Posts Tagged ‘E Hunter Harrison’

PSR Principles Being Adopted by NS

October 25, 2018

Count Norfolk Southern as the latest member of the precision scheduled railroading club.

The Class 1 railroad revealed this week that it plans to implement its own version of the model, which was popularized by the late E. Hunter Harrison at Canadian National, Canadian Pacific and CSX.

However, NS CEO James Squires said the carrier will only use PSR “as long as it improves customer service and enhances shareholder value.”

During a conference call with Wall Street analysts, Squires said NS is “looking at everything out there including elements of PSR that are complementary to our strategy.”

He said the railroad has recruited people with PSR experience and will pursue aggressive goals aimed at reducing the operating ratio and improving the bottom line.

NS Executive Vice President and Chief Operating Officer Michael Wheeler said the company has begun what he termed a “clean sheeting” process as part of developing a PSR plan that is expected to be implemented in phased in “cadences.”

NS officials said the company plans to reveal more details about its transformation to PSR at an investor’s day on Feb. 11, 2019.

The decision by NS to adopt elements of PSR and the expected move by Kansas City Southern to do likewise will leave only BNSF among Class 1 railroads not practicing some form of PSR.

Union Pacific announced a month ago that it is moving toward PSR and plans to implement it gradually.

Squires was cagey when asked if NS would engage in the type of major workforce reductions and downsizing of locomotive and freight car fleet that CSX has done.

“But suffice it to say that our goal is to produce a railroad that provides a more consistent service product at a lower cost,” he said.

Squires also emphasized that NS will do what it can to minimize service disruptions, something that plagued CSX when it rolled out PSR in 2017.

NS expects to reduce the number of freight cars on the road at any given time by operating a higher-velocity railroad.

The D.C.-to-A.C. locomotive conversion program will continue and NS will buy new locomotives as needed.

However, Wheeler indicated that NS will adopt many elements of PSR that CSX has implemented.

This will include merging unit trains with merchandise trains and operating longer trains seven days a week. Currently, some NS trains do not operate daily.

Wheeler said NS has already begun overhauling yard and terminal operations, including creating more blocks of traffic in local yards to allow those cars to bypass major classification yards.

He said NS is working with customers and short lines on improving blocking.

Wheeler said the new NS operating plan will be built from the local level up to the network level.

Also like CSX and other railroads that Harrison has overseen, NS will encourage faster loading and unloading of freight cars by increasing demurrage charges.

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Moody’s Examines Pros, Cons of PSR

October 22, 2018

The decision of CSX in 2017 and Union Pacific this year to embrace the precision scheduled railroading model means that most of North America’s Class 1 railroads are practicing it.

Only Norfolk Southern, BNSF and Kansas City Southern have eschewed it – at least for the time being.

The concept of precision scheduled railroading is widely believed to have been pioneered by the late E. Hunter Harrison at the Illinois Central Railroad.

Harrison later implemented the concept at Canadian National and Canadian Pacific. He was well on his way to putting it in place on CSX before his death in December 2017.

Wall Street has fallen in love with PSR because a centerpiece of it is reducing costs to drive up profitability and stock prices.

At CSX, management has touted how it is moving the same volume of traffic with fewer employees and fewer locomotives and freight cars.

Railroad executives who favor PSR love to talk up the efficiencies that it brings.

But shippers, those folks who make railroads possible by paying them to haul freight, might be less enamored of PSR.

Moody’s Investors Service is one of North America’s leading debt rating agencies.

The analysts at Moody’s are not opponents of PSR. In fact a recent report by Moody’s about the operating model concluded that service levels have improved at railroads using precision scheduled railroading.

But the report issued a key caveat that Wall Street seems to overlook or downplay.

Shippers may not like how they are being forced to conform to the railroad’s interests rather than the railroad seeking to serve the interests of shippers.

“The model’s train schedule is established with the primary objective to enhance the efficiency of railroad operations,” Moody’s said in a report about PSR. “This narrows the scope to accommodate customer needs and may cause customers having to adapt to the railroad’s train schedule.”

The report quoted an unnamed railroad executive as saying that Harrison’s PSR approach is to set up schedules and tell the customers that they need to work around the trains that are scheduled, not the other way around.

