Harrison Acknowledges to Shippers CSX Service Issues

CSX head E. Hunter Harrison acknowledged to the railroad’s shippers on Monday that service problems exist and tried to assure then that the carrier is committed to “working with you individually to ensure you receive the support you require to meet your business needs.”

Harrison reached out to shippers in an email message that seemed to blame the service issues on a few people at CSX who have pushed back against the changes he brought and continue to do.

The email said most CSX employees and managers have embraced changes in the operating philosophy which have, among other things, resulted in longer trains and a phasing out of hump operations in classification yards in favor of flat switching.

“To those customers that have experienced such issues, we sincerely apologize,” Harrison wrote. “As we move forward, we will continue to address these internal personnel matters and our teams have recommitted themselves to reaching out to those affected to work through any service issues and resolve them as quickly as possible.”

The email comes in the wake of the Surface Transportation Board saying that it was more closely monitoring CSX service because of numerous informal complaints that it has received.

Trains magazine reported that one chemical shipper said that it had not seen service so poor since the carve-up of Conrail in 1999 by Norfolk Southern and CSX.

Arch Coal also complained about shoddy service. “We started seeing problems toward the tail end of Q2 and, frankly, the problems have gotten worse in the last 10 days,” Arch Coal President Paul Lang during his company’s second-quarter earnings call last week.

Lang said domestic and export shipments of coal have been adversely affected.

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Behind the Closing of CSX Hump Yards

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.

CSX Says On-Time Performance is Up 52%

A CSX executive this week touted improving performance metrics over the past two months, including a 52 percent improvement in on-time performance.

“We’re at the beginning of an amazing transformation,” CSX Chief Financial Officer Frank Lonegro said at the Bank of America Merrill Lynch 2017 Transportation Conference.

Lonegro said train velocity has risen by 14 percent and terminal dwell time has fallen by 11 percent.

On-time originations rose 16 percent to 91.6 percent while on-time arrivals jumped to 87.6 percent from just 57.8 percent.

Lonegro largely credited the improving metrics to new CEO E. Hunter Harrison’s precision scheduled railroad operating philosophy.

Harrison has been at CSX for 10 weeks. “He really has hit the ground running and has begun to implement precision scheduled railroading across our railroad,” Lonegro said.

During his presentation, Lonegro said CSX has become more efficient by hauling the same amount of tonnage on fewer trains.

Although its revenue-ton miles have held steady while the active train count has fallen by 15 percent, Lonegro said that will continue to improve.

He said CSX is creating a train plan that keeps terminals fluid and reduces the need for handling en route.

“Hunter’s philosophy is move the freight as far as you can as fast as you can and touch it as few times as you possibly can,” Lonegro said.

One highly visible change at CSX has been a reduction in hump yards. That is at odds with how CSX has operated.

“At CSX historically we have been a big believer that the most efficient way to class[ify] traffic is through a hump yard,” Lonegro said. “Hunter has totally debunked that.”

CSX has converted hump yards in Toledo, Ohio; Louisville, Kentucky; Hamlet, North Carolina; and Atlanta to flat-switching.

Reports have surfaced that yards in Cumberland, Maryland; and Selkirk, New York, will also lose their humps.

Lonegro said CSX is evaluating its eight remaining hump yards and expects to convert some to flat switching in the second quarter of this year.

In doing this, CSX has changed is operating plan so that traffic bypasses the yards except for cars destined for that location.

CSX will likely have between two and four active humps by the time the evaluation process is completed.

Lonegro also reported that CSX has stored 551 locomotives and parked, scrapped, or returned more than 22,000 freight cars.

He said the operating changes have thus far not prompted shippers to shift their business to Norfolk Southern.

“We’re really not seeing any market share shifts,” Lonegro says, although he acknowledged that there is a potential for service missteps that could anger some shippers.

Nonetheless, he said CSX expects to satisfy customers by providing faster transit times, improved on-time performance, and better cycle times of freight cars.

The better service and lower costs, he said, should enable CSX to grow its business, particularly at the expense of trucks.

CSX May be Ready to Reopen ex-Clinchfield Line

With hump operations closing, CSX is seeking alternative routes to move traffic, which has caused it to look at the dormant former Clinchfield line between Russell, Kentucky, and Bostic, North Carolina.

Trains magazine reported this week that an empty tank car train ran north on the ex-Clinchfield, which the railroad’s previous management had closed last October.

At the time, CSX said it was concentrating on a triangle of routes linking New York and Chicago, Chicago and Florida, and Florida and New York.

It is not publicly known yet if new CSX CEO E. Hunter Harrison and his team will continue to follow the CSX of Tomorrow strategy implemented during the administration of Michael Ward.

Since Harrison became CEO last month, CSX has closed three humps in favor of flat switching at yards in Atlanta, Louisville, Kentucky; and Toledo.

Until it was idled, the Clinchfield had hosted about a dozen coal trains a day as well as a few manifest and intermodal trains.

CSX Profits Fell 10% in 3rd Quarter

Falling traffic led to CSX posting a 10 percent decline in profits for the third quarter of 2016.

CSX reported net earnings of $455 million, or 48 cents per share, down from $507 million in the third quarter of 2015.

However, the results still exceeded Wall Street analyst expectations of 45 cents per share. Revenue for the quarter fell 8 percent, the same as its decline in overall traffic volume.

Trains magazine said CSX experienced the largest traffic decline among Class I railroads.

The carrier saw a 21 percent decline in coal, a 13 percent drop in metals and equipment, and a 10 percent decline in agricultural and food products. CSX realized gains in automotive (6 percent) and fertilizers (1 percent).

