Posts Tagged ‘E Hunter Harrison’

CSX Managers Tout Service Improvements

September 7, 2017

CSX executives told a railway conference this week that the carrier is emerging from its operations meltdown and making progress in implementing its precision scheduled railroading operating model.

CEO E. Hunter Harrison acknowledged in a statement issued ahead of the 10th Annual Global Transportation conference sponsored by Cowen and Company in Boston that the railroad’s service problems were in part due to a “too much, too soon” rush to implement the operating model.

But Harrison said CSX management now sees progress in overcoming those problems.

“The railroad is now returning to a normal operating rhythm, and our performance metrics are improving,” Harrison said. “Fluidity in our terminals largely has been restored and we are appropriately resourced to continue making progress. Car dwell has improved from week to week for the past five weeks, and system-wide velocity is increasing.

“I’m confident that many of the challenges we and our customers have recently faced are behind us.”

Chief Financial Officer Frank Lonegro said CSX “continues to expect free cash flow before dividends (excluding restructuring charges) of around $1.5 billion and record efficiency gains for 2017.”

However, the service issues that occurred in July and August have prompted CSX to change its 2017 full-year guidance from an operating ratio in the mid-60s to an operating ratio around the high end of the mid-60s and earnings per share growth from around 25 percent to a range of 20-25 percent.

Despite the improvements, CSX’s on-time performance was 50 percent last week, well behind last year’s 66 percent mark and the record 88 percent recorded in May this year.

“The CSX of the Hunter Harrison era is still under construction,” Frank Lonegro said at the conference. “While I say ‘please pardon our dust,’ I also tell you that the fundamental building blocks are in place to enable us to provide two very important things. The first is consistently high levels of service for our customers and the second is a radically improved financial trajectory for our owners.”

Lonegro said the railroad’s focus now is on reliably executing and refining the new operating plan.

He said CSX still expects to have between two and four hump yards and that by flat-switching two-thirds of its traffic, the railroad can cut the costs of processing cars, bolster yard productivity, trim hump-related capital expenses, and reduce transit time by a day.

Average train length has increased 7 percent since July 1 and fuel consumption has fallen by 6 percent. More than 300 crew starts per week have been cut and employment is down 2,700. CSX has also eliminated about 1,000 outside contractors.

The nine operating divisions of CSX have been reduced to five regions.

Although it has yet to undertake a line-by-line analysis, CSX is willing to consider bids to buy its lighter-density routes. “Everything’s for sale at the right price,” Lonegro said.

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CSX Claims Shorter Dwell Times in STB Report

August 30, 2017

In its latest report to the Surface Transportation Board CSX said it has made progress in reducing dwell time in terminals even as on-time performance has continued to decline.

The letter from CEO E. Hunter Harrison noted that the resumption of hump operations at Avon Yard near Indianapolis has enabled the railroad’s western terminals to become more fluid.

Secondary congestion that had overflowed from Avon and other yards has been contained. CSX said that its terminal dwell time declined to an average of 11.8 hours in the week ending Aug. 25, down from a peak of 13.2 hours five weeks ago.

In its six western terminals, CSX said dwell time averaged 13.7 hours last week, down from a peak of 22.1 hours five weeks ago.

CSX said its on-time originations fell to 64 percent, down from 70 percent a week ago and 87 percent in the last week of June. On-time arrivals followed suit, declining to 51 percent from 55 percent last week.

Average train speed was 13.2 mph, measured using a new standard that CSX recently adopted. That’s 15 percent slower than the average speed in the last week of June and below historic averages for this time of year.

However, some shippers are saying that CSX service remains erratic.

“We have not seen evidence that overall service is improving,” said Scott Jensen, a spokesman for the American Chemistry Council.

In its latest report to the STB, CSX said it has undertaken a number of steps, including sending during the past three weeks commercial personnel to “challenged” field locations to improve communications with customers, particularly those who have complained about CSX’s service.

Harrison said the reactivation of the hump at Avon Yard leaves the railroad with five hump yards, adding that the goal is to find the right balance of hump and flat switching yards to optimize efficiency.

“We are intensely focused on maintaining a balanced train network, reducing freight transit time by minimizing crew handlings, and scheduling each car and train in a manner that delivers optimal results for our customers,” Harrison wrote in the CSX report.