As CSX encountered severe service issues when it implemented PSR too quickly in 2017, Harrison repeatedly relied on the mantra that service would improve and shippers would have better service than they had before.

That may seem true when viewing the service metrics that railroads like to measure themselves against.

One of those is operating ratio, which shows what percentage of operating revenue is used to pay operating expenses.

Lowering operating expenses has become the rage in the railroad industry in recent years, even among carriers that do not practice PSR.

CSX has bragged about how its operating ratio in recent quarterly financial reports has dipped below 60 percent. There was a time when an operating ratio in the 70s was considered in the industry to be a good performance.

Overall, Moody’s spoke favorably about PSR, but acknowledged it “is not a panacea for service problems.”

The report noted that BNSF does not practice PSR but “has maintained good service levels that to date exceed its average 2013 levels.”

Yet, BNSF is a privately-owned company and, Moody’s noted, some metrics that mean a lot to its owner, Warren Buffet, mean far less to Wall Street investors looking for short-term gains.

Buffet is known for his belief in long-term growth, which is often seen as lacking among practitioners of PSR.

“A material reduction in capital expenditures concurrent with the implementation of precision scheduled railroading may affect the railroad’s ability to maintain good service levels over time if sustained too long.” The Moody’s report said.

Ex-CSX President Looks Back on His Time There

October 2, 2018

Long before E. Hunter Harrison became CEO at CSX, the railroad’s management team was already studying the precision scheduled railroading model and had adopted some of its principles.

That was the message that Clarence Gooden, the CSX Transportation president who retired after Harrison became CSX CEO, told the North East Association of Rail Shippers last week.

Gooden said CSX adopted such practices as laying off employees, mothballing locomotives, closing some small yards, and shuttering 11 of its smaller car and locomotive repair shops.

CSX under former CEO Michael Ward also began running longer trains in an effort to reduce train starts and improve crew and locomotive utilization, and increased its use of distributed power.

Although CSX closed a couple of the 14 humps it operated at the time , Gooden said the carrier should have closed four or five more humps.

The moves during the Ward administration were in response to the Great Recession of 2008 and a sharp drop in coal traffic.

Coal provided a 53 percent profit margin and when it declined, it was a major blow to the CSX balance sheet.

Losing coal traffic cost CSX $1.5 in revenue as the domestic utility coal market collapsed over a five-year period.

Gooden expects CSX to take another hit in lost coal revenue starting in 2023 when a wave of retirements of coal-fired power plants is expected to begin.

He predicted that CSX and NS alike will spin off or close many of their coal-dependent routes.

Although intermodal traffic might pick up some of the slack left by falling coal traffic, Gooden said intermodal traffic is not nearly as profitable as coal.

The Eastern railroads might have to live with higher operating ratios due to declining coal traffic and an increase in intermodal business.

Gooden spoke favorably of the changes that Harrison introduced during his less than a year at the helm of CSX before his death.

But he also defended the accomplishments of the railroad during the Ward years.

From 2004 to 2017, CSX’s stock price went from $5.13 to $36.88.

Other achievements that Gooden cited included making the hiring of veterans a priority, launching an ad campaign promoting the efficiency of rail transportation, having the distinction of being the safest Class I railroad.

At the same time Gooden said CSX should have adopted technology much faster. He said automating yard operations and taking advantage of the operational benefits of positive train control will be a focal point for reducing costs.

Gooden also believes that CSX should have developed closer ties with short line and regional railroads because of their importance in feeding traffic.

Searching for a Balanced Portrait of EHH

August 27, 2018

I’m not sure I’ll spend $28 plus tax to buy Howard Green’s book about E. Hunter Harrison titled Railroader: The Unfiltered Genius and Controversy of Four-Time CEO Hunter Harrison.

More than likely I’ll check it out from a library.

Reviews of the book at the Trains and Railway Age websites suggest it would be worth the time to read Green’s book.

If nothing else, I’m curious if Green created the balanced portrayal I’ve been seeking about Harrison.

Harrison is someone about whom there doesn’t seem to be much middle ground although the editor-in-chief of Railway Age, William C. Vantuono, came close to that in an overview written shortly after Harrison’s death.

Much has been written about Harrison over the years in the railroad trade press and business press in the United States and Canada.

