CSX Putting New Intermodal Strategy Into Place

Earlier this year, CSX CEO James Foote said the railroad’s intermodal network was a mess and needed to be revamped.

Much of that revamping has involved the announcement of plans to end service in smaller intermodal service lanes in favor of higher-volume point-to-point markets.

But management had been vexed as to what to do with the Northwest Ohio Intermodal Terminal outside of North Baltimore, Ohio.

It opened in June 2011 as part of a hub and spoke strategy to build traffic in the lower-volume service lanes CSX is now abandoning.

The idea behind the hub and spoke concept was that volume could be built in low-volume markets by creating a connecting hub much like the passenger hubs that airlines operate in such cities as Atlanta and Chicago.

The concept is also used for air freight service provided by FedEx and UPS. North Baltimore was the connecting hub.

But once the hub and spoke strategy ended what would CSX do with the new North Baltimore terminal? Initially, the carrier talked about using North Baltimore to do block swapping.

Now, CSX sees the Northwest Ohio terminal as a gateway to Ohio Valley markets.

Rather than pick up containers by rail in such cities as Cleveland, Cincinnati and Columbus, CSX will instead load them aboard trains in North Baltimore after they have been driven there by truck.

CSX and BNSF recently announced a haulage agreement to build dedicated trains that will link North Baltimore and West Coast terminals by running through Chicago.

Also on the docket for North Baltimore is development of a 500-acre logistics park and the launch of service to East Coast ports.

In the recent third quarter earning conference call, CSX executives portrayed their strategy as one of reducing operational complexity while developing a smaller but more profitable intermodal network.

“We still have a long way to go to get that franchise right,” Foote said. “Part of the process is disassembling the old independent structure of the company. Because it’s not an independent company — it’s part and parcel of the railroad.”

By that he meant that previous management sought to provide service to as many terminals as possible and increase the volume of containers handled.

Foote said that resulted in an intermodal network that was inefficient and offered spotty service reliability due to its complex nature.

But perhaps more importantly, it came with high costs and low profit margins.

Overhauling intermodal operations is one of Foote’s areas of expertise, having done it at Canadian National where intermodal went from being CN’s least profitable endeavors to one of average profitability.

He believes the same transformation can be done at CSX, saying that more efficient and reliable service will lead to volume and revenue growth.

Foote said that during the third quarter CSX intermodal traffic was up 3 percent and intermodal revenue rose by 12 percent in comparison with the third quarter of 2017.

The reorganization of CSX’s intermodal strategy that began in fall 2017 has meant that in terms of market coverage, CSX has lost 14 percent of it.

It has dropped or will have dropped by late January 900 intermodal market pairs. It will continue to serve 500 market pairs, meaning it will have given up 44 percent of those pairings.

Most of those discontinued pairings were short-haul traffic and some never generated any traffic volume.

The BNSF haulage agreement is an example of how CSX is using the precision scheduled railroading model to reorganize its intermodal operations.

A key principle of the model is to minimize the number of times that a freight car is handled between origin and destination.

Foote said even after CSX abandoned the hub and spoke concept, it still found itself shuffling containers between trains twice or three times between origin and destination.

CSX officials said the railroad lost 7 percent of its intermodal volume when it ended the hub-and-spoke operation and it expects to lose another 7 percent by ending some of its low-volume markets.

The objective of the new intermodal model is to make up those losses through focus on potentially higher volume markets.

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