Earlier this year, CSX ended hump operations at yards in Atlanta; Hamlet, North Carolina; Stanley (Toledo), Ohio; Cumberland, Maryland; Birmingham, Alabama; Nashville, Tennessee; and Louisville, Kentucky.

CSX Union Hits Back at Harrison Obstruction Allegations

August 8, 2017

A CSX labor union has taken issue with assertions by the railroad’s CEO E. Hunter Harrison that some CSX workers are the reason for service issues.

In a letter to CSX shippers, Harrison contended that some CSX employees were resisting the changes that management has made in operations and that this was resulting in service disruptions.

Railway Age magazine reported Monday that it obtained a copy of a letter sent to Harrison last week by the Sheet Metal, Air, Rail and Transportation Workers, which represents some CSX operating employees.

The letter was signed by SMART’s five co-chairmen and said that the union “ . . . refuses to accept responsibility for disruptions that negatively affect the customers when we have no input on operational changes. We receive minimal, and in most cases, no communication from any department about the significant changes being implemented almost daily.”

The letter said that Harrison has ignored the union’s repeated requests to be involved in planning changes and that it viewed the CEO’s charges as “a personal attack,” “a kick to the gut,” and “a severe blow to [employees’] morale.”

SMART criticized CSX for what the union termed “harsh treatment, furloughs and repeated violations of their collective bargaining agreement.”

In denying Harrison’s allegations that union members had intentionally disrupted operations, the SMART letter said, “This organization will not allow our members to serve as an excuse for management’s inability to communicate and execute your ‘precision scheduled railroading.”

The magazine reported in late July that CSX had changed work hours from four 10-hour days to five eight-hour days in an effort to reduce train delays.

However, that has made it more difficult for employees working far from home to get to work and back in a reasonable length of time.

Harrison Acknowledges to Shippers CSX Service Issues

August 1, 2017

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.

CSX Coal Customer Rips the Railroad’s Service

July 26, 2017

CSX head E. Hunter Harrison and Murray Energy chief Robert Murray might not be exchanging Christmas cards this year even though Murray’s company is a major CSX shipper.

Murray said CSX service has gotten worse since Harrison took over as CEO of the railroad in March. Furthermore, Murray thinks CSX service has been poor for years.

To borrow a phrase from a popular movie of several years ago, Murray is mad as hell and is not going to take it anymore.

“We cannot sit idly by while CSX fails to provide agreed-to service, breaks their own charter from the federal government, and jeopardizes our company’s existence,” Murray said in a statement released last week.

As Murray sees it, CSX has for several years caused “countless” delays and cancellations of trains scheduled to haul coal from his company’s mines.

Murray’s shot across the bow of CSX came about the same time that Harrison was proclaiming that the fossil-fuel era is over.

As for Murray’s complaints about CSX service, “CSX strongly disagrees with Murray Energy’s statements and will respond fully and factually to any STB complaint,”said CSX spokesman Rob Doolittle said. “CSX will continue, as it has, to work with Murray Energy to provide rail service in accordance with CSX’s commitment to service excellence and compliance with regulatory obligations.”

Doolittle was referencing a statement made by Murray that the company has filed a complaint with the Surface Transportation Board.

But Trains magazine reported on Tuesday that no formal complaint had been filed as of Monday.

The magazine said that Murray Energy might have notified the STB’s Rail Customer and Public Assistance Program, which quietly referees disputes between railroads and their customers.

Harrison made his comments about fossil fuels during a conference call with investors during which he discussed the company’s second quarter financial performance.

When asked about the future of coal and how it will affect CSX, Harrison said, “my personal view . . . is fossil fuels are dead. That’s a long-term view. It’s not going to happen overnight. It’s not going to be two or three years. But it’s going away, in my view.”

Harrison followed that up by saying that CSX would not be making capital investments in its coal network.

CSX management had taken a similar view long before Harrison arrived, saying that in the face of declining coal traffic it was focusing capital investments on its high-density core routes that form a triangle connecting Chicago, New York, and Florida.

CSX earned $3.7 billion handling 1.5 million coal carloads in 2011 but in 2016 that had fallen to $1.8 billion and 838,000 carloads of coal.

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.