No other living railroad CEO approaches the stature of Harrison. Not even Charles “Wick” Moorman the retired CEO of Norfolk Southern and Amtrak who is much revered by railfans has the larger than life eminence that Harrison had.

The cover story of the August 2018 issue of Trains focused on Harrison’s time at Canadian Pacific. A sidebar story asked whether Harrison was the most misunderstood man in railroading.

That piece quoted only railroad executives or investors who had been part of Harrison’s inner circle.

They had some interesting things to say about Harrison, but, of course, they tended to adore him. That’s no surprise. They owed much of their career success to Harrison.

Keith Creel, who followed Harrison into the CEO chair at Canadian Pacific said,”if  you knew him, you loved him. If you didn’t know him, you probably misunderstood him.”

CP chairman Andrew Reardon said that behind Harrison’s gruff persona was a heart of gold.

Mark Wallace, who served as Harrison’s chief of staff at CN, CP and CSX, said Harrison’s charitable nature was overlooked, pointing out that since 2014 CP contributed more than $12 million to charities, including children’s hospitals.

Harrison’s “heart of gold” might be news to the thousands of men and women who lost their jobs due to his cost cutting and obsession with running an efficient railroad.

Creel had it at least half right. Some loved Harrison but others didn’t and it wasn’t because they misunderstood him.

Actually, his adversaries and critics understood Harrison quite well. Perhaps it is Hunter’s supporters who need to understand a few things.

Therein lies the challenge of assessing Harrison’s legacy. What you think of Harrison hinges on how his edicts, personal style and management philosophies affected you.

If he made you a lot of money, you think Harrison is God. If he laid you off, you think he is Satan.

Harrison achieved great success, but at what cost? Harrison is not misunderstood so much as he had the ability to attract attention in ways that few can and do.

To fairly assess Harrison’s legacy will take an analytic mind and an ability to see past the love and hatred that he engendered in so many.

It also will take time, which has a way of putting things into context and helping authors to take the longer view.

All great men and women have abilities and drive that average people lack. They are able to parlay those things to great advantage by seizing the opportunities that come their way and creating opportunities where none seem to exist.

Harrison may have been the genius that his supporters claim he was and at the same time the ogre that his critics considered him to be be. Somewhere between those extremes is another portrait. Maybe Green was able to show that and maybe it is a story still waiting to be told.

I’ll be looking for that when I finally get my hands on Green’s book.

Book to be Out Soon About Harrison

August 15, 2018

As the CEO of four Class 1 railroads Ewing Hunter Harrison was a larger than life figure known to friends and foes alike simply by his middle name.

Harrison

Harrison has been deceased for less than a year and the first book about him is set hit the shelves on Sept. 18.

Howard Green has written Railroader: The Unfiltered Genius and Controversy of Four-Time CEO Hunter Harrison, which is being published by Page Two Books of Vancouver, British Columbia.

Green, who worked for the Business News Network of Canada, interviewed Harrison while he was the head of Canadian National and later Canadian Pacific.

“He’s just a fascinating story,” Green said of Harrison. “I’ve never met anyone like him.”

The 289-page book is based on interviews with 75 people who worked with Harrison, competed against him, or were part of his family.

Work on the book began two years ago and Green said he spent 170 hours talking with Harrison. He also attended the last “Hunter Camp” training seminar days before Harrison died last December at age 73.

A review of the book posted on the Trains magazine website said Green’s book portrays a colorful and complex self-made man who reshaped every railroad his headed but triggered controversy in the process.

“Everywhere he went there was thunder and lightning,” Green says.

The book focuses on the entirety of Harrison’s life, starting with his upbringing in Memphis and how he worked his way up from laborer to CEO of the Illinois Central and later CN, CP and CSX.

As a youth Harrison was rebellious and seen by many as a bully. The son of a Memphis police officer, Harrison for a brief time hung out with an older Elvis Presley.

The Trains review described the book as primarily oriented toward personalities, boardroom politics, and corporate strategy. “It’s clear that Harrison became increasingly focused on investors as he moved from CN to CP and, ultimately, CSX,” Trains correspondent Bill Stephens wrote.

