Posts Tagged ‘CSX operating ratio’

CSX’s Foote Optimistic About Traffic Growth

January 24, 2021

Like any chief executive officer, CSX’s James Foote put his best foot forward last week when addressing investors and the business press in discussing his company’s fourth quarter financial results.

James Foote

He spoke about returning to growth, record low operating ratios and booming intermodal traffic.

There were a few bits of good information in the fourth quarter numbers.

Operating income rose by 5 percent to $1.22 billion even as revenue dropped by 2 percent to $2.8 billion.

Earnings per share were flat at 99 cents. But traffic volume during the quarter rose 4 percent, helped by an 11 percent growth in intermodal traffic.

Merchandise traffic was flat and coal volume tumbled 9 percent.
As for the operating ratio, which measures expenses as a percentage of revenue, it improved by three points to 57 percent.

All comparisons are with the fourth quarter of 2019.

For 2020 as a whole, the news was more grim. Operating income fell 12 percent to $4.3 billion. Revenue dropped 11 percent to $10.5 billion and traffic was down 5 percent.

Intermodal was a bright spot with a 2 percent improvement while merchandise traffic declined by 6 percent and coal volume plunged by 24 percent.

The 2020 operating ratio was 58.8 percent, a slight rise of 0.4 points over 2019.

Foote expects both intermodal and merchandise traffic to outpace the country’s economic growth this year.

He said diverting traffic away from trucks will make that possible.

CSX executives expect merchandise traffic growth to exceed industrial production and they even think coal volume will show growth from 2020 levels.

Chief Financial Officer Kevin Boone said CSX is stepping up hiring locomotive crew members to be prepared for increased traffic volumes and to replace workers lost through attrition.

That might suggest more trains out on the road, yet crew starts in the fourth quarter were down 11 percent.

The railroad set a capital budget of $1.7 billion to $1.8 billion for this year, slightly above last year’s $1.6 billion.

CSX plans to rebuild 67 locomotives this year, a process that includes adding Trip Optimizer and distributed power capabilities.

Foote said technological advancements will make CSX “smarter, faster, and more reliable.”

This will include increased use of automated train and track inspection, new dispatching and fuel saving systems, increased intermodal terminal automation, new digital tools for employees and customers. 

Class 1 Carriers Did Well in Lowering Operating Ratios

February 29, 2020

North American Class 1 railroads posted a collective 61.9 percent operating ratio in 2019, marking the first time the carriers have fallen below the 65 percent mark.

However, the railroads saw their overall revenue fall by 2.3 percent meaning the improvements in the operating ratio were largely due to productivity gains and cost reduction.

CSX had the lowest operating ratio for the year at 58.4 percent, the second consecutive year it led Class 1 in lowest OR.

Over the past five years operating ratios have fallen by three points and declined by 9.7 points over the past decade.

An operating ratio is the percent of revenue devoted to operating expenses.

CSX Sees Success in Winning Traffic From Trucks

November 7, 2019

Amid a steady stream of gloomy news and prognostications about falling railroad freight volumes, CSX CEO James Foote said this week that his carrier is starting to see some success in winning back business from truckers.

Speaking at the Baird 2019 Global Industrial Conference, Foote said CSX is starting to reverse the loss of business to highways.

“Our customers are coming to us, in many instances, and saying how can we ship more by rail?” Foote said.

He said improved service and lower rates than truck will help CSX regain market share.

“What it boils down to is running a really, really good railroad,” Foote said.

Foote said CSX’s merchandise volumes are outperforming the rest of the industry, which he said is a sign that the railroad has regained traffic from truckers.

Through Sept. 30 CSX merchandise traffic was up 1 percent while eastern rival Norfolk Southern has seen its merchandise volume fall 3 during the same period.

Foote expects CSX to post gains next year in domestic intermodal volumes but coal traffic whether for domestic use or exports, will remain challenged due to lower-priced natural gas and less global demand for metallurgical coal.

Foote said trip plan compliance for intermodal traffic has of late been in the 95 percent range while carload freight compliance has been 82.5 percent.

Noting that railroads have been losing market share of merchandise traffic to trucks for decades, Foote said that was because truckers provided better service while railroad service was poor.

“There is a tremendous amount of opportunity for us to grow our merchandise franchise, just tremendous,” Foote said.

Currently, railroads have an 8 percent share of the transportation business in North America.

Foote was reluctant to say if merchandise traffic at CSX could grow as fast as the overall economy or at least faster than the rate of industrial production because there is too much economic uncertainty, global trade tensions, and a slowing industrial economy.

An audience member asked Foote about CSX’s operating ratio, which was 56.8 percent in the third quarter and if it would remain in the mid-50s.

In response Foote said the OR is a measure of how well a railroad is growing revenue and controlling costs and he said he didn’t know if an OR of 56 percent or even 60 percent would enable CSX to produce consistent earnings growth year after year.

