Posts Tagged ‘North American Class 1 railroads’

CSX Had Lowest 1st Quarter Operating Ratio

May 10, 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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Ford Action Not Expected to Affect Railroads

April 28, 2018

A decision by Ford Motor Company to end production of most sedans in North America is not expected to have a major affect on Class 1 railroads Trains magazine reported.

Ford plans to stop making  the Fusion, Fiesta, Taurus, and C-Max at assembly plants in the United States and Mexico, but will make other vehicles at those factories.

The automaker based in Dearborn, Michigan, said the models being ended sold  315,400 vehicles last year of the 2.03 million vehicles it sold in North America.

Ford plans to focus more on its more profitable sport-utility vehicles and pickup trucks, most notably those in the F series.

Trains said the Taurus is built at the Chicago Assembly Plant served by Norfolk Southern. Ford will begin building the 2020 Lincoln Aviator SUV at the plant.

The C-Max is built at the Michigan Assembly Plant in Wayne, jointly served by NS and CSX Transportation. Ford also produces the Focus at the Michigan plant.

The Fusion, which is the best-selling model being discontinued, is built at an assembly and stamping plant in Hermosillo, Mexico, which is served by Kansas City Southern.

KCS also serves the Cuautitlan Stamping and Assembly Plant in Mexico, which churns out the Fiesta.

After phasing out these models, Ford will build just two cars, the Mustang and the Focus, which will debut as a new crossover dubbed the Focus Active.

CN to Acquire 350 Boxcars

April 20, 2018

Canadian National announced this week that it will acquire 350 boxcars for use by its industrial customers in North America.

Each of the 50-foot, high-capacity plate F boxcars will have 12-foot plug doors. Delivery will begin in late summer with all the cars in service by the end of the year.

“These additional boxcars, combined with our new locomotives, hundreds of new train crew members, and track expansion investments, will help give us the capacity and network resiliency we need for pulp, paper and metals customers,” said Doug MacDonald, vice president of bulk at CN, in a news release.

CN said that the boxcar addition is part of the railroad’s capital program for the year that includes adding additional track and increasing yard capacity, particularly in the Chicago-West Coast corridor.

Class 1 Capital Budgets Are Mixed Bag

February 15, 2018

North America’s Class 1 Railroads have varying plans for capital spending in 2018.

At one extreme, Canadian National plans spend a record $C3.2 billion for capital spending, which includes laying new track and buying new locomotives.

That is an increase of C$500 million over what CN spent last year.

On the other extreme are CSX and Kansas City Southern, both of which have cut their capital spending budget.

Compared with its peers, CSX is taking a meat axe to its capital budget, slashing it by $400 million to $1.6 billion for the year.

KCS is reducing its capital budget by $30 million and will spend between $530 million and $550 million.

Union Pacific and Norfolk Southern are planning to increase their capital spending while BNSF and Canadian Pacific have announced flat capital budget.

NS will spend an additional $100 million on a $1.8 billion capital budget while UP is increasing capital spending by $200 million to $3.3 billion.

The BNSF 2018 capital budget is $3.3 billion while CP will spend between C$1.45 billion and C$1.5 billion.

CN plans to spend C$1.6 billion on track and other infrastructure, including replacing 2.1 million ties and more than 600 miles of rail.

It also plans to plunk down C$400 million on equipment acquisitions, including 60 high-horsepower locomotives as part of a three-year, 200-unit order from GE.

At NS, track maintenance projects are budgeted at $930 million this year while it will spend $345 million for locomotives and $50 million for cars.

“Locomotive capital will be focused on the rebuild and conversion of locomotives from DC to AC power,” said NS Executive Vice President and Chief Operating Officer Cynthia Earhart.

With CSX mothballing numerous locomotives and freight cars, it sees no need to acquire new equipment.

KCS said its capital budget is down largely because it won’t be buying any locomotives.

CN Again Makes Sustainability Index

September 12, 2017

Canadian National has made the Dow Jones Sustainability World Index for the sixth consecutive year.

The Montreal-based railroad also made the North American Index for the ninth consecutive year.

In a news release, CN said that it was the only Canadian company listed in the transportation and transportation infrastructure sector.

The DJSI surveys sustainability leaders from each industry and analyzes economic, environmental and social performance on issues such as corporate governance, risk management, climate change mitigation, supply chain standards, stakeholder engagement and labor practices.