During his career, Harrison was a workaholic who developed a reputation as a demanding boss who felt little remorse for all the employees who lost their jobs at the railroads that he oversaw.

Green said that Harrison’s American citizenship worked against him during his time at CN and CP because he wasn’t part of the small, clubby Canadian business scene and wouldn’t have tried to fit in anyway.

He made no effort to learn French, one of Canada’s two official languages, other than the phrase “Bonjour, y’all.”

Harrison had few close friends and Green quotes Harrison’s sister, Mary, as saying that her brother had “no life,” that it was “nothing for him [at a family gathering] to spend hours pacing on a conference call  . . .  There’s no day off. There’s no vacation. There’s no downtime.”

Yet when he died 700 people attended a tribute to his life. During his career, Harrison also developed a devoted following of railroad executives, some of whom spoke at their mentor’s memorial service.

Harrison was cremated and his ashes scattered about the Memphis railroad yard where his career began.

Green reveals that Harrison might have taken the helm of CSX in the early 2000s had a strategy by CN to obtain an ownership stake in the Florida-based Class 1 railroad worked out. At the time, Harrison was CN’s chief operating officer.

Although Harrison never held a grudge against CN after it declined in 2009 to extend his CEO contract, he did have hard feelings about Norfolk Southern, which Harrison and CP unsuccessfully sought to acquire in 2015-2016.

After becoming CEO of CSX, Green said Harrison reportedly said he wanted to “kick NS in the nuts” by capturing 10 to 15 percent of its traffic.

Green also reveals that Harrison’s health problems prompted an intense debate with CSX management ranks as to when and what to disclose about it.

By the time Harrison agreed to be part of an effort to oust CSX CEO Michael Ward, he had become a very wealthy man, saying that during his time at IC, CN and CP he was paid $500 million.

Harrison had three horse farms and three homes furnished with all of the lavish fixtures and trappings you might expect someone of such immense wealth to have.

Yet his real home was out on whatever railroad he happened to run at the time.

Railway Age columnist Frank Wilner in reviewing Green’s book likened Harrison to a railfan except rather than making photographs of trains EHH was barking orders to subordinates.

Harrison’s antipathy toward railroad labor is well known and been well documented. Many of the employees of his railroads loathed him in return.

But shippers also easily found themselves the targets of Harrison’s tirades. It may be that a railroad would not be a railroad without shippers, but Harrison viewed shipper demands as impeding his goal at the railroad of making money and lots of it for stockholders.

To that end, Harrison was less of a railroader than he was a rapacious capitalist who happened to work in the railroad industry.

Green described Harrison as “an unsentimental efficiency wizard who’d risen to the top by lopping expenses, maximizing the use of assets, and creating enormous value for shareholders [by] making the trains run on time. Investors came first. For him, the game was capitalism, pure and simple.”

Green concludes by saying that Harrison transformed four publicly traded companies, which the author found to be a rare fete.

But as accomplished as Harrison was, he didn’t live long enough to realize what may have been his most craved goal, the establishment of a true transcontinental railroad.

In concluding his review of Green’s book, Wilner observes, “Surely, [Harrison] possessed the ego, perhaps fueled by sharing initials with one of history’s most notable railroad barons—Edward H. Harriman. That Excalibur of railroading remains for another visionary.”

CSX to Reopen Another Hump

July 2, 2018

Maybe hump yards are more important than some high-ranking railroads initially thought.

CSX plans to resume within the next few weeks hump operations at its Radnor Yard in Nashville, Tennessee.

It had been converted a year ago to flat switching as part of system-wide operational changes made by the late E. Hunter Harrison, who was then CSX’s CEO.

But CSX found flat switching in the ex-Louisville & Nashville facility to be cumbersome so it is reversing course.

CSX also had shut down its hump at Avon Yard in Indianapolis last August, but reopened it less than a month later after the western end of its system became congested.

Harrison was not a fan of hump yards and changed eight of the CSX’s hump operations to flat switching. At one time, CSX officials said they expected to have a few as one or two hump yards still in operation.

In a statement, a CSX spokesman indicated that congestion was behind the move to resume humping yards at Radnor yard, saying that “given the footprint complexities of flat switching at Radnor Yard in Nashville, we will improve network fluidity, optimize train starts, dramatically reduce out-of-route train miles and switching costs by reopening the hump,”

Before its hump closed, Radnor Yard was CSX’s third busiest hump, trailing only Waycross, Georgia, and Selkirk, New York.

