Posts Tagged ‘E Hunter Harrison’

Hunter Says Adapt or Be Gone

July 21, 2017

During his appearance earlier this week on an investor’s conference call, CSX CEO E. Hunter Harrison spoke about the challenges of changing the railroad’s corporate culture.

And he also had a message for the rank and file who were or were not listening in.

“We can’t carry dead weight. Everybody’s got to do their job, everybody’s got to do their part,” Harrison said.

And for those who are unable to adapt to the change in direction that Harrison has brought to CSX, he had simple message.

Adapt or else the company will get rid of you. As it is, CSX has already been reducing its workforce although not always to get rid of a few bad apples.

The railroad had 25,495 employees at the end of June, a decline of 2,200 when compared to June 2016.

Harrison expects 800 more positions to be trimmed before the end of 2017.
Harrison said changing the CSX culture has been more of a challenge than changing the operational plan.

He said that employees need to adapt to a new way of doing things. However, he acknowledged that some workers may be confused after being subjected to the several different strategies and operating philosophies that CSX has used over the years.

There have also been changes in management, too. Harrison said during that call that CSX has hired two “rock stars” in operations and 15 “top-notch” people from railroads he would not name.

However, media reports have indicated that the newly-hired managers worked with Harrison at Canadian National and will replace mid-level operating CSX officials who have been fired.

He indicated that the new hires understand his philosophy of precision scheduled railroading.

Harrison will conduct what are termed “Hunter Camps” during which he will explain the principles of precision scheduled railroading.

The first of these will be held in late July for a group of operating officials.

“A railroad this size has got a lot of smart people who want to be successful, who want to do well,” Harrison said. “It’s our job to find them.”

CSX Extolls Benefits of Precision Scheduled Railroading Even as the Benefits of it Have Not Helped All Shippers

July 20, 2017

Even as CSX CEO E. Hunter Harrison was extolling the virtues of his precision scheduled railroading model in an earnings call with investors and analysts, the railroad’s management was acknowledging that it was having some service issues.

Harrison said there would be some inevitable pain and suffering before operations are running smoothly.

“I thought we had a hell of a quarter,” Harrison said in the wake of the railroad’s announcement earlier this week that during the second quarter of this year profits rose, the operating ratio improved, and traffic and revenue were on the rise.

CSX Chief Marketing Officer Fredrik Eliasson said that such important service metrics as terminal dwell time, average train speed, and on-time performance were better during the second quarter.

Eliasson conceded that service improvements have not been felt everywhere on the railroad. “There are certain places where we are not there yet,” he said while declining to provide customer satisfaction metrics.

A report published on the Trains magazine website said that not all shippers have felt those benefits.

“A large number of our members have said they are experiencing serious problems with their service from CSX,” Scott Jensen, a spokesman for the American Chemistry Council, told the magazine. “Some have even reported that it has caused their customers to temporarily shut down operations.”

Trains reported that the scope of the service problems appear to be growing and quoted an unnamed chemical shipper as saying that transit times have increased by 48 hours in several key lanes.

Jay Roman, president of Escalation Consultants, a Maryland-based firm that helps merchandise and bulk shippers negotiate contracts with railroads, told Trains that what the CSX metrics show is not what he has been hearing from shippers.

“There seems to be a disconnect between the data and what shippers are running into,” he said, noting that some shippers have experienced a reduction in local service and report having problems with car supply.

A survey of rail shippers conducted by Cowen & Company this month found that 24 percent of them ranked CSX service as “poor.”

Nonetheless, another unidentified shipper told Trains that there has been significant transit time improvement  and that his company’s car cycle times dropped by eight days over the span of a month.

“We are asking our customers to hang with us,” Ellison said. He said that he talks with shippers every day to assure them that conditions will improve.

CSX managers contend that no shippers have taken their business to Norfolk Southern or put it on the highway due to service issues.

“This service disruption has been way overplayed,” Harrison said. He said approximately 500 customers account for 90 percent of CSX’s traffic and two could make a case that they have experienced a “major disruption.”

In one of those cases, Harrison said service slid back to previous levels, which he attributed to a labor slowdown that he described as “pushback by some of the troops.”

CSX has stored nearly 900 locomotives and expects to put another 100 units in mothballs. The active car fleet has been reduced by 60,000 as CSX seeks to move the same level of tonnage on fewer trains.

Train length has averaged 6,500 feet and most trains now operate daily rather than five or six days a week as had been the case before Harrison arrived.

Chief Financial Officer Frank Lonegro said train length will continue to grow as CSX continues to move unit train traffic into its merchandise train network.

