Posts Tagged ‘Cindy Sanborn’

So What is Precision Scheduled Railroading and Why Does E. Hunter Harrison Believe it Will Work at CSX?

October 13, 2017

Since March, the term “precision scheduled railroading” has shown up in a lot of news stories about CSX.

But the model is anything but new. The term has received added attention this year because its chief promoter, E. Hunter Harrison, began imposing it shortly after he became the CEO of CSX last spring.

Harrison developed the model while serving as head of the Illinois Central Railroad. He later took it to Canadian National and then Canadian Pacific after he became the CEO of those roads.

Last year he proposed taking it to Norfolk Southern, but a rebellion by that railroads shippers, its board of directors and various government officials thwarted those plans and Harrison and his associates called off a proposed merger between CP and NS.

But less than a year later Harrison and the Mantle Ridge Hedge Fund successfully engineered a plan whereby Harrison became CEO of CSX.

The name of the model itself provides only a few clues to how it works. Like any philosophy, how it works in theory and how it works in practice are now always in synch and that appears to have been the case at CSX where service problems began within two months and accelerated during the summer.

Depending on who you believe, CSX is either ironing out the kinks or forcing its shippers to change how they do business.

PSR differs from the prototypical railroad practice of holding trains in a yard or on a siding until they’re full.

With PSR, deliveries are given priority from origin to destination as quickly as possible, and each asset is used and monitored constantly so customers can better plan their shipments.

As CSX Executive Vice President and Chief Operating Officer Cindy Sanborn explained it to Progressive Railroading magazine, PSR is designed to improve customer service, control costs, optimize asset utilization, enhance safety and aid workforce development.

Of course it is. What railroads doesn’t say it is doing those things.

Sanborn continued by explaining that PSR seeks to provide customers a more reliable, predictable and cost-effective shipping experience by creating train operating plans that seek to speed cars through the network.

Sanborn acknowledged that a charge made this week at a Surface Transportation Board hearing into CSX service issues that the railroad is forcing customers to change how they operate may be accurate.

“Our service may be configured differently, and the transition to the new system may mean that we’re asking some customers to make some changes, but ultimately we believe that the customer will be happier with that product,” she said.

The latter part of Sanborn’s comment mirrors what Harrison has been saying for weeks that, ultimately, customers will benefit from precision scheduled railroading.

It’s just that many CSX shippers aren’t seeing that yet and Harrison’s pronouncements are coming across as just so much public relations talk.

Trains magazine Fred Frailey columnist wrote last year when CP was trying to take over NS that Harrison has a core belief that freight cars should be moving, not sitting still.

He said Harrison learned this as a young railroad manager and if he saw cars that had been sitting around for awhile he would demand that they get out town on the next train.

When CSX began having its service issues this year, Frailey wrote another column about Harrison and what he is seeking to do at CSX.

Frailey thinks Harrison might have come to CSX with clear ideas about what needed to be done, how it needed to be and who should do it.

Among other things, he apparently believed that CSX had too many hump yards, too many trains and too many employees and contractors.

In short order, CSX made 1,300 train plan changes, cut 2,700 jobs and sent 1,000 contractor and consultant positions packing.

It has retired or stored 850 locomotives and eliminated more than 300 train crew starts per week. Twelve hump yards were converted to flat switching yards because a tenet of precision scheduled railroading is that that humping cars takes more time.

PSR holds that some car blocks can be switched more efficiently at intermediate stops between an origin and destination and in less time than it would take to classify each in a hump yard.

Frailey quoted an industry source who suggested that Harrison didn’t care if CSX loses customers. In the end, he is only interested in keeping those customers whose needs dovetail with the service that he wants to provide.

Most of those would be shippers needing transportation that provids CSX with high margins.

Shippers whose business is more competitive tends to be lower margin business and costs money to keep.

Harrison, like so many other corporate titans these days, is an adherent of the religion of cost cutting.

In that sense, he is not alone. All North American Class 1 railroads are talking about reducing expenses and driving down their operating margins.

The problem that CSX encountered after implementing Harrison’s vision was a clogged network.

Sanborn admitted to Progressive Railroading that the rapid changeover to precision scheduled railroading caused some shippers to experience “unintended effects.”

CSX owned up to it, Sanborn said, noting that in early August, Harrison emailed shippers a letter apologizing for the service disruptions.

“We have redoubled our efforts to resolve customer issues as quickly as we can and to improve communication with customers as we move forward,” she said.