Radnor was classifying an average of 1,477 cars a day, which was within the range that Harrison said was an insufficient volume to justify the operating and capital expenses of a hump yard.

Although CSX declined to reveal how many cars a day Radnor classifies on average now, it remains in the company’s top 10 terminals in volume.

CSX officials said that when the Radnor hump reopens will depend on completing maintenance of retarders and other infrastructure.

The CSX spokesman said that once Radnor’s hump resumes operation, CSX will eye downgrading operations at other yards and infrastructure.

Norfolk Southern also found itself having to backtrack on ending hump operations at its Debutts Yard in Chattanooga, Tennessee, after facing congestion issues due to rising traffic volume on the southern region of its network.

CSX Shareholders to Mull Executive Pay

May 10, 2018

When CSX holds its annual meeting on May 18 executive compensation will be on the agenda.

However, the issue is not the pay of current CEO James M. Foote or his management team but rather that of the late E. Hunter Harrison.

Harrison, who died late last year, was awarded a compensation package that a shareholder advisory firm wants CSX shareholders to renounce during the annual meeting.

Institutional Shareholder Services said CSX should have imposed a clawback on the $84 million reimbursement agreement with Harrison and hedge fund Mantle Ridge, which was instrumental in luring Harrison away from Canadian Pacific and overseeing his selection in spring 2017 to replace then CEO Michael Ward.

ISS contends that a clawback provision would have enabled CSX to recover a portion of the payment it made to Mantle Ridge after Harrison died.

Those payments were designed to compensate Mantle Ridge for money it paid Harrison for giving up some of his CP compensation by resigning as CEO before his term ended in order to join CSX.

The shareholder advisory firm also said Harrison’s pay should have been completely based on performance and that the operating operating income target for the management incentive plan should have been higher.

It was instead set below the operating income level CSX reported in 2016.

CSX shareholders approved by a wide margin Harrison’s compensation package last June.

Management of CSX is opposed to the ISS proposals and has urged shareholders to consider that CSX stock value has increased 53 percent over the past year.

It also noted that Harrison’s stock options of $115 million were forfeited upon his death and had been evenly divided between performance vesting and time vesting over four years, which CSX said “was not atypical for equity incentives.”

CSX also said it operating income incentive target had been based on the railroad’s outlook in January 2017 and also hinged on hitting certain strategic goals.

Once Harrison arrived at CSX, its board of directors replaced those goals with what it termed an “aggressive” 66.2-percent operating ratio target.

This includes incentives for 2018 and long-term incentives for executives through 2020 that CSX said are “challenging targets to support our pursuit of exceptional returns for our shareholders.”

The ISS resolution on Harrison’s compensation package is non-binding and CSX management has pointed out that a year ago ISS favored the compensation package.

During his short time with CSX before his death, Harrison earned a base salary of $1.8 million last year, plus non-equity incentive plan compensation of $3.4 million, and $600,339 in non-qualified deferred compensation. He also received the one-time reimbursement payment of $29 million.

Shippers Perspective on CSX Service Woes

March 13, 2018

We often refer to a railroad’s customers as shippers as though they are a monolithic group.

They are in the sense that all of them pay a railroad to transport something, whether it be coal, trailers, containers, automobiles, scrap metal, chemicals or grain, to name a few.

But the interests of shippers of new automobile are not necessarily the same as those who ship coal.

Nor are all shippers equally suited to get CSX or any other railroad to pay attention to their gripes and complaints.

Some shippers are big enough to get a CSX executive to return their phone calls, but others might wait days, weeks or months to hear from the railroad if they hear anything at all.

The most vulnerable shippers are those who consider themselves captive to a railroad.

What constitutes a captive shipper is a subject of debate. A railroad might argue that all shippers have alternatives and it is a matter of their willingness to use them.

Shippers would say that some of those alternatives are impractical and/or too expensive.

CSX’s top management recently made the case at a meeting of investors that it has made great strides toward providing not just better, but excellent service for its shippers.