During the second quarter, terminal dwell time improved 2 percent to 24.4 hours, although dwell time is up significantly at some terminals since CSX ceased humping operations at seven yards.

CSX management is studying why dwell time has increased to 40 or 50 hours at some yards.

Train velocity improved 3 percent, to 21.7 mph and and fuel efficiency improved 5 percent as the railroad stored older, less-efficient locomotives.

In response to a question, Harrison said CSX will shift from a cost-cutting mode to a growth strategy if it continues to control its costs.

“A lot of this will happen in the post-Harrison era. If we do our job today in laying the foundation, there will be a lot of opportunity for growth,” he said.

Harrison described what CSX is doing as balancing cost and service. The railroad will need to bring in more revenue and not just cut costs.

The CSX head also said that just because the railroad is closing hump operations doesn’t mean it plans to sell the land they use.

“We’re not having a garage sale here,” Harrison said. If traffic continue to grow, that yard capacity may be needed again.

As for the short-term future, CSX management expressed a favorable third-quarter outlook for two-thirds of its traffic, including export coal, intermodal, agriculture and food, metals and equipment, and minerals.

CSX managers have a neutral outlook for fertilizers and forest products, which account for 8 percent of the railroad’s traffic.

The outlook is seen as unfavorable for 26 percent of traffic, including automotive, chemicals, and domestic coal.

CSX plans to discuss its long-term strategy and outlook during an investor conference scheduled for Oct. 29 and 30 in Palm Beach, Florida.

CSX Reports 2nd Quarter Net Income Up

July 19, 2017

CSX reported this week that its net profit rose nearly 33 percent in the second quarter.

However, when controlling for the effects of $122 million in restructuring charges, the net profit was up just 15 percent.

Most of those charges involved reimbursing CEO E. Hunter Harrison and hedge fund Mantle Ridge for salary and benefits that Harrison gave up because his left his job as head of Canadian Pacific five months early.

Discounting the restructuring charges, CSX posted an operating ratio of 63.2 percent for the second quarter of 2017. Taking the restructuring charges into account, the operating ratio was 67.4 percent compared to 68.9 percent compared with the second quarter of 2016.

An operating ratio is a measure of company efficiency that compares operating expenses to net sales. The smaller the ratio, the greater a company’s ability to generate profit if its revenues fall.

Adjusting for restructuring charges, CSX expects a full-year operating ratio in the mid-60s,  with earnings per share growth of around 25 percent off the 2016 reported base of $1.81, and free cash flow before dividends of around $1.5 billion.

CSX reported revenue of $2.9 billion, an increase of 8 percent from $2.7 billion in the 2016 second quarter. Expenses fell 6 percent, led by a 15-percent drop in fuel costs.

The restructuring charges also included $22 million for management layoffs. The CSX management ranks have fallen by 951 employees this year.

CSX said that during the quarter its train velocity was up 3 percent compared with the same period in 2016.

Terminal dwell time was down 2 percent. On-time originations were 88 percent and on-time arrivals were 79 percent, a 14-percent gain over 2016.

During the second quarter of this year, CSX said it had an 8 percent increase in revenue following a 2 percent traffic increase. Freight rates were up nearly 4 percent.

CSX said its pricing and volume gains were led by export coal. Merchandise and intermodal pricing gains were 2.2 percent, which CSX said reflected the continued “challenging freight marketplace.”

Coal traffic was up 7 percent while intermodal rose 3 percent. Merchandise traffic fell 2 percent, which the railroad attributed to across-the-board declines in virtually every category.

For the quarter, CSX reported net earnings of $510 million, or 55 cents per share, up from $445 million, or 47 cents per share, a year ago. Excluding the restructuring charges, CSX reported earnings of 64 cents per share.

CSX Service Metrics Were Mixed in June

July 8, 2017

CSX has encountered growing pains in implementing the precision scheduled railroading operating philosophy of its new CEO E. Hunter Harrison.

Trains magazine reported that although average train speed has improved since Harrison took over in March, it fell last month compared to what it was in May.

The magazine reported that terminal dwell time is slightly higher than when Harrison took over with some yards showing significantly higher dwell times than during the last week of May.

“As CSX implements Precision Scheduled Railroading across our network, some variation in performance metrics such as train velocity and terminal dwell are expected,” CSX spokeswoman Laura Phelps said. “CSX will continue to make adjustments as we identify new opportunities to improve asset utilization and control costs, while maintaining a relentless focus on serving our customers.”

She noted that the speed of intermodal and merchandise trains has improved when compared with what it was a year ago.

In the first few months of Harrison’s administration, transit time was down and on-time performance was up due to trains moving faster, stopping at fewer terminals, and cars spending less time in yards.