“It’s not a quest to get as low as you want it to be,” Foote said. “If somebody was going to give me an award for giving you a 55, I could probably get to a 55 tomorrow. But you’d have to chop off a whole bunch of business to do it, and that’s not what we’re here to do.”

PSR To Help NS Close Gaps With CSX

November 13, 2018

A Norfolk Southern executive said recently that moving toward the precision scheduled railroading operating model is expected to enable the carrier to close productivity and operating ratio gaps it has with CSX, its primary competitor.

Speaking at a financial conference, NS Chief Financial Officer Cynthia Earhart said the Class 1 carrier will approach implementation of PSR with a much slower timetable that will avoid the type of disruptive change that occurred when CSX moved to PSR in 2017.

NS is using a process it has described as “clean sheeting” to redesign local service at yards and terminals that will make better use of locomotives, cars and operating crews.

Once that is completed sometime in 2019, the carrier will then turn its attention to a new systemwide service plan for  road trains that will be implemented gradually to minimize the potential for service problems.

“The biggest difference for us is we’re really trying to communicate very closely with our customers so that they understand what the changes are going to be and give them time to plan,” Earhart said.

She said there will be a lot of change to the way NS operates and that will affect shippers. NS officials have said they will provide more details of the plan to move to PSR during an investor day to be held next February.

Since switching to PSX, CSX has lowered its operating ratio by more than 10 points to 58.7 percent.

The NS operating ratio in the third quarter of 2018 was 65.4 percent. The operating ratio shows how much of revenue is devoted to expenses.

CSX Had Lowest 1st Quarter Operating Ratio

May 10, 2018

CSX has the lowest operating ratio among Class 1 railroads in the first quarter of 2018.

The operating ratio of 63.7 percent compared to 69.4 percent during the first quarter of 2017 and was 0.9 points ahead of second-place Union Pacific.

A year ago, CSX was second-to-last among railroad operating ratios.

Chief Financial Officer Frank Lonegro said earlier this year that CSX is seeking to hit a 60 percent operating ratio by 2020.

To be sure, there are underlying factors that enabled CSX to post the performance that it did.

Indeed, CSX’s operating-ratio ranking led by the pack due to a number of factors, including an accounting rules change that disproportionately affected longtime industry leaders Canadian National and Canadian Pacific.

Both Canadian carriers also had to contend with higher operating costs due to harsh winter weather and congestion.

Likewise, first quarter operating ratios tend to fluctuate due to the effect of winter weather.

CSX also benefited from a 96 percent increase in “other revenues,” which included such things as demurrage, a $30 million-increase in real estate sales, and a doubling of equity earnings of affiliates such as the Indiana Rail Road, Conrail, and TTX.

Even CSX CEO James M. Foote cautioned not to read too much into the first quarter operating ratio.

“The plan recently laid out at our investor conference is a three-year plan,” Foote said. “We’re only one quarter in, one out of 12, and we still have a lot of work to do to achieve our goals.

“As we demonstrated in the first quarter, we expect a solid step-down each year in the operating ratio. There remains significant work ahead in order to deliver on our 2020 target.”

Foote told investors earlier this year that the railroads is handling about the same amount of volume that it hauled a year ago with eight fewer hump yards, 1,000 fewer locomotives, 4,000 fewer employees and 20,000 fewer railcars.

CSX Aims for 60% Operating Ratio by 2020

March 2, 2018

CSX executives told an investor’s conference in New York City this week that the carrier will continue paring its locomotive and rail car fleets, and reducing its employment ranks as it works toward reaching an operating ratio of 60 percent by 2020.

Along the way the railroad expects revenue to grow at a compound annual rate of 4 percent.

The carrier also expects to trim capital expenses over the next three years.

If all goes to plan, the higher revenue, lower costs, and reduced capital expenses will allow CSX to generate $8.5 billion in free cash flow, a $5-billion increase over the previous three-year period, and that cash will be put into the pockets of stockholders through a $5 billion stock buyback program and higher dividends.

“Today marks the beginning of a new chapter for CSX, and we’re confident we have the right plan and the right team in place to achieve our goal of becoming the best railroad in North America,” said CEO James M. Foote. “The foundation of scheduled railroading has been set, and we expect to identify real growth opportunities that will benefit shareholders as our changes take hold.”

CSX said that by offering faster, more dependable service it expects to better compete with trucks, charge higher rates, and grow intermodal and merchandise traffic over the next three years.

Nonetheless, Foot acknowledged that he has had to apologize to shippers for service failures last year that occurred as CSX made rapid changes in its transition to the precision scheduled railroading operating model.

But Foote said the carrier has rebounded and that trains are moving 30 percent faster and freight cars are spending 22 percent less time in yards.

Capital spending will be trimmed to an average of $1.6 billion a year where it had been $2.5 billion three years ago.

“We are not reducing the emphasis on infrastructure and maintenance,” Chief Financial Officer Frank Lonegro said.

He said the railroad will install more miles of rail, replace more ties, and add more ballast this year than in 2017. Most of the decline in capital spending comes from withdrawing from buying locomotives and rolling stock and the completion of installation of positive train control.