The late E. Hunter Harrison used every opportunity he could to say that precision scheduled railroading would result in better service for shippers.

I recently ran across an op ed column on the website of Railway Age written by Ann Warner, a spokesperson for the Freight Rail Customer Alliance, which represents more than 3,500 manufacturing, chemical and agriculture companies, electric utilities and alternative fuel companies.

As Warner sees it, CSX is more interested in pleasing shareholders than its shippers.

As evidence she cited the company’s $5 billion stock buyback program, noting that this is more than double what CSX spends on capital investments every year.

While agreeing that CSX needs to make a decent return on the investment made by its shareholders, Warner said that shippers and rail labor interests find themselves having something in common.

“CSX’s problems have become so big that what is bad for CSX’s customers and the country generally has also become bad for CSX’s employees. And CSX is just a more extreme version of what is happening at other railroads as they, too, pursue the holy grail of operating ratio reductions,” Warner wrote.

In reading Warner’s column I was reminded of how Harrison used to dismiss complaints from shipper organizations as little more than a front for long-standing arguments to re-regulate the railroad industry. There appears to be some truth in that.

Warner made it clear that many shippers believe the current regulatory scheme isn’t working for them.

In particular, she noted that federal law requires that rates for rail-dependent shippers must be reasonable.

When a shipper believes its rates are not reasonable it can complain to the Surface Transportation Board. Yet Warner finds the STB’s stand-alone cost test to be impractical.

“SAC cases are long and expensive, and their record of success is spotty at best. Large chemical companies like DuPont have devoted years and millions of dollars to bring SAC cases, only to have little or nothing to show for their efforts. Electric utilities have achieved a more mixed record. However, most shippers cannot even think of bringing a SAC case because of the expense.”

Other rate abuse remedies exist, but Warner said they are not viable.

Warner also was critical of the STB’s response to the CSX service problems of last year.

“In response to shipper complaints about CSX, the Board required some reporting, convened a public listening session, scheduled weekly status calls (which are not made public), and relied on its Office of Public Assistance, which under the circumstances has done a good job where it can,” she wrote.

“More telling is what the Board has not done: There have been no penalties or other sanctions, no order to show cause, and no directive to avoid personnel cuts or other operational changes.”

It is worth reading Warner’s column if for no other reason than because it provides a shipper’s perspective on the railroad industry. You can find it at: https://www.railwayage.com/news/csx-actions-add-shipper-woes/

Warner didn’t say much about what her employer wants done. She said rail-dependent shippers welcome the opportunity to work with rail labor “to help get the nation’s railroads, particularly CSX, back on the right track.”

What that would entail she didn’t say. It is one thing to identify a problem, but quite another to implement the solution.

Comments from shippers must be read with the same degree of skepticism that comments made by railroad executives also must be read. Both are trying to get the world to accept how they project themselves and neither is necessarily what they say that they are.

Shippers and railroads are alike in those both seek to maximize their own financial gain, sometimes at the expense of someone with whom they do business.

The interests of shippers and railroads will inevitably conflict and each will do whatever it can to influence those who have the authority to address those conflicts.

Truth be told, some members of Warner’s organization probably have their own customers who complain about the service they receive.

Caught in the middle are regulators and policy makers who would rather not get caught in the back and forth that exists in commerce.

And yet that is what they are appointed to do. Perhaps if no one is satisfied with the regulatory framework and how it operates then maybe they are doing something right by not favoring one party too much.

Reading Between the Lines of How CSX Management Projects Itself to the World

March 7, 2018

CSX executives revealed last week at long last their vision for their company. They were supposed to have done it last fall, but three top-ranking vice presidents left during a management shakeup. Then CEO E. Hunter Harrison died.

But things have now stabilized. CEO James M. Foote and his management team put forth the most optimistic and rosy scenarios that they dared to spin.

Hovering over those presentations in New York City, though was Harrison.

A year ago Harrison and the hedge fund Mantle Ridge were closing in on their takeover of CSX, a feat they pulled off with a relatively small amount of money and in a short amount of time.

Harrison had great plans for the hidebound CSX. He brought the precision scheduled railroading model that he had implemented on the Illinois Central and then at Canadian National and Canadian Pacific.