It then selects the top 10 percent of the 2,500 largest companies in the S&P Global Broad Market Index from each sector based on their sustainability scores.

“At CN, running a safe and sustainable railroad is at the core of our business culture and community spirit. It touches every aspect of what we do, enabling us to build a strong future for our customers, employees and the communities in which we operate,” said CN President and Chief Executive Officer Luc Jobin in a statement.

Class 1 Railroads Adding Few New Cars, Locomotives

August 19, 2017

Despite rising traffic, North America’s Class 1 railroads are not expanding their rail car fleets.

In the second quarter of 2017, rail car deliveries were 10,625 units versus 10,042 in the first quarter, the Railway Supply Institute’s American Railway Car Instate Committee reported.

The rail car backlog on July 1 stood at 66,561 units, up from 60,471 on April 1 but down from 66,681 on Dec. 31, 2016. At the end of last year’s comparable quarter, the backlog totaled 89,155 units.

Progressive Railroading reported hat after surveying North American Class 1 railroads it found that the carriers aren’t acquiring many rail cars. Last years railroads purchased only a small quantity of rail cars.

Railroads own 20 percent of all freight cars in North America, with lessors controlling 50 percent. Rail shippers own 20 percent and TTX manages 10 percent.

Norfolk Southern, for example, saw its budget for freight cars fall to $50 million this year after spending $121 million last year on rail car acquisitions.

NS is studying how it can create a smaller, more homogeneous car fleet that would increase cost effectiveness and boost flexibility for operations.

That might mean having fewer types of box cars. NS currently uses 20 different box cars.

The Class 1 railroads plan to continue to modernize their locomotive fleets, but not all of them expected to purchase new engines.

NS spent $290 million last year to acquire 50 new locomotives and modernize some existing units. This included transforms GE Dash 9 locomotives from DC to AC traction.

In 2017, NS is looking to buy 50 new locomotives, most of them GE Evolution™ Series Tier 4 models.

Canadian National expects to receive 22 new locomotives this year after purchasing 90 units in 2016.

CSX hasn’t said if it plans to acquire new motive power in 2017, but it has said it is storing more than 900 units as part of an perational review and the Precision Railroading transition.

The carrier bought 100 new locomotives in 2016 under a long-term purchase agreement after receiving 200 units in 2015 as part of that contract.

CSX, Harrison Reach Agreement on CEO Post

March 6, 2017

CSX said Monday afternoon it has reached an agreement to hire E. Hunter Harrison as its CEO effective immediately.

Current CEO Michael Ward, who had announced on Feb. 21 that he would retire on May 31, will become a consultant to CSX.

The railroad also said it has reached a pact with hedge fund Mantle Ridge to reorganize the CSX board of directors.

In a news release, CSX said it would appoint five new directors agreed upon by Mantle Ridge and current CSX management.

They are Paul Hilal, who founded Mantle Ridge, Harrison, Dennis Reilley, Linda Riefler and John Zillmer.

Three incumbent directors will complete their terms at or before the conclusion of the CSX 2017 annual meeting. The CSX board will then have 13 members.

Edward J. Kelly, III, the current presiding director, will become chairman of the board and Hilal will become vice chairman.

Harrison will receive an award of incentive options to purchase nine million shares of CSX stock at its current trading price, eight million of which will be granted as an inducement award under the Nasdaq listing rules, CSX said in its news release.

The options will vest over four years with half of the options vesting based on service and half vesting based on the achievement of designated performance goals over the four-year period.

However, the CSX board will still seek shareholder direction with regard to an $84 million payment to cover compensation and benefits that Harrison forfeited by retiring early from Canadian Pacific.

CSX said that Harrison, 72, has said that his acceptance of the CEO position is subject to CSX ultimately providing this replacement protection initially offered by Mantle Ridge upon his departure from CP.

If he does not receive the reimbursement and tax indemnity that he is seeking, Harrison will resign after the 2017 CSX annual meeting.

CSX said it will ask CSX shareholders to conduct an advisory vote during the annual meeting.

A previously announced special stockholders meeting will not be conducted.

The news that CSX, Harrison and Mantle Ridge has reached an agreement was reported in various news outlets, including the Wall Street Journal, before it was formally announced by CSX.