Although CSX doesn’t expect this year to make such big changes as converting hump yards to flat switching facilities, the company did not rule out closing additional humps.

CSX expects that operating fewer and longer trains daily will enable it to do more with less.

At the start of 2017, CSX had 3,781 active locomotives. That fell to 3,000 by late last year and is slated to tumble another 20 percent to 2,400 units by 2020.

The railroad will cut its freight car fleet to between 104,000 and 109,000 cars. Officials say that speeding up the network and reducing car cycle times will enable this.

With fewer trains, fewer locomotives, fewer cars, fewer shops and fewer yards, CSX will also get along with fewer workers.

The payroll will be slashed to 21,000 employes by 2020, a 23 percent reduction from the 27,000 workers CSX had in late 2017. The latter number is also significantly less than what the railroad had at the start of the year.

Over the next three years, CSX expects to reap $300 million from selling surplus real estate and $500 million from the sale of rail lines.

CSX Vice President of Strategic Planning Amy Rice described the line sales as a by-product of broader network evaluation but did not provide any information as to how many miles it plans to sell.

She only would say that all lines under review will not necessarily be put up for sale.

CSX plans to add 600,000 units of lift capacity at six intermodal terminals during the next two years as it focuses on point-to-point service.

Lower-density intermodal traffic will be consigned to merchandise trains as CSX implements a balanced train plan with daily service.

CSX does not see a change in the long-term decline of coal traffic, but will work to move its coal traffic faster, more reliably, and more efficiently.

No Turning Back, Foote Says

January 18, 2018

New CSX CEO James M. Foote wanted to make one thing clear. On his watch there will be no turning back from the commitment made to precision scheduled railroading that the late E. Hunter Harrison brought to the carrier last year.

James Foote

During a conference call on Wednesday to discuss the railroad’s fourth quarter financial results, Foote praised Harrison and said CSX would not be where it is today without him.

“I am committed to seeing his vision through and making CSX the best railroad in North America,” Foote said.

Speaking during the same conference call the newly-appointed CSX vice president of operations, Edmond Harris, said the carrier will continue what Harrison started, including operating fewer trains, putting more locomotives into storage, moving the same tonnage with fewer freight cars, and having a more fluid network.

“The table has been set,” Harris said, saying CSX will take advantage of technology and boost the use of distributed motive power.

Foote said he made changes to the sales and marketing structure to simplify the organization by reducing the leadership group to three business units and aligning certain functions into other departments.

He said he also implemented changes in the operating department at the staff and field levels in order to achieve more efficient operation and achieve service improvements.

Foote noted that one of his first moves as CEO was to order the hump to be razed at Tilford Yard in Atlanta.

The yard, which remains open as a flat switching facility, was one of eight hump yards that were converted last year.

As for what the future holds for CSX operations, Harris said that he favors run-through interchange trains and would like to see CSX bypass the Belt Railway of Chicago by running merchandise trains directly to BNSF and Union Pacific.

He will also seek partnerships with short lines railroads and other Class I carriers to create shorter, more efficient routes.

CSX will study creating directional running for longer trains and will continue to build longer trains pulled by fewer locomotives per train.

Foote said CSX will make it a priority to improve its on-time performance, which was just 56 percent in the fourth quarter of 2017.

Calling that unsatisfactory, Foote said CSX plans to create schedule plans for every carload as a way to improve on-time deliveries.

Foote acknowledged that the rapid changes that Harrison ordered at CSX before his death last Dec. 16, disrupted operations, resulting in angry shippers and additional regulatory oversight.

The railroad also lost some traffic, but Foote predicted that most of it will return. “We are seeing some of those customers return already,” Foote said.

However, CSX doesn’t expect to recoup the 7 percent loss it suffered in domestic intermodal business after it closed its Northwest Ohio Intermodal Terminal and ditched the hub and spoke strategy toward building intermodal traffic.

CSX’s intermodal strategy will be built on increasing container traffic to East Coast ports and not on seeking to develop low-volume service lanes.

Capital spending will fall by 20 percent to $1.6 billion in 2018 on top of a 25 percent cut last year.

That prompted some analysts on the conference call to express concern about CSX’s ability to maintain its infrastructure.

In response, Chief Financial Officer Frank Lonegro said CSX will spend $1.4 billion this year on track maintenance, which he said is about the same as it spent in previous years.

Lonegro said most of the curtailed capital spending would have been for new locomotives and freight cars. But with 900 locomotives in storage, and 20,000 cars sidelined, he said it would be many years before CSX needs to buy more rolling stock.

Looking ahead to a March 1 investors conference, CSX executives said they did not want to provide many details about their expectations for this year and beyond other than they expect the operating ratio to improve due to operations improvements and efficiency gains.

However, they did say that CSX expects to reduce its payroll by 2,000 people this year and that it ended 2017 with 3,282 employees than it had on the last day of 2016. CSX now employs 24,000. CSX also reduced the number of consultants that it hired by 1,418.