Sanborn said that based on customer comments, CSX management is studying traffic flows across the network by closely analyzing connections between merchandise trains, yard jobs and locals.

Management is seeking to nudge local operating managers to be more proactive in communicating with shippers and solving their problems.

CSX is also considering providing customers more frequent service. Sanborn cited the example of possibly discontinuing unit-train service for a customer who in the past used one or two trains per week, or about 200 cars, and instead offering daily service that would provide about 30 cars  a day.

“For the customer, that [would] mean they need fewer cars and less track space for storing empty or full cars, and there’d be less inventory tied up in transit at any one time,” Sanborn said. “For CSX, it means we are able to handle fewer cars in our scheduled merchandise service, with better balance on the network. That’s a more efficient approach.”

There’s that “e” word again. Efficiency is something that Harrison has long valued.

At the time that Harrison arrived, CSX was in the midst of another operating plan change that the Michael Ward administration had begun executing in April 2016.

That plan was based on the premise that the railroad would emphasize a triangle of routes extending from Chicago to New York, New York to Florida, and Florida to Chicago.

All other routes were secondary and would not receive the same level of maintenance as the key routes.

Trains began getting longer and departed yards every 28 hours rather than every 24 hours. The effect was fewer and longer trains.

At the time, CSX said this realignment would bolster service, boost productivity and improve safety.

But Harrison and his management team tore up CSX of Tomorrow in favor of precision scheduled railroading.

CSX Executive Vice President and Chief Financial Officer Frank Lonegro said last month during an industry conference that the previous operating plan had resulted in inconsistent financial results.

“Measured by operating ratio, we hovered around 70 percent,” he said. “It wasn’t that long ago that we had an industry-leading OR. Since then, though, the industry has made great progress … but we did not make meaningful progress. On the service side, [we’ve had] a couple of good years followed by a couple of not-so-good years.”

Another flaw of the CSX of Tomorrow plan was that it would take too long to show results. When it was announced, management said it would take years to implement.

But Wall Street is seldom willing to wait that long. John Larkin, a Stifel Equity Research analyst who follows CSX, told Progressive Railroading that many on Wall Street expected an operating ratio in the 50s in a matter of months. “That is obviously not a realistic expectation,” Larkin said.

But it was out there and many on Wall Street tend to view Harrison as a financial savior.

Larkin is among them, saying that Harrison is “the most brilliant operator of our time.”

The news that Harrison wanted to take over CSX was enough to send the value of the company’s stock skyrocketing by double digits.

The service problems of this year may have soured some shippers but they have not dented Harrison’s reputation on the Street.

Larkin argues that many critics, observers and customers are selling Harrison short for the recent performance hiccups.

“He will get CSX service fixed and lower the operating ratio to the targeted levels, no matter what. He won’t accept anything else,” he said.

Independent rail industry analyst Tony Hatch, whose views are often cited by Trains and Progressive Railroading, concurs, citing improvements in CSX service metrics.

Harrison and other top CSX executives have maintained throughout the troubles that things will turn around, that the issues are temporary.

Sanborn said that once the transition period has ended and the operating plan is fully in place that shippers will enjoy a fast and more fluid network. CSX will reap lower costs and a reduced operating ratio.

“While we have made a lot of changes since we began our transition [to PSR], there is still work to be done to refine the operating plan and continue to improve company performance and service to customers,” Sanborn said.

CSX management plans to send stakeholders a long-range strategy overview that it plans to reveal at its investor conference Oct. 29-30 in West Palm Beach, Florida.

“In broad terms, we’ll talk about financial and operational objectives and the timeframes in which we hope to achieve them,” Sanborn said.

“We’re bullish on the future and sometimes you have to break some eggs to get there,” Lonegro said.

Much of the faith that CSX management and Wall Street have placed in precision scheduled railroading is rooted in the belief that it is a strategy proven to work.

By that they mean that it worked at IC, CN and CP, although some skeptics have noted that the networks of those railroads differed greatly from that of CSX.

In touting PSR, Sanborn said it has been proven over time to improve the performance of railroads. It will provide a more intuitive and flexible railroad, she said.

“Our decision-making is driven by [PSR] principles,” she said. “As our business evolves, we will use that framework to determine how to continue meeting our customers’ needs, and operating safely and efficiently, in response to whatever new conditions develop.”

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CSX Contends it has Cut Freight Transit Times

July 14, 2017

Despite some performance metrics showing mixed results, CSX management contends that it is making substantial progress in implementing its precision scheduled railroading operating plan.