But in June CSX gave up some of those gains. Intermodal train speed fell nearly 1 mph, to 28 mph and the speed of manifest freights was down to 19.9 mph versus 20.4 mph in May.

Unchanged was the average speed of coal trains, 18.3 mph. Grain was moving  at 17.9 mph versus 18.4 mph in May

The overall system velocity was 21.3 mph compared with 22.2 in May.

Terminal dwell time through late June had risen to 26.6 hours on average versus 23.7 hours in May and 25.1 hours in the second quarter of 2016.

Among the CSX terminals reporting increases in dwell times were  Baltimore; Buffalo, New York; Cincinnati; Corbin, Kentucky; Indianapolis; Louisville, Kentucky; Montgomery, Alabama; Nashville, Tennessee; Russell, Kentucky; Toledo, Ohio; Waycross, Georgia; and Willard, Ohio.

On competitor Norfolk Southern, terminal dwell has increased system wide to 26.8 hours, up from 24.7 in May and 23.1 in the second quarter of 2016.

CSX OKs Money for Harrison, Mantle Ridge

June 21, 2017

It’s now official. CSX CEO E. Hunter Harrison will not lose any money from having retired early from Canadian Pacific in order to pursue the head job at CSX.

The CSX Board of Directors has voted to give Harrison and hedge fund Mantle Ridge the $84 in salary and benefits that Harrison gave up by leaving CP early.

CSX said in a regulatory filing that it will pay Mantle Ridge $55 million and provide Harrison with a lump-sum payment of $29 million. The CSX board also agreed to pay Harrison’s taxes related to the payment.

The reimbursement vote was expected, analysts said, because CSX stock has increased in value since the news broke that Harrison was interested in becoming the railroad’s CEO.

Analysts say the move was a vote of confidence that Harrison will be able to lower the railroad’s operating ratio and increase its profitability, which in turn will bolster the share price of CSX stock.

Harrison joined CSX last March after leaving CP in January.

CSX Touts Improved Transit Times

June 16, 2017

A CSX executive said this week that by closing hump yards, reducing car handlings, and adjusting its operating plan, the railroad has been able to reduce the transit time of merchandise carloads by nearly a day.

Speaking at the Citi 2017 Industrials Conference, CSX Chief Marketing Officer Fredrik Eliasson said the decrease in average transit time is a 15-percent improvement. It had been 5.9 days.

Eliasson said CSX also cut coal train cycle times by reducing loaded transit time to 2.3 days, down from three days in March.

The executive attributed the improvements to the implementation of the scheduled precision railroading operating plan of CEO E. Hunter Harrison, who presumed his position on March 6.

On-time originations have improved 12 percent, while on-time arrivals have improved 36 percent, Eliasson said, noting that premium intermodal trains have arrived on time 97 percent of the time in the second quarter.

“For our customers this is a big deal,” Eliasson said. CSX management believes that reduced transit times and more consistent service will enable the railroad to capture business from trucks.

Eliasson said there have been some problem spots in the wake of the conversion of seven 12 hump yards to flat switching.

And the pace of the changes has meant that despite a commitment to communicate with customers about service changes and seek their views that it has not always been possible to touch base with shippers before operational changes are implemented.

Eliasson said that earlier this year about 25 percent of intermodal trains operated daily. Now, half of them do, which he said reflects Harrison’s belief in operating a balanced network.

In some instances trains have been combined due to volume and scheduling reasons.

CSX also is continue to reduce the number of trains it operates but is still moving roughly the same amount of tonnage.

It has stored 700 locomotives stored — up from 551 in May — and retired more than 24,000 freight cars through storage, scrapping or returning them to lessors.

Eliasson  said CSX doesn’t expect to order new locomotives anytime soon. “Overall, we are good on locomotives,” he said.

CSX second-quarter volumes have increased 1 percent in the second quarter, which is slightly lower than expected. The company expects volume to improve later this year as trucking capacity tightens.

CSX Shareholders Favor Giving Harrison More $$$

June 6, 2017

As expected, most CSX shareholders have voted to give CEO E. Hunter Harrison the money that he wants.

E. Hunter Harrison

In an advisory vote, 93 percent of the shareholders favored giving Harrison and hedge fund Mantle Ridge $84 million to reimburse them for salary and benefits that Harrison forfeited by leaving early as the CEO of Canadian Pacific last January.

The vote was made public on Monday at the CSX annual meeting in Richmond, Virginia.

Harrison had threatened to resign if shareholders rejected the reimbursement request.

Many analysts had expected the shareholders to agree to giving Harrison the money because CSX stock has risen by 40 percent in value since it became known that Harrison was seeking to become the railroad’s head.

