler in Ontario. In intermodal, we already have the foundation laid out for 2014.

We estimate our Port of Montréal rail share will move from 40% to 50% during the course of the year and our port [indiscernible] Rail business in Vancouver would also do very strong. In conclusion, the team is on track for growing the business based on service.

We're using our overall service as a major competitive edge and we are doing so at very attractive margin. As Claude mentioned earlier, our OR, operating ratio, was at 59.8.

And we invite to join us in our December Investor Day, where we'll go into more detail of our go-forward business plan. On that, I'll pass it on to Luc, our Chief Financial Officer.

All right, thanks very much J.J. Starting on Page 14 of the presentation.

Let me walk you through the key financial highlights of our third quarter's performance. Revenues, as J.J.

pointed out, are up some CAD 200 million or 8% to nearly CAD 2.7 billion. Operating income was just shy of CAD 1.1 billion, up nearly CAD 100 million or 10% versus last year, as we saw solid productivity, safety and service levels which were coupled with cost management in the quarter to complement revenue growth.

This is an all-time record for CN in terms of quarterly operating income. Our operating ratio is 59.8% in the quarter, which represents an improvement of 80 basis points versus last year.

Other income stands at CAD 5 million in this quarter, the result of lower activity levels, as expected, compared with CAD 18 million in 2012. On a full-year basis, in 2013, I would expect other income to finish in the range of CAD 10 million on an adjusted basis.

Our reported net income for the third quarter is CAD 705 million, up 6%. The favorable impact of the currency change was CAD 14 million on net income.

And the reported diluted EPS reached CAD 1.67, up 10% versus last year. In the third quarter, however, we recorded a CAD 19 million increase in deferred income tax expense resulting from the enactment of a higher provincial corporate income tax rate in the province of B.C.

This brought our effective tax rate to 29.5% in the third quarter. Excluding the impact of this one-time deferred income tax expense, the adjusted diluted EPS is CAD 1.72, which represents a 13% increase over the last year's third quarter.

Turning to Page 15. Operating expenses were CAD 1.6 billion, up 7% versus last year or 4% on a constant currency basis.

At this point I'll refer to the changes in constant currency. First, labor and fringe benefit cost were CAD 521 million, an increase of CAD 37 million or 8% versus last year.

This was the result of 3 elements: first, an increase in overall wage cost of 4%, mostly the product of wage inflation for 3 points and 1 point for increase in average headcount in the quarter; the second element is higher pension and health benefit expenses were 6 percentage points of the variance; the third and last element partly offsetting these cost increases was a 2 percentage point favorable variance relating to more capital work being performed in the third quarter this year versus last. Looking ahead to the fourth quarter, keep in mind that we expect some headwinds.

Some of it will come from stock-based compensation given where the stock price is currently at. Also, last year, I'll remind you that we had the reversal of a former executive's compensation benefits.

So these elements alone could represent some $30 million of unfavorable variance in the fourth quarter. Turning to purchased services and material expenses, they were CAD 318 million, up 3%.

This was due to higher volume, resulting in increased intermodal trucking expenses combined with higher repairs and maintenance expenses, but partly offset by lower project related contracted services. The fuel expense stood at CAD 390 million, an increase of 1%.

Higher volume represent an increase of 3.5 percentage points in the quarter, while improved productivity constituted an offset for 1.5 percentage point, and price was also favorable by 1 percentage point. Depreciation is CAD 11 million higher than last year or 5% due to a combination of asset additions as well as Canadian and U.S.

depreciation studies. Some of these depreciation studies will be completed through the fourth quarter and some into 2014.

Given the timing for completion, I now estimate that our depreciation expense will increase by approximately CAD 40 million, but the impact will be about CAD 20 million through 2013, and we'll see an incremental CAD 20 million or so in 2014. Turning to Page 16.

Let's talk a little bit about free cash flow. We generated nearly CAD 2.5 million of cash from operating activities.