CSX Chief Operating Officer Cindy Sanborn told Trains magazine that CSX has cut transit times by reducing the number of times that cars are handled en route.

She was responding to a report by the magazine that found that during June terminal dwell has increased 8 percent and average train speed fell by 4 percent.

Those figures were taken from reports that Class I railroads must provide to federal regulators.

“What you don’t see are the cars that used to go into that terminal . . . but don’t go into the terminal anymore,” Sanborn said.

She said that means that when a car is handled just once instead of twice, it arrives a day earlier, which reduces shipper costs.

The latter is primarily the case with shippers who own their own fleet of cars and reduce the size of their fleet because cycle times have improved.

CSX also contends that it is providing more consistent service. Sanborn said that through June 10, CSX was operating trains on-time 79 percent of the time.
Sanborn said reducing transit times has been the primary motivation for closing hump operations and shifting to flat-switching at major classification yards.

Before the implantation of its current operating plan, CSX road freights would pick up blocks of traffic bound for the nearest hump yard.

But now Sanborn said the only traffic going to a hump or classification yard is that which needs to go there.

She said that although locals are still pre-blocking traffic for the nearest hump yard, they also build blocks for additional destinations.

Those blocks are picked up by road trains and block-swapped or switched closer to their final destination.

Sanborn acknowledged that there will continue to be teething pains and issues that must be addressed as the railroad implements its operating plans.

The railroad’s operating team is constantly monitoring performance and is seeking to balance daily traffic flows by shifting some unit train traffic onto manifest freights.

This has been particularly the case with auto rack traffic and aggregate shipments that once traveled in dedicated trains.

Consolidating traffic has meant that CSX will be operating the same number of trains in each direction on every corridor, which Sanborn said will improve locomotive and crew utilization by reducing deadheading moves.

The railroad’s goal is to move the same tonnage on fewer trains.

Behind the Closing of CSX Hump Yards

May 24, 2017

CSX has acknowledged that it plans to close its hump operations at Selkirk, New York, and that it also plans to close its hump in Birmingham, Alabama

Both yards will continue in operation as flat-switching facilities. Five other hump yards, including Stanley Yard in Toledo, have already been converted to flat switching.

CSX will still have five active humps, including Queensgate Yard in Cincinnati and Willard Yard. In 2016, Selkirk was the second-busiest hump yard in the CSX system.

Speaking to the Wolfe Research conference this week, CSX Chief Operating Officer Cindy Sanborn said the hump closings are not being implemented just to change switching operations.

“It is part of the larger plan of making transit across the network faster,” she said.

CSX is seeking to bypass intermediate terminals because it believes that doing so will enable it to move freight more efficiently, quickly and reliably.

An analysis by Trains magazine noted that CSX CEO E. Hunter Harrison has said hump yards are only viable when they classify more than 1,400 to 1,500 cars per day.

Of the 12 hump yards in existence when Harrison was hired at CSX last March, only Waycross, Georgia, meets that threshold.

Three yards, Selkirk; Nashville, Tennessee; and Willard handled more than 1,400 cars per day in 2016.

The Trains analysis said those humps were likely to handle less traffic under Harrison’s precision scheduled railroading operating philosophy.

“If there’s not enough cars that want to go there to support the infrastructure needed to maintain and utilize the hump, then we simply don’t need it,” Sanborn said at the investor’s conference. “We can move over into flat-switching operations.”

Sanborn reiterated at the conference that CSX expects to only have two to three humps left by late this year.

Another driving force behind closing the humps is that carload traffic at CSX is in a long-term decline.

CSX handled 2.32 million merchandise carloads in 2016, a figure that excludes automotive traffic.

Trains reported that is a decline of 605,000 carloads since 2000 or 22 fewer 75-car trains per day.

Yet merchandise traffic made up two-thirds of CSX freight business in 2016 and Sanborn said the railroad’s new operating plan provided an opportunity to grow that business by providing faster and more reliable service.

“Concurrent with making the changes in the hump network, we also are doing a very detailed deep dive into the overall operation in general,” Sanborn says.

To improve traffic balance and density, some unit train shipments are being carried by merchandise trains that operate daily. In some regions, local service is now operating daily.

Harrison Gives Preview of What’s in Store at CSX

April 21, 2017

CSX CEO E. Hunter Harrison gave a preview on Thursday about what is in store at the railroad in the coming months and years.

Speaking during a conference call with Wall Street investors, Harrison called the CSX network a bowl of spaghetti when compared to the linear-oriented systems he oversaw at Canadian Pacific, Canadian National and Illinois Central.