Harrison took over the CEO post last March. Paying Harrison and Mantle Ridge will cost about 12 cents per share.

CSX also said that 13 candidates for its board of directors have been elected, with each member receiving the backing of at least 96 percent of shareholders.

They include Harrison, Mantle Ridge founder Paul Hilal, Donna M. Alvarado, Sen. John B. Breaux, Pamela L. Carter, Steven T. Halverson, Edward J. Kelly III, John D. McPherson, David M. Moffett, Dennis H. Reilley, Linda H. Riefler, J. Steven Whisler, and John J. Zillmer.

CSX Touts Responsibility Gains in 2016

June 6, 2017

CSX cited volunteer work by its employees, training first responders, and fuel efficiency initiatives as among its achievements in 2016.

The railroad talked about those in its seventh annual corporate social responsibility report, titled Moving Forward, which described its performance in environmental, social and governance areas.

In a news release, CSX said that its business practices sought to create customer value and increase shareholder returns while at the same time improving the environment and enhancing the communities the Class 1 railroad serves.

One example cited in the report was providing training and resources to 7,000 first responders and working with Operation Lifesaver to distribute rail safety messages to 725,000 people.

Between 2007 and 2016, CSX said it spent $2.8 billion on fuel efficiency measures which paid off last year when it was able to move a ton of freight an average of 474 miles on a single gallon of fuel.

As for volunteer work and community development, CSX said it spent $16 million in grants, sponsorships and in-kind donations to local organizations and national partners that share CSX’s values concerning safety, community, environment and wellness.

CSX employees gave 18,025 hours of volunteer service through the railroad’s Dollars for Doers program that was matched by CSX with $85,770 in grants to 155 employee-selected organizations.

“With increasing consumer demand, the need for freight rail as a safe, reliable and sustainable transportation solution is ever more pressing,” said President and CEO E. Hunter Harrison. “By leveraging our sustainability initiatives and implementing the Precision Scheduled Railroading model at CSX, we will continue to build upon the foundation for success.”

CSX said that it compiled Moving Forward in accordance with Global Reporting Initiative standards.

CSX Converts Cumberland Hump to Flat Switching

May 22, 2017

As expected, CSX last week converted its hump yard in Cumberland, Maryland, to flat switching.

It is the fifth such yard to have its hump closed since E. Hunter Harrison became CEO in March and implemented his precision scheduled railroading operating philosophy.

Among other things, that approach looks with disfavor upon hump yards in the belief that they add cost and transit time to freight movements.

Other hump yards that have been converted to flat switching are located in Toledo, Ohio; Louisville, Kentucky.; Hamlet, North Carolina; and Atlanta.

A memo sent to CSX employees last week indicated that the hump at Selkirk, New York, will also be closed in favor of flat switching.

The remaining CSX hump yards are in Waycross, Georgia; Birmingham, Alabama; Nashville, Tennessee; Cincinnati; Avon, Indiana (Indianapolis); and Willard, Ohio.

CSX managers have indicated that those yards are being evaluated and that the railroad expects it could have between two to four hump yards left in its system once that review is completed later this year.

Trains magazine reported that when CSX closes a hump, it does the flat switching on the receiving and departure tracks. The classification bowl tracks stand empty.

The railroad said track and switches from the classification bowls will in time be used elsewhere.

Harrison Has Medical Condition That Often Has Him Working From Home, Not CSX Headquarters

May 19, 2017

The Wall Street Journal reported this week that CSX CEO E. Hunter Harrison has a medical condition that often forces him to work at home.

E. Hunter Harrison

The newspaper gave few specific details about the condition and the 72-year-old executive said that he should not be judged by his medical record.

“I’m having a ball and I’m running on so much adrenaline that no one can stop me,” Harrison told the Journal. “Don’t judge me by my medical record, judge me by my performance.”

Harrison acknowledged that he carries a portable oxygen system, but his doctors cleared him for his position.

“There are times when I get a little shortness of breath so I take oxygen and it helps,”
Harrison said.” Sometimes I get a cough and the oxygen makes it go away.”

CSX Chief Financial Officer Frank Lonegro told an investor conference that Harrison is fully engaged in his job.

“We’re really running to play catch up with him,” Lonegro says. “He’s a 24-hour-a-day, seven-day-a-week kind of guy.”

Trains reported that CSX was well aware of Harrison’s medical condition when it hired him.

However, that was a point of contention at one point when CSX demanded that independent physicians review Harrison’s medical records, a request that Harrison refused.

CSX said it would not comment on Harrison’s health.

The Journal said that during his last two years at Canadian Pacific, Harrison frequently worked from home rather than in his CP office in Calgary.