This was a CAD 114 million or 5% higher than in 2012, mostly as a result of improved working capital. The main element contributing to this year-on-year improvement in working capital was lower pension contributions this year for approximately CAD 365 million.

This was partly offset by higher income tax payments as cash taxes, to date, were CAD 516 million more than last year. Our 2013 year-to-date, over CAD 1.1 billion of cash was used in investing activities.

That's CAD 327 million more than last year and the difference results mainly from lower proceeds from non-core assets sales for CAD 259 million and CAD 64 million of higher capital expenditures this year. We're still on target for a CAD 2 billion capital expense budget for the year.

And so, after deducting dividends, CAD 778 million of free cash was generated for the first 9 months of the year. Meanwhile, our balance sheet remain strong with debt and leverage ratios well within our guideline.

We have completed the stock buyback program of CAD 1.4 billion announced last October. Consistent with our strong shareholder return agenda, our board has approved a new stock buyback program allowing the repurchase of up to 15 million shares over the next 12 months, and I've set aside about the same budget as in previous years, about CAD 1.4 billion to get this accomplished.

We also announced the 2-for-1 stock split and the payment of our quarterly cash dividend. Finally, on Page 17, our financial outlook.

With the benefit of our third quarter performance, and assuming a stable economic environment through the fourth quarter, we expect to finish 2013 on a strong note. As such we're, therefore reaffirming our annual guidance which aims for high single-digit EPS growth in 2013, over 2012's adjusted diluted EPS of CAD 5.61.

We also continue to target free cash flow in the range of CAD 800 to CAD 900 million. On that note, I'll turn it back over to you, Claude.

Well, thank you, Luc and team. Clearly the solid Q3 results show that we are gaining momentum and we're entering Q4 with the hope to finish the year strongly, as Luc just explained.

Our short-term focus, with the residents of, again, for now safely back at home. Our focus is on recovering a fluid network.

We have a lot of work to do to catch-up, in terms of traffic for the benefit of our customers. And we are also, this week, focusing on concluding, hopefully, a labor agreement with our conductors.

The discussions are ongoing and I'm hopeful that we will be able to reach a win-win agreement in the next few days. As we look out, strengthening our supply chain mindset and our capability is effectively embedding our strategic agenda is what we are focused on.

There's a lot coming our way in terms of initiatives. We are getting good response from our customer base and stakeholders understand that we are a true backbone to the economy.

At the end of the day, it's all about creating solid value for our customers and our shareholders, and that's our commitment to all of you on this call. With this, I will turn it over to the operator for Q&A.

I want to ask about the contract wins that you guys have announced here. And I know you said that this was all based on service, not a price decision by the customers.

But can you talk about some of the service aspects and whether or not taking on all this business you'll be able to maintain that really good progress on the OR that we saw this year in this quarter?

Well, that's our game plan, it's to outpace base market and to be able to accommodate growth on a go-forward basis. If you look at our volume through the third quarter, and particularly in September, we are really ramping up.

The last few weeks of September and the first few weeks of October, we are actually delivering record volumes more than 1.2 billion GTMs per day is what we've been able to do. So, we're geared up, we have a lot of investments that add to our resiliency.

Jim and I were actually visiting our Prairie North Line and our new investments on the main line between Edmonton and Saskatoon. We really like what we have seen there and we are gearing up all of our resources, our assets, our people and our network, to be able to handle the business that our customers have trusted us with.

So that's the game plan and we have every commitment, all of our efforts are designed to actually deliver flawlessly.

So, Claude, you mentioned a couple of times, things feel like they're accelerating, momentum is building. You got, call it 13% earnings growth, with a few percentage point headwind from pension.

As you look out, not to fourth quarter, but over the next year or so, is there any reason you think in a stable economy, with the market share gains you're getting, why you can't continue to get kind of 15%-plus underlying earnings growth?

Well, I think we're going to be sitting down with everyone of you who are going to visit us early December. I think it's on the 10th or the 11th, so far.

Investor day, we'll give you more specific guidance at that point into next year. But clearly, we have good momentum.