E. Hunter Harrison

Although he thinks that CSX does well in moving intermodal trains, Harrison believes merchandise freight needs to move faster.

The average speed of CSX merchandise freight is now 18 mph between terminals, but Harrison believes it could be boosted to 27 to 28 mph.

One way to boost transit times is by skipping terminals. Ultimately, Harrison wants to see CSX provide merchandise service that is on a par with trucks.

CSX Chief Operating Officer Cindy Sanborn said CSX has made two significant operating changes since Harrison arrived.

Some traffic that had been moving in unit trains has been merged into merchandise trains and four of the railroad’s 12 hump yards have been converted to flat switching.

Sanborn said the changes will allow CSX to provide seven-day-a-week service, bring balance to the system, increase train length, cut terminal dwell time and reduce the time that freight spends in transit.

CSX is expected to continue closing humps although Sanborn said she doesn’t know by how many because management is studying each yard individually.

Harrison described hump yards as a relic of an era when a much higher percentage of rail freight traffic was merchandise service.

In a related matter, Harrison said CSX will consolidate yards in areas where multiple yards now exist and sell the land used by yards that are closed.

There was speculation earlier that CSX would sell some secondary lines, but Harrison said he doesn’t expect any major line sales in 2017 because management is focusing on improving operations of the current network.

Other steps CSX plans to make, Harrison said, include having fewer train sets devoted to unit coal train service, but having faster cyling of cars between mines and customers.

CSX is not looking to drop some of its less-profitable merchandise traffic as Canadian Pacific did while Harrison was that railroad’s CEO.

“No, we’re not looking at demarketing,” he said. “We’re looking at marketing.”

As predicted, Harrison will trim the CSX work force. The railroad now has a hiring freeze in place and expects to lose 9 percent of its work force through attrition.

He added, though, that management does not have a target for work force cuts.

Another labor-related change may see CSX pull out of national negotiations with labor unions and instead bargain directly with the unions.

Harrison would like to see train and engine crews paid by the hour in return for the company offering job guarantees. Ultimately, Harrison said he wants to lower T&E costs by 30 to 35 percent.

One area in which Harrison does not expect change is the number of crew members on each train. “I’m not a one-man crew advocate,” he said. “ . . . to take a 20,000 ton train on line of road, with one person, I don’t think it’s good business,”

Sounding like a union officer, Harrison said there are safety issues with one-person crews and he sees the value of having extra set of eyes and ears in the cab.

If one crew member had to deal with such things as a broken air hose or a knuckle failure, that could result in delays.

Harrison said one-person crews might make sense in some situation, citing switching at mines.

CSX Expects to See Earnings of 8 Cents Per Share in 4th Quarter 2016, Sanborn Tells Conference

November 11, 2016

CSX expects its earnings per share in the fourth quarter of 2016 to be eight cents.

CSX logo 1“While we now expect fourth-quarter earnings per share to be down, absent the eight-cent impact, the company’s earnings remain consistent with its prior guidance of flat to slightly down from the prior year,” said Executive Vice President and Chief Operating Officer Cindy Sanborn.

She gave that assessment to analysts attending the Baird’s 2016 Industrial Conference in Chicago on Nov. 9.

Sanborn said volume will be roughly flat on a reported basis, which includes an extra accounting week in the fourth quarter this year.

However, management expects strong cost performance to help offset that and result in a solid financial performance throughout the year.

Sanborn said that through the third quarter CSX has posted about $550 million in cost savings through efficiency initiatives and volume-variable savings.

Cost cutting has been undertaken in labor, fuel and assets expenses through gains achieved with train length and crew savings, record fuel efficiency, and improved locomotive productivity and asset reliability.

In the long term, CSX expects to transition away from coal traffic and toward more service-sensitive merchandise and intermodal markets.

CSX expects to have an operating ratio in the mid-60s.

CSX Says 2nd Quarter Profits Fell 20%

July 16, 2016

A 34 percent decline in coal traffic played a major role in CSX seeing its second quarter profit drop by 20 percent.

Earnings per share for the quarter declined 16 percent to 47 cents on revenue of $2.7 billion. The net earnings of $445 million is a 20 percent decline from the second quarter of 2015.

CSX logo 3“This continues to be a challenging environment,” CEO Michael Ward said during the company’s earnings call.

CSX saw a 9 percent decline in overall traffic volume with every traffic category posting losses except for minerals and automotive, which were up 13 percent and 1 percent respectively.