Foote and his team went to great lengths to show that Harrison’s vision is their vision, too. Harrison received the reverence normally reserved for a company founder or elder statesman of much longer tenure.

Harrison had a lot of work to do. Independent railroad industry analyst Tony Hatch and Trains magazine columnist Fred Frailey have described CSX as long hindered by adherence to the practices of its  predecessor railroads, meaning it was  averse to change and rather bureaucratic.

Frailey said ormer CEO John Snow as uninspiring and his successor, Michael Ward, sought to move CSX forward but was bewildered as to how to get it out of its rut.

No wonder the CSX board of directors gave Harrison a chance even if, to quote his successor Foote, Harrison engaged in “carpet bombing” the railroad with fast-paced changes that led to widespread service failures that drew the ire of shippers and the attention of the U.S. Surface Transportation Board.

But all of that is behind CSX now, or so management wanted those attending or watching the presentations in New York to believe.

Some have bought it. Writing in Progressive Railroading, Hatch quoted an  investor as saying this was the best CSX meeting he had seen in a decade of watching the railroad.

The current management team laid out  goal of a 60 percent operating ratio by 2020, described a new intermodal business strategy, and pointed to the huge buckets of money it will fill from sales of unneeded real estate and rail lines.

Having a plan and making it work are not always, though, the same thing. Truth is every railroad company talks about growing traffic and all of them are facing challenges finding it.

Hatch said that if CSX is to increase its carload and intermodal business it will have to provide consistent and improving service.

Frailey didn’t comment directly on the New York conference, instead referring readers to articles written by the magazine’s writer covering the story, Bill Stephens.

Those articles, Frailey correctly observed, did well in showing how CSX seeks to project itself to the world.

Yet Frailey said some industry observers with whom he regularly corresponds have been debating the endgame that CSX management is seeking and it isn’t necessarily to grow traffic and become North America’s best railroad.

Those observers think CSX plans to eventually liquidate the company.

Frailey said the case for liquidation goes as follows: “The railroad borrows money to buy back an astounding $5 billion of stock, making every dollar of profit worth more to shareholders who stick around because the same amount of earnings is spread among many fewer shares . . . Freight rates are being jacked up to cover fully allocated costs, a direction I’m told only Union Pacific has gone up to now—milk the cow until it collapses, the saying goes. Its carload business has been steadily eroding since the turn of the century.”

The veteran journalist who has written about railroads since the 1960s said  he understands that CSX has reduced its marketing staff to a hard core operation.

That hardly sounds like a railroad that will be able to aggressively go to find new business. Perhaps CSX expects that by offering a superior product that shippers will come to it begging to do business.

The word “liquidate” that some of Frailey’s contacts used to describe CSX’s endgame is unfortunate because it conjures up selling assets and going away.

Perhaps a better description might have been to break up the railroad much as Illinois Central Gulf slimmed down in the 1970s and 1980s until it emerged as largely a Chicago-New Orleans core with a few arteries connecting to it.

Yes, some rail lines were abandoned, but most wound up in the hands of short line and regional railroads.

It was that railroad on which Harrison first implemented his precision scheduled railroading model.

Frailey isn’t sure what to make of what CSX is doing, but doesn’t believe Foote isn’t prepared to do the job thrust upon him following Harrison’s death.

Foote was in the right place at the right time and for now CSX and its shareholders will let him sit at the throttle and take the EHH train a little further down the line. But it is Harrison’s train orders that Foote is following and not those Foote wrote himself.

Shareholders can be a fickle lot. Just this week Canadian National, a railroad described in most circles as highly successful, pushed out CEO Luc Jobin after the company hit a rough patch.

What I see happening at CSX is that management is trying to walk a fine line between pleasing investors and shippers and keeping at bay a few interested bystanders who have the ability to make life easy or miserable for a company.

Cost cutting and asset sales will only take a company so far in that endeavor. Of course growing traffic makes everyone happy, but is CSX prepared to spend the time and money needed to make that happen. It is so much easier to sell property and lightly used rail routes.

In theory, a company exists to serve its customers because without them you don’t have a company. But theory also says that a company exists to make money for its shareholders.

The two objectives are not necessarily in opposition. Arguably, you can’t make money for shareholders unless you provide a product or service that someone is willing to buy.