So we're pleased with how things are going, and we are certainly aiming to deliver continuing solid growth in EPS and solid free cash flow. It's a bit early to guide into next year, but we like our results in Q3 and we're geared up to finish Q4 on a strong note.

I guess this one's for Jim. Obviously you've had some pretty impressive statistics here on the operating side, through the summer here in the third quarter.

Looking back at last year when we did have winter -- obviously winter's going to come again and let's assume for the moment it is a difficult one like it was last year. Can you talk to us a little bit about what you've done in the, call it the intervening months or period, that has better prepared you for the winter period, especially given a lot of this new volume that J.J.

has done a good job of bring over under your network. A lot more volume, potentially a tough winter.

How are you preparing for that?

Well, Walter, I hope you're wrong. I've been looking forward and I've gone to charm school and everything else.

And I am hoping that we get one of those nice, easy Canadian winters. But if we don't, let's say we get a winter like we had last year, there's -- it's multifaceted, you've got to look at the locomotives.

We've gone through the locomotives top to bottom. We have looked at the resiliency to make sure that they perform well in the cold weather and we don't have some of the issues.

We've learned some things on some of the different fleet that we have. We're getting new locomotives in the fourth quarter delivered, which will help us make sure that we get through the winter better.

We have looked at people to make sure that we've got a few extra people in place so that we're ready to go. On top of that, we have trained 800 conductors and we have a number of locomotive engineers that are qualified and ready to run if we need them in Canada to help us out.

I don’t think we'll get to that point, but if we do, we have some backstop on it. We're very careful on the cars and how we're going to manage the railroad.

And I think one of the biggest things will be is how fast we react to the network and the fluidity of the network, and it's truly a science and something that I think we've got a good plan going forward. The last part is, we've invested capital.

Not only the CAD 100 million that help us between Winnepeg and Edmonton. And when Claude and I went on the inspection trip and we went from Edmonton over to Prairie North Line, to see the siting growth, the track structure, making sure that the wells are completed.

So we have nice safe track on the Prairie North Line to give us that option. Plus, on the main line piece, the double track pieces that we've put in.

So it's a long list. I guess I could go on for an hour and then Claude and everybody else would be wondering why I took all the time.

But, Walter, we're as ready as we can be.

I had a question for you, I don't know if it's J.J. or Claude or maybe both, but how do you think about the impact to the competitive dynamic as you've taken some share?

Do you think of it as being there were some opportunity to take some business and maybe see stability and less movement of share in 2014 or 2015? It just seems that there is a finite number of big intermodal contracts, and if you pushed too hard then you might hurt the pricing dynamic or maybe it's fair to think there's stabilization in share.

I just wonder if you had any thoughts on how you thought that share and pricing dynamics might play looking forward.

Tom, we don’t price to gain market share, we provide service to attract customers if they believe we can help them win in the marketplace. We are pleased that some believe we can actually help them win in the marketplace.

But at the end of the day, there's a market out there. We have a very competent competitor across the street, and we don't take anything for granted.

We just hustle everyday, we have a good supply chain product, we have an end-to-end approach to how we actually deliver value and we're getting very, very good response in the market place. The more we do that, the more opportunities for having more business over time.

But it's not at all about price, it's about servicing our customers. J.J.

you want to add to that?

Yes, I think, in both cases it was definitely long sales process. Sales process over -- in one case over a year and the other case probably over 3 years.

And in both cases, explaining and selling what we can do, how we did and how we can add value to these 2 accounts in a way that was fitting their own need for, in one case, supply chain and the other one people like us were in transportation and they have a product to sell which they try to make it better. So a lot of effort on explaining the product and the reach and the service that we have.

And in the end, I guess, you could call it price like everybody else, but price was not the reason for them to make such a switch.

So I guess, assuming that it is service-driven and maybe there's a piece of price, maybe not, do you think the component about maybe last movement in share looking forward, is that reasonable or not necessarily?

I would say, it's probably, like it's not assuming. It is absolutely service.

