CSX CEO Calls for Focus on Volume Growth

CSX CEO Joe Hinrichs last week vowed to focus on traffic volume growth rather than cost cutting as a way to bump up the company’s profits over the long term.

Speaking to the Barclays Industrial Select Conference, he said there is only so much savings the railroad can squeeze out of operations.

Describing the CSX operating ratio, which is the percentage of revenue devoted to paying expenses, as not perfect, Trains magazine reported that Hinrichs said the Class 1 railroad’s operating ratio will not be a primary focus of CSX management concern.

He called instead for taking a balanced approach to financial performance of which the operation ratio is just one component.

“The end game is to provide a solution and provide a service to the customer that they’re willing to pay for that allows you to make an attractive margin,” Hinrichs said.

Hinrichs acknowledged that traffic growth is not a given and said a key to achieving it will be strong customer service.

He pointed to growth in intermodal traffic as an example of where CSX hopes to gain traffic share from other modes of transportation.

Another potential source of new traffic could be new industrial plants being constructed along CSX routes.

CSX Posts Gains in 3rd Quarter Financial Results

CSX released its third quarter financial results on Thursday showing revenue was up 18 percent over the same quarter of 2021.

Quarterly revenue was $3.90 billion, which CSX management said was “driven by higher fuel surcharge, pricing gains, a 2 percent increase in volumes, and an increase in storage and other revenues.”

Operating income was $1.58 billion, a 10 percent increase over the prior-year period’s $1.44 billion.

Management said those results reflect additional labor and fringe expense related to tentative labor contracts with $42 million set aside for wage, bonus, and other benefit costs incurred in previous quarters.

Those additional costs resulted in an increase in the operating ratio to 59.5 percent.

Net earnings were $1.11 billion (or $0.52 per share), a 15 percent increase over the $968 million (or $0.43 per share) at the same point last year.

Duluted earnings per share were $0.52 up 21 percent from $0.43 in third quarter of 2021.

CSX said it expects full-year double digit revenue and operating income growth, excluding the effects of real estate transactions in Virginia.

The Class 1 carrier said it expects to continue hiring additional workers in train and engine service and to continue focusing on improving relationships with customers, employees, and CSX stakeholders.

CSX management said it is confident of increasing traffic volume as service improves, which would help offset a potential decline in freight demand.

New CSX CEO Joseph Hinrichs said during an earnings call he’s talked with the railroad’s eight largest customers.

“Almost every single one of them has told me directly . . . that when you deliver better service, and more reliable, more predictable service, we want to do more business with you,” he said. “So we don’t have to chase growth.”

Hinrichs said growing freight volume growth is the key to maintaining profit margins by controlling costs and making the most of the railroad’s assets.

CSX said it is seeking to have 7,000 active train crew members. It now has 6,819 with 730 conductors in training.

Jamie Boychuk, executive vice president of operations, acknowledged CSX service is not where it should be but is improving as crew levels rise.

The service issues were reflected in third quarter operating metrics. On-time departures fell to 58 percent from 71 percent a year ago, while on-time arrivals fell to 46 percent versus 62 percent last year.

Carload trip plan compliance fell to 57 percent compared to 68 percent a year ago. Intermodal trip plan compliance was 90 percent for the quarter, up from 88 percent a year ago.

Boychuk said during the earnings call that if CSX faces an economic downturn and/or a loss of traffic that it will not furlough crew members as it did at the beginning of the COVID-19 pandemic in spring 2020 when the economy went into a recession.

He said CSX wants to protect its active train and engine workforce and will rely on attrition and reducing conductor training class sizes before resorting to furloughs.

“We are going to be prepared to handle all the traffic that comes back at us,” Boychuk said.

Hinrichs said he has directed management “to look at things from a customer perspective to make sure that we are holding ourselves to a higher standard of service and accountability.”

CSX CEO Emphasizes Teamwork at Town Hall

During his first week on the job, new CSX CEO Joseph Hinrichs held a town hall meeting at which he said the Class 1 carrier has no plans to end its precision scheduled railroading operating plan.

However, as reported by Trains magazine on its website, Hinrichs acknowledged that CSX needs to make improvements in its customer service and organizational culture.

The former Ford Motor Company executive said the latter two will be among his primary focuses at the helm of CSX.

“I was a customer for a couple decades. Our customers don’t really love us,” Hinrichs said. “We [Ford] did business with rail because we had to, not because we wanted to.”

Hinrichs said improving service will require having enough operating crew members to handle shipper demands and demonstrating to those shippers that CSX can deliver the service shippers demand.

The key to doing that will be teamwork, which means creating a culture where all employees feel appreciated and valued, work well together, support each other, and are proud to work at the railroad.

“Great teammates . . . don’t cuss at somebody, they don’t belittle somebody. And so hold yourself to that standard and hold your teammates to that standard and we can raise the level of our performance just by how we work together,” Hinrichs said.

He said he’ll be spending much of his first few weeks in the field meeting employees and learning about rail operations.

During the town hall meeting Hinrichs said he has no plans to make management changes.

Hinrich drew a few laughs when noting that he is an Ohio State fan and the colors of CSX locomotives are too much like the colors of rival University of Michigan.

He quickly added that he wasn’t saying the locomotives liveries will change to OSU colors of scarlet and gray.

CSX to Get New CEO on September 26

CSX CEO James Foote will retire later this month and be replaced by a former Ford Motor Company executive.

Taking the helm of CSX on Sept. 26 will be Joseph R. Hinrichs, 55, who has worked in the automotive, manufacturing, and energy industries for more than 30 years.

Joseph Hinrichs

At Ford he was president of the company’s automotive business until 2020. He also served as President of Global Operations, President of the Americas, and President of Asia Pacific and Africa.

In a statement, Hinrichs pledged to continue CSX’s focus on growth, technology, and improving the company’s culture.

Hinrichs also serves in advisory and board positions of various companies including Exide Technologies, Luminar Technologies, microDrive, and First Move Capital.

He previously served as a Senior Advisor at Boyden California, an operating advisor at Assembly Ventures, as well as a Director at Ascend Wellness Holdings; GPR, Inc.; Rivian Automotive, Inc.; and Ford Motor Credit Company.

He was chairman of the National Minority Supplier Development Council from 2016-19 and also served on the boards of CEO Climate Dialogue, Climate Leadership Council, and the US-China Business Council.

Hinrichs earned a bachelor’s degree in electrical engineering, graduating magna cum laude from the University of Dayton, and an MBA from the Harvard Business School.

He was awarded an Honorary Doctor of Humane Letters degree from Tiffin University and an Honorary Doctor of Science and Business Administration degree from Cleary University.

A CSX news release said Foote will serve as an advisor to Hinrichs for six months. The CSX statement said the appointment of Hinrichs was a “planned secession.”

Foote also will step down from his post on the CSX board of directors

A story posted on the website of Railway Age included a note from editor William C. Vantuono saying that during a short interview following the announcement, Hinrichs said having experience as a major railroad customer will be beneficial in his new job at CSX, and that addressing the service delivery challenges of the past two to three years will be his prime focus.

Vantuono noted that Hinrich’s experience as a railroad shipper is similar to the background of former Canadian National CEO J.J. Ruest, who had a long tenure in the chemical industry, another major user of railroads for transportation