CSX did manage to reduce expenses by 9 percent during the second quarter, but its revenue fell by 12 percent.

The railroad said it had efficiency gains of $96 million for the period, lower volume-related costs of $86 million, and $56 million from reduced fuel prices.

The operating ratio was 68.9 percent compared with 66.8 percent for the second quarter of 2015.

Chief Financial Officer Frank Lonegro said during the call that CSX expects to produce nearly $350 million of efficiency savings this year, which is an improvement of the original target of more $250 million.

Lonegro said CSX will continue to “turn over every rock” in an effort to bring expenses in line with revenue.

Among the measures CSX has taken to cut costs are mothballing 350 locomotives.

It still plans to take delivery of 65 new locomotives this year, which means additional active engines are likely to be placed in storage. The new locomotives were ordered in 2014.

CSX Chief Operating Officer Cindy Sanborn said the CSX active locomotive fleet has been reduced by 10 percent, which she said is in line with the decline in gross ton miles.

“I doubt you would see us in the market for new locomotives” in 2017 and 2018, Lonegro said.

Lonegro said CSX will probably rebuild some of its four-axle units used for switching and local service.

The employee head count for the quarter was on average 4,489 less than it was in 2015 for the same period.

Railroad executives said operational performance improved with on-time originations hitting 88 percent during the second quarter, which they said is a 33 percent improvement. On-time arrivals were 69 percent, a 44 percent improvement.

Ward said that “service continued to meet and exceed customer expectations.”

Fredrik Eliasson, chief sales and marketing officer, said that in a lower volume business climate improving service is critical to maintaining strong pricing.

Sanborn said CSX is trying to strike a balance between maintaining service levels and cutting costs by implementing such measures as running longer trains and using variable scheduling, Sanborn said.

“We are making the right tradeoffs between productivity and service,” Eliasson said.

CSX expects to see full-year volume and earnings declines with the third quarter presenting major challenges.

CSX Idles Locomotives, Extends Sidings for Longer Trains, Seeks Cost Savings and Price Increases

April 21, 2016

CSX has taken 400 locomotives out of service and plans to lengthen some sidings to allow longer freight trains.

It is all part of the company’s efforts to save $250 million in the face of falling traffic, particularly coal traffic.

CSX expects its coal traffic will fall by 25 percent in 2016 for a revenue loss of $500 million.

CSX logo 3CEO Michael Ward said during a first quarter earnings call that the railroad is seeking to offset the loss of coal revenue by focusing on pricing, efficiency gains, and closing lines and facilities.

For several months, CSX has sought to reduce operating costs by running longer trains.

Cindy Sanborn, executive vice president and chief operating officer, said that train lengths have increased by 16 percent to an average of 6,400 feet

“We’re bumping up against challenges in single-track territory where siding length is an issue for us,” Sanborn said.

She cited as an example the Nashville-Cincinnati route where CSX is extending sidings that limit train length to 6,500 feet.

Sidings are being lengthened in Kentucky at Cave Creek and Morgantown and in Tennessee at Mitchellville. The longer sidings are expected to go into service this summer.

“These extensions will support strong current and future volume on the corridor, especially for our automotive market,” said CSX spokeswoman Melanie Cost.

Sanborn said that although overall train speeds on CSX trail those of other Class 1 railroads, “we’re never satisfied with where we are.”

She noted that the service quality that CSX is providing over double-track routes has enabled it to increase prices.

CSX is seeking a balance between productivity and efficiency, Sanborn said. Adding density on its primary routes will enable the railroad to find opportunities for additional savings.

“These siding projects are being driven by business needs and future opportunities rather than any specific ‘target’ train length,” Cost said in an interview with Trains magazine. “CSX’s work to build longer sidings is part of the company’s overall strategic investment to match network resources to the changing business mix we see – as we manage through the decline in coal and make decisions now to maximize long-term opportunities in merchandise, including automotive and intermodal.”

Sanborn insisted that the changes that CSX is making are not short-term reactions to temporary economic conditions.

Asked if CSX plans to cut its coal branch network further, Sanford said the company will continue to look at demand and take steps to reduce costs as needed.

“We’re never done any of this,” Sanborn said in reference to the cutbacks the railroad has made in its Appalachian coal field territory.

CSX is now operating with 10 percent fewer locomotives than it had in the first quarter of 2015.

Sanborn said 275 locomotives are in storage and the railroad will return 96 leased units in the second and third quarters.

However, CSX still expects to take delivery of 100 new locomotives this year.