The recent customer that are coming to our way are solid, profitable customers. And we are servicing them, and that's why they came over.

And we are not -- I mean, we are going to go in the marketplace, following our customers, not chasing customers through price. That's not our approach, not good for the industry.

And ultimately, it doesn't create a good marriage. As J.J.

said, some of these customer dialogues have been going on for several years, and they chose to come over because we have a good service, not because we have a low price.

So the record Canadian grain crop is certainly a welcome development in the context of a slow-growth economy. I wonder if you could just speak to what, if any, tweaks you're making to your service plan to maximize capacity?

And whether you think your supply chain focus can be a competitive advantage in this context?

Yes. I'll let Jim answer this.

But it's definitely a big challenge. There's a record crop out there, and we really got to step up to put all of the pieces of the supply chain in sync to be able to get our spotting well above 5,000 every week.

So obviously, this week, we're going to have a little challenge with the derailment over the weekend. But the last couple of weeks, Jim, we've been doing 5,300, 5,400 spots a week.

And we got to keep it going through the November, December period to meet customer demand, but what's your recipe?

I think, if you -- we focused from end to end, and we got to make sure that we've got the right plan at origin, working closely with the elevators, Cherilyn, and so that they're ready for us. We're not wasting car time, and we're not wasting load time and locomotive time.

I think that's really important. And at the West Coast and in Thunder Bay, and even up in Churchill, we're moving some grain up to Churchill.

We make sure that we partner and we understand what the flow of the ships are coming in, what they can take out and make sure that, that all works together so that we can react and go to the right place, whether it's the Prince Rupert, the Vancouver North Shore and South Shore and the Thunder Bay. So if we get that all in the mix, we should be able to maintain that number well over 5,000.

You can see I didn't go as high as Claude, over 5,000 from now and moving forward.

Maybe just touching on the pricing environment, when you look into 2014, you've seen some of the share move around a little bit. Just kind of curious to get your sense on the sustainability of sort of the 3% run rate that you guys have been able to consistently put up.

Just want to get a sense of how the pricing environment feels right now and maybe what to think about for next year.

I don’t know if we're going to get into guidance for next year, but the current run rate is a run rate that we think -- there's a number of puts and takes in our current run rate, obviously, with different businesses of different segment. And I talked about the Canadian grain cap, for example.

But we're comfortable the Canadian run rate is something that we can sustain, probably not necessarily to sustain with the same mix of business. But every year, we've got some strength and some weaknesses and that's how we make up the average total.

Our goal is definitely to price them above inflation, in line with the value of our service. And I think the fourth quarter is a good indication of what we believe we are able to do in the next year or so, for sure.

Just maybe you can give us your thoughts about the outlook for crude by rail, given some of the recent derailments and specifically, thinking about from a regulatory perspective, what's being discussed there and also from an insurance perspective.

Let me -- J.J. can fill you in with some of the customers that are coming online.

But let me restate what I said at the beginning. The -- we have a non-wavering commitment to operating a safe railroad.

It's true of all the dangerous commodities that we move. To be able to have so few accidents in any given year with so much volume is quite remarkable.

We move in excess of 1 billion tons of commodities every year to the benefit of the economy on both sides of the border. We have about 10% of that volume, which is dangerous goods.

And we have a handful of accidents every month. 2 to 3 would be our average.

It's difficult to get better than that, but we are committed to continue to improve to make sure that we have as few incidents as we can and that when we do have incidents, we are reacting to them with a comprehensive response, owning up to it, like we did this weekend. So that's our strategy, and I think that when you go beyond the short-term impact, because it is disrupting the lives of the people of Gainford over the weekend, there are a lot of people that need to be reassured.

At the end of the day, the facts are clear. We move more than 99.997% of dangerous goods to market without incidents and we have to keep getting better.

And if we do, I believe we are a viable alternative to move all the energy projects -- products, including crude. And as J.J.

will tell you, we move more heavy crude than we do -- we move light crude. And we believe this is there to stay with us, as long as we continue to operate a safe railroad, which we are committed to do.