But you can’t improve your product or seek to sell more of it without spending money on that, too.

Management has always existed to reconcile those sometimes opposing forces.

The history of the railroad industry is filled with tales of financiers milking companies and leaving them behind. There is reason to believe that CSX is tilting toward enabling the financiers to make a financial killing before moving on to something else.

To quote a line from the John Mellencamp song Peaceful World, “These are just words and words are OK. It’s what you do and not what you say, if you’re not part of the future then get out of the way.”

We will know in time what the future of CSX is but take with some healthy skepticism how CSX projects that to the world.

FRA Concerned About Safety at CSX

February 13, 2018

A Trains magazine special report on safety and CSX found that train accident and personal injury rates increased by 12 percent and 13 percent last year.

It cited unknown sources as saying that the Federal Railroad Administration is becoming increasingly concerned with safety trends at CSX.

The report said the FRA fears the rapid pace of change at CSX within the past year has increased the risk of injury.

Those changes have included having three CEOs, changes in the ranks of front-line operating personnel, changes in operating rules, and the increased pressure to deliver on promises made to shareholders and shippers regarding improved financial and operational performance.

Among the rule changes that Trains said have drawn the attention of the FRA are increasing the restricted speed allowed in yards from 15 mph to 20 mph and allowing crews to get on and off moving equipment.

CSX has abolished road foremen of engine positions and given their duties to trainmasters.

Citing unnamed sources, the magazine report said this has reduced the effectiveness of the supervision of engineers and conductors.

The FRA is also concerned about whether CSX locomotive engineers have been trained properly to handle long trains, but CSX has resisted those concerns.

In 2013, the CSX train accident rate was the lowest among Class 1 railroads. But it increased by 73 percent between 2013 through 2017, while the employee personal injury frequency rate increased 38 percent during the same period.

In the first 11 months of 2017, CSX had the highest train accident rate among the big six Class 1 railroads.

CSX, though, sees things differently. In statement, it said that its FRA reportable personal injury frequency index of 1.19 for 2017 was 13 percent unfavorable versus the prior year as man-hours fell by 9 percent while overall injuries were up slightly

“While the FRA train accident frequency rate increased year-over-year, overall FRA train accidents remained flat and train miles decreased 12 percent year-over-year,” the carrier said in a statement.

CSX also said it remains committed to ongoing safety improvement with a focus on reducing injury severity and avoiding catastrophic events. It said it engages in continuous improvements in safety through training, innovation, and paying for technology that can help prevent accidents caused by human error.

The statement also said CSX works with the FRA to discuss any concerns or questions that regulators raise.

Trains said that most CSX accidents occur in yards, which the magazine said is true of all railroads, and involve trains moving at low speed. The accidents seldom result in significant injuries.

Yet the magazine’s sources said the FRA has received complaints from CSX employees saying they don’t have enough time to properly inspect trains.

Although CSX CEO E. Hunter Harrison culled the company’s workforce, his predecessor, Michael Ward, laid off nearly 1,000 management employees in February 2017.

Some industry observers told Trains that the rapid pace of change at CSX in the past year may have affected safety.

“How do you maintain a safety culture when you are making some really radical changes to the operation in a short amount of time,” said Allan Rutter, a former FRA administrator who now is division head of freight and investment analysis at the Texas A&M Transportation Institute in Dallas.

Former FRA administrator and Amtrak CEO, Joseph Boardman told Trains that it’s dangerous for any railroad to undergo as much change as CSX has in such a short period of time.

“Safety culture is a very difficult thing,” Boardman said. “You have to be consistent, you have to keep moving forward.”

Steven Ditmeyer, a former FRA official, said the increased accident rates are significant, saying that it appears likely that CSX workers didn’t follow rules and procedures to ensure that a switch was properly lined before the Amtrak’s Silver Star crashed into a parked CSX auto rack train.

“I view it as a legacy of Hunter Harrison,” he said.

Nonetheless, when Harrison was CEO at Canadian Pacific it had an industry-best train accident rate, while personal injuries rose slightly, by 6 percent. That was, however, still at the low end of the Class I systems.

Ditmeyer said that at CSX “Harrison was trying to do a much more rapid change on a much more complex network.”