Although intermodal volume fell by 7 percent, CSX said the bulk of its domestic intermodal business remained strong, reflecting the success of the railroad’s highway-to-rail conversion program. International intermodal volume fell 12 percent due to the loss of a contract to NS as well as weaker global trade.

The operating ratio was up a tick at 69 percent compared with 68.3 percent in the third quarter of 2015.

“CSX continues to drive strong cost performance and efficiency in this dynamic market environment while meeting or exceeding customer expectations,” CEO Michael Ward said in a statement.

The railroad expects fourth-quarter traffic volume to be about even with last year, Chief Financial Officer Frank Lonegro said during a conference call.

During the third quarter this year, CSX said its expenses improved 7 percent and that it expects efficiency gains and cost savings of $400 million for the year, up from the $350 million target management provided during the second quarter.

However, Chief Operating Officer Cindy Sanborn said CSX won’t be able to duplicate this “extraordinary” savings pace next year.

“We’ll see a more normal year next year, but we’re not leaving anything on the table,” she said.
CSX expects efficiency gains of $150 million in 2017.

On-time performance, terminal dwell time and system velocity all fell slightly compared with the second quarter of this year.

CSX Expects 3rd Quarter Earnings to Fall

A CSX executive said this week that the railroad expects its third-quarter earnings per share to decline from what it posted during the second quarter.

Executive Vice President and Chief Financial Officer Frank Lonegro said this week that volume will decline by single digits year-over-year.

Lonegro spoke during the Cowen and Company’s annual Global Transportation Conference in Boston.

“Third quarter earnings per share are expected to decline slightly from second quarter levels, based on high single-digit volume reductions that are partially offset by improving efficiency benefits and strong pricing gains that reflect a service product that meets and exceeds customer expectations,” Lonegro, said in a statement.

An improving global market for coal is expected to result in some better results for CSX coal traffic.

Lonegro noted that coal traffic has posted some modest improvement in recent months leading company officials to project that for the year coal tonnage will decline between 20 percent and 25 percent.
CSX plans to focus on high-density routes serving merchandise and intermodal growth.

As part of its “CSX of Tomorrow” strategy, it is extending sidings on key routes and running longer trains.

Lonegro said CSX also is investing in intermodal terminals and double-stack clearance projects to capture a greater share of the 9 million truckload market in the East.

CSX Top Speed to Rise on Indiana Line

CSX trains will soon see higher speed limits between Louisville, Kentucky; and Seymour, Indiana, on tracks owned by the Louisville & Indiana Railroad.

Track improvements will up the top speed to 49 mph from 25 mph and allow for trains up to 14,000 feet in length.

The route, which is a former Pennsylvania Railroad line, currently hosts three to four trains a day but that may rise to as many as 10 a day.

The higher speeds and longer trains were made possible by a track rehabilitation project that CSX helped to fund. CSX has trackage rights on the L&I.

“This is a critical route that improves CSX connectivity to Midwest markets and offers more efficiency and routing options for automotive and intermodal trains,” a CSX spokesman said. “This agreement also enhances rail access for the Port of Indiana-Jeffersonville and increased efficiency service for both LIRC and CSX customers.”

CSX Revises 2nd Quarter Earnings Downward

With traffic falling, CSX has revised downward its earnings expectations for the second quarter.

“We are seeing year-to-date volume declines across most of our markets, reflecting continued low global commodity prices, the strong U.S. dollar and the transition in the energy markets,” said Frank Lonegro, CSX executive vice president and chief financial officer. “For the second quarter, we now expect high single-digit volume declines, which will negatively impact second quarter earnings.”

Speaking during an investor’s conference, Lonegro said that the railroad has implemented steps to cut costs by about $250 million during 2016.

That would best the original projected cost-cutting target of $200 million.

CSX expects that its earnings for 2016 will decline, the first time it has seen a full-year earnings falloff since the recession of 2008-2009.

Currently, CSX has 1,900 train and engine service employees on furlough, but some of them are expected to be recalled to replace employers who are retiring.

During a previous investor’s conference, CSX had said that it expected traffic for the second quarter to fall by mid to high single-digits.

Thus far overall traffic is down 9 percent. Coal continues its free fall, having fallen by 34 percent for the quarter to date. Intermodal traffic is down by 17 percent.

Nonetheless, CSX management expects intermodal to eventually surpass coal on a volune and revenue basis.

The railroad is still looking for ways to cut costs in its central Appalachian coal network by closing or downgrading branch lines and through routes. Coal tonnage is expected to fall 25 percent over the full year.

As part of its recently announced CSX of Tomorrow plan, the railroad will concentrate traffic and capital investments on its three corridors: The Interstate 90 corridor between Chicago and the Northeast, the Interstate 95 corridor between the Northeast and Florida, and the Southeast Corridor between Chicago and Florida.

Lonegro said that as coal continues to decline, CSX will invest in its intermodal and merchandise network so that it can continue to improve service, gain volume and realize price increases.

It estimates that there are 9 million truckloads now moving over highways in the East that are easily convertible to intermodal.

To reap that traffic, CSX will need to create additional intermodal terminals not unlike its Northwest Ohio intermodal terminal in New Baltimore.

One such terminal is being planned for North Carolina.

CSX Expects 5% Decline in Coal Traffic in 2015

CSX is projecting a 5 percent or greater decline in coal volume in 2015.

Chief Financial Officer Fredrik Eliasson said the decline in coal shipments reflects the relatively mild winter weather and low natural gas prices.

With oil prices being low, CSX expects growth in crude oil shipments to be more moderate than originally expected.

Eliasson said the railroad also expects merchandise and intermodal traffic to grow this year.