J.J., you want to add to this in terms of some of the things that are online?

Yes. We -- as I said in my comments, we -- our run rate for crude is about 70,000 carloads annualized, which is basically is sort of the same sequential run rate we had in the second quarter.

But our RTMs are up because we moved in the last quarter same number of cars, more or less. But we moved in more mile and that's why the revenue in crude was up with the increased infrastructure in Alberta, which is where the heavy crude or more heavier type of crude is.

This is why our movement is getting more towards the heavier crude, as in case of CN, over 80%. And we should see sequentially an increase in the fourth quarter versus third quarter, probably in the case of the fourth quarter, not just RTM but also carload.

And as the infrastructure is laid out more and more in Alberta, we will also see 2014 showing growth in the carloads and RTM and the revenue. And then we'll -- without getting into the specific of how much, but it is still the growing story from a number of point of view, and our customers are all investing heavily in infrastructure as well.

And the challenge is on us, Jacob. If we continue to do a good job at moving these products safely, we believe we will continue to grow in this market.

Luc, can you just offer a little bit of color about what the trend is for the pension expense. I assume it will be coming down next year, but maybe you can kind of help us think a little bit about how that would change, what the magnitude of the change is, if this were year end now?

Yes, I mean, good question. The -- of course, this is all going to depend on where the discount rates will settle down at the end of the year.

But if we were to look at where things are right now, indeed, we would have an improvement over 2013. This year, the pension headwind, as I mentioned earlier, has brought about $100 million to our pension expense.

So next year, I would hope that we're going to see things probably flat to 2013. And potentially, there could be also a slight improvement.

We're monitoring that and I think there's probably a little bit of positive news but we also are looking at what the Canadian Institute of Actuaries is doing with respect to the mortality tables. There will be an -- they will be implementing new tables, which unfortunately, point to people living longer.

[indiscernible]. I think it's fortunate that we live longer.

Yes. From my vantage point, that's a bit of a problem, Claude.

And so that will probably offset a little bit of what otherwise would have been a more favorable situation. But I'm still optimistic that we'll be at least neutral to slightly positive on the pension expense.

Just with respect to Prince Rupert, you've been experiencing a slowdown back in Q2. But could you, please, give us an update related to the quarter and also discuss about the upcoming opportunities, including the potential opportunities with the Northern Getaway [ph] alternative and maybe Canpotex?

Okay. So starting with intermodal of the business over Rupert has been year-over-year softer, and I think we're slightly negative.

The 2 shipping line that we deal with in Rupert have taken the pricing action diffidence to the people who are doing business with us in Vancouver, and some of that business has moved from one shipping line to another, partly explaining why our revenue in Vancouver are up 30%. So it is what it is.

Business move from shipping line to shipping line. And in the case of Rupert, the 2 which are players in Rupert have actually maybe not done as well in the last 6 months than the tows in Vancouver.

Regarding Canpotex, the product is really nothing new. It's a major copper [ph] program.

The world market for potash, I would say, have looked better in the past. And I'm not too sure that there isn't a [indiscernible] of a major announcement in Rupert portfolio at this point.

At least the market for potash probably needs to sort itself out first. And I think -- what was the third part of your...

I think in the meantime, we're running very hard on grain. I think last week, we were close to 1,500 cars unloaded in Prince Rupert.

That's a key advantage we have, very good cycles. And the 3 owners, they are really committed to that strong volumes toward Prince Rupert to make sure that we create car capacity in this period of high demand, and our core business is holding well.

We are -- there's a lot of investment that had been made by RTI. The supply chain has never been more efficient.

We just need the price of coal to come back up a little bit and volumes to get a bit more growth. And we have lots of upside, I think, over time in coal for Prince Rupert.

Yes. On the coal, definitely, there's lots of capacity there and when the market come back and those markets do come back, the question of when, there'd be lots of capacity, even more capacity at RTI at that time to handle the coal and the pet coke.

Okay, very good color. And any opportunity to rail [indiscernible] crude to B.C.

Port?

There's no project. There's no infrastructure on the Canadian West Coast to receive crude by rail.

There is no project proponent. There's really no support.

I don't think it's in a kind of a near-term type of potential.

I guess the prior management really maybe wasn't as focused on client relationships and Claude, you've made a big focus on reconnecting with many customers. Do you think this is an impact on recent business wins in terms of the cost-cutting pace going on at your competitor?

And are you seeing customers make some of the move there? Just trying to understand some of the recent intermodal shifts and the potential for the additional pace on customer change, and I understand that you focus more on getting stuff from the highway, but I guess, maybe the recent intermodal wins were the real eye-opener in terms of the pace we're seeing for switching there?

It's a good question, Ken. And I -- let me say it to you this way.

We have an absolutely customer-centric agenda. We want to become a true supply chain enabler, and our mantra is to help our customer win in the marketplace.

And there's good reason for that. We want to be able to outpace base market tradition year in, year out.

We want to win market share against trucks with innovation like our new selling one CN approach, our new coal reefer products, our new initiatives to create intermodal [indiscernible] is helping on the one end. Our customers deal with issues, particularly in winter, but also help us gain market share at the margin versus truck.

We want to gain market share against all railroads, not just our principal competitor in CP [ph] -- at CP [ph]. We want to gain market share to the extent we can offer good service in energy products against pipelines.

And if we do that and if we innovate and we add value to our customers to help them win in the marketplace, that's what we need to do to actually outpace base market and grow faster than what the economy would give us. That's what we've done for the last 4 years.

That's what we plan to do again in 2014 and for many, many years to come. That's the strategy, and we're sticking to it.

So Claude, if I can just -- maybe just reconfirm what you had said earlier, in terms of winning the most recent intermodal contract, you said it's still extremely profitable business. So I guess, is that our interpretation that you're not using price to win these contracts or that maybe even the price that everybody was going to charge was still an incremental step-up so would have been still profitable business?

Yes. That's what I answered Tom, Ken.

Those are very good customers. They are profitable accounts, and we are -- they fit very well in our portfolio and they came over to us because of our service, not because of our price.

Yes. And service is -- just to maybe help put some color on what we define as service.

We spend a lot of time understanding what does service means to somebody in a shipping line, and why they go out there and sell to either [indiscernible] assembly plant or retailer, this seller service from the time the box arrive at the port to the time the box is released in the major city. So we -- having a rail service from terminal to terminal is not good enough.

So that's not what they sell. What they sell is, from the time the box arrive at the port, the clock starts.

And the clock stops when the box is released at the terminal, the destination where they need it. So the total transportation time include more than just CN obviously.

It doesn't hurt if we can move the cars fast, right?

Definitely, right. That's your contribution, Jim.

And also to add to what J.J. is saying, the -- in a world of larger ships, the -- having more destination, reach the huge asset, the -- they need to fill those larger vessels or ship in order to get their economics to work.

They need -- so they need more destination. They need good transit time to promote asset efficiency, and they need matchback.

They need to be able to load as many boxes as possible on the return movement. And that's exactly what our strategy is designed to provide.

More destinations, more faster transit times and significant opportunity through partnerships to have higher matchback [ph], better overall economics for the customers.

Back on the intermodal side, and looking at it from the international side, I mean, we have seen for the past few years, I guess, some conversion from U.S. to Canada and sort of containers that would have gone through the U.S.

ports going through Canadian port. And we see it in the Canadian port market share.

And my question is, where does a typical end market does this cargo that you're converting sort of bringing into? And how big of -- how big is this market that you can tap into?

Talking to U.S. market, Fadi?

Yes.

So obviously, it has to be in a geographic area that we can actually serve. So you're talking U.S.

Midwest or connecting with Eastern U.S. railroad.

And it probably is something that has all-time sensitive to it, meaning that it may not be the type of product that could go on a slower boat or water to the U.S. East Coast and then being trucked in or product that will be transhipped more than 1 or 2 times.

So it's something that the ultimate customer would like to have a -- this long rail bridge to U.S. Midwest or Detroit or Ohio.

So typically, Autoport fit in, in that category. That's kind of higher value, tighter supply chain, things also has to do with the seasonality in the retail business.

In a retail business, when you have a product on the shelf in November and it's seasonal, you have a good price for it. If it comes in 3 weeks late, you'll have to sell it at a discount and now you're eating your shirt.

So the product we have tends to be the product that has the sort of dimension where service, in terms of consistency and not so much speed, because speed, people can figure out the speed unless you have a real slow service. But consistency and some element of speed is important to them, including the speed through the port.

Because having a fast train from Vancouver to Chicago does not mean your container is on that train. And as your container is on the port for 3 days, sometime 4, sometime 1, sometime 6, a fast train for Chicago does not really meet the need of your assembly plant.

And that's very -- one of the key part of our service on the import side is playing in team with the terminal operator and the shipping line. Because that's what they're trying to have for the ultimate customer.

So in terms of the size, I think we're still growing. And in order to do that, we've had to get into new geographic pocket, like Joliet, Illinois, like Indianapolis.

And we're also doing and growing still in places like Detroit and Memphis.

When I look at your book of business as it goes into 2014, what percent do you have under contracts in terms of stuff that's competitive with, say, CP or other rails? And what percentage is going to be coming up for renewal?

There's no more change and substantial change in how much business were up for renewal for the coming year versus past years. Our book of business in term of contract versus tariff, short-term versus long-term contract is no different in 2014.

And we like -- every year, I think we manage renewal and risk going forward in the same fashion, so there's no difference going forward.

And I have a follow-up to piggyback on a question that was asked before. Have you guys see any changes in terms of your insurance for handling any hazardous materials?

No, we haven't, actually. The -- I mean, we have a very strong safety record, as I said earlier.

The -- our Q3 performance, for instance, was close to a record performance in terms of our accidents. The -- I think, and I'm hopeful, that by the time we finish the year, we may be, if not the leader in terms of safety, one of the top railroads.

We have more detection technology deployed. We have a very structured response.

And at the end of the day, the insurers look at facts in setting your premium. So there's always up or down from a year-to-year.

But our conversations in terms of renewals into next year have not indicated any major increases. It's more the normal ongoing, depending on demand and supply in the insurance market.

Just as a follow-up on the grain pricing outlook, I'm hoping you can help us understand a bit better how we should think about the 1.8% price revision from the CTA in the context of your broader portfolio, both regulated and nonregulated grains. And how the severe strain from the system that we're likely to see here in the next months might impact your decision to implement that decision throughout the course of the grain crop year?

The -- I think the -- I mean, J.J., you can be more precise. But at the end of the day, all of the regulated grain is subject to that revenue cap, which is adjusted down this year based on the formula for inflation.

So our grain business is less than 10%. Our regulated grain business is in the range of 7%, 8% of our overall -- 6% of our overall book of business.

So indeed, to the extent that's down a little bit, that will impact the overall price. But we said earlier that we're comfortable with our agenda, pricing above inflation.

And certainly, Q4, we already have the new pricing in place. And we will see fairly soon how it plays in the mix.

But we're very comfortable with that 3% or 3.5% range for pricing on a go-forward basis.

See last year -- I said, last year at the -- what the grain cap was providing last year, Canadian grain up at 6% of our book of business was helpful to bring the average up, where this year at minus 1.8%, obviously, it will be a bit of a drag and that's what it is.

But just to clarify, in terms of the -- your total book of grain business, which portion is subject to -- what percentage is subject to the 1.8% and which is nonregulated?

Only the Canadian grain and that adds up to...

Yes. I can walk you through the numbers, Steve, after the call.

We can get into the details.

But it's definitely less than 6%, but in that range of 4% to 6%.

Yes, of the book of business.

So I just wanted to ask a question about intermodal margins. I know you don’t speak directly to what they are.

But your results certainly find a face of conventional wisdom, i.e. that intermodal growth comes at the expense of margins.

In the long term, this might be a problem. Given your record margins this quarter, just curious, if you could just put into directional perspective, intermodal margins directionally improved first 3 years ago and might in 3 to 5 years time, that would be something that could look more like the corporate average or even surpass your corporate average margins.

Because again, it seems to find the face of results actually of conventional wisdom that this is a sub-margin kind of heavy business.

Well, Matt, I think we try to lead the way in this regard, and we said consistently that our intermodal business is actually quite close to our average profitability margin. It is a little bit less than the overall book of business in terms of margins, but not significantly.

The -- and so, as we grow the business in intermodal, we like the margin. Of course, the -- your ability to accommodate incremental business, you always have a little bit of the leverage in terms of putting in more on the train, lengthening train, et cetera.

The -- but at the end of the day, the overall book of intermodal is very close to our average corporate profitability, and we like it that way.

And we have very specific profit margin targets to maintain that, namely, for example, revenue per train, not only going east, but going back out. We call that balance.

Also how many container -- revenue container we have per train and different things are really, in the end, are way beyond just the price of each transaction is. Because the way we run this train, how they balance, whether they run long, whether they run a lot of double stack.

All these things add up to, whether you run a fairly profitable or very profitable Intermodal business.

So it's actually an area where supply chain is not just service and is not just growth. It's also efficiency.

Our terminal partners are actually helping us increase our slot utilization. The -- I mean, the last couple of weeks, I was looking at things, pretty good demand in Vancouver.

Our slot utilization was close to 94%. Coming out of the Vancouver terminals, it's close to 99% in Prince Rupert.

So they are really helping us get efficiency through higher slot utilization. And of course, the more you have your trains full, the less time the containers spend in the terminal, and that's also helping dwell [ph], which is good for service.

And the more growth, the more ability to leverage. So it's a little bit like the high-grade sausage, the -- like them fresh and keep them coming.

Actually, balance is a key.

You called out nearing completion of the $100 million investment in track in Edmonton, Winnipeg. And I think Jim mentioned new locomotives coming out still this year.

But as we think a little bit longer term, and I'm sure we'll hear more in the upcoming meeting, but can you give an idea if you're thinking on the level of CapEx, will it remain around 18% or 19% of revenue? And what types of projects do you expect to be most impactful even over, say, the next 3 to 5 years?

Yes. I mean, I would say at this point that we're still very much, Keith, focusing on the 18% to 20% range.

What we do, and Jim and I and the team have been reviewing, what we see out there as being opportunities, whether to accelerate the growth of the business or investing on more of the marketing side or looking at infrastructure, in terms of what can help us achieve more velocity, more sustainability, in terms of performance. Claude mentioned as well, safety is a big preoccupation of ours.

So we are also looking at where and how can we improve that aspect of our infrastructure. So I don't expect major surprises.

I think we'll review, certainly, the whole situation coming out of next winter. We feel pretty good about the infrastructure that we've put down in the Winnipeg to Edmonton corridor.

And we're constantly monitoring where and how the volumes coming on to the network. So probably not a whole lot of difference, and a lot of the interest in our part in securing locomotive power, ahead of the changes on the EPA side.

And so that -- we'll see more of that, of course, as the business continues to grow. We need to make sure that J.J.

has a proper supply of cars. So that's also top of mind for us, and everything else is -- we keep looking at it, and I don't expect big discontinuities.

But we are mindful of where and how the business is performing.

All right. Well, thank you, Mark [ph], and thank you all to listen to this call.

We're very pleased with our third quarter results. We have momentum into Q4.

Our agenda is working. We're trying to stay focused on safety and solid service to be able to create value for our customers and our shareholders.

And it's working. We are looking forward, as I said earlier, next time that we will be together hopefully, basically face to face in Toronto, at our Analyst Day meeting on December 10th and 11th.

So we're looking forward to meet you there and give you a sense of our longer-term agenda, our guidance for 2014 and take your question at that point. With this, have a safe day.

Thank you.

Thank you very much.