CSX Layoffs Affect 20% of Employees

March 1, 2017

The plans by CSX to lop off up to 1,000 management employees is expected to affect more than 20 percent of its workforce and save at least $175 million annually.

CSX logo 1In a regulatory filing this week, the railroad said it will take a pre-tax charge of at least $160 million related to employee termination benefits, including severance, pension, and stock compensation costs.

Those losing their jobs are expected to receive severance pay equal to two times their base salary.

They also will receive a target bonus and a prorated bonus payment and be credited with three additional years of age and two additional years of service under the company pension plan.

The layoffs are expected to be completed by the middle of this month.

CSX CEO Michael Ward, who will be retiring at the end of May, has described the layoffs as “essential to CSX’s ability to remain competitive in a challenging and changing market.”

The management restructuring is part of an on-going cost cutting campaign over the past year that has seen CSX reduce expenses by $430 million. The railroad also has said that it expects to reap another $150 million this year through efficiency and productivity gains.

Much of the cost cutting has been triggered by the loss of coal revenue, which has been $2 billion over the past five years and $470 million last year alone.

At the same time that it is cutting its management ranks, CSX is implementing a program of long-term incentives for managers who remain that is tied to performance units, restricted stock units, and stock options that will account for 50 percent, 25 percent, and 25 percent of the payouts, respectively.

New CSX President Fredrik Eliasson will see his base salary increase to $700,000. His short-term incentive opportunity has increased to 100 percent of annual base salary and the value of his target long-term equity incentive award rose to $2.5 million.

Mantle Ridge Disputes CSX News Release

February 18, 2017

Hedge fund Mantle Ridge took issue with some facts contained in a CSX news release issued earlier this week on the subject of E. Hunter Harrison becoming the railroad’s CEO.

CSX logo 3Mantle Ridge head Paul Hilal said he wrote to the CSX Board of Directors to take issue with the news release, in particular the size of the compensation package for Harrison and Hilal’s demands for governance changes for the CSX board.

“We owe it to the shareholders to get a deal done promptly. Let’s do it,” Hilal wrote. “If you are willing, we are glad to meet in person and hammer this out this weekend, hopefully delivering good news to the shareholders early next week.”

In the meantime, Harrison told the Wall Street Journal that he was frustrated with what he described as “chest pounding” between his investment partner and CSX, which has resulted in a stalemate in the negotiations for him take over as CSX as its CEO.

The newspaper reported that CSX had offered the CEO post to Harrison, but that Hilal, a principle at Mantle Ridge, has refused to give in on compensation and governance demands. Hilal, who is representing Harrison, has conducted most of the discussions with CSX.

Mantle Ridge holds less than 5 percent of CSX stock but wants to name six directors to the railroad’s board of directors and reduce the number of directors to 12,

In the news release, CSX said it is reluctant to allow a shareholder with such a small share of its stock to dictate the composition of its board. CSX also has described the demands to give Harrison a $300 million compensation package as “extraordinary in scope.”

The Journal said that during a recent meeting with Mantle Ridge, some CSX shareholders objected to the number of seats on the board that Mantle Ridge wants.

Hilal reportedly said during the meeting he needs to control six seats so that Harrison “has control and can execute his plan.”

CSX reportedly is objecting to paying Harrison the $89 million he gave up by leaving early as Canadian Pacific’s CEO in return for receiving a limited waiver of a non-complete clause.

Hilal contends that the compensation deal that Mantle Ridge is seeking from CSX is $200 million and includes $120 million of stock options, about half of which are tied to “very real” performance measures.

Another sticking point is the 72-year-old Harrison’s refusal to agree to have a physical exam by an independent physician.

Harrison told the Journal he was willing to negotiate his pay with the CSX board,

In his letter, Hilal contended that Harrison wants $32 million per year over four years – or $128 million – of which $20 million per year is performance-based.

“His package is worth very little unless he performs spectacularly,” Hilal wrote. As for the changes on the CSX board, Hilal said he is only seeking a seat for himself.

Harrison would occupy another seat along with four other independent directors who would be agreed upon by CSX and Mantle Ridge

“Why are we asking that new directors be added? As we’ve discussed, precision scheduled railroading requires dramatic operational and cultural change,” Hilal wrote. “Change like that starts at the top, with significant new blood on the board not wed to the old ways or legacy decisions and with no ties to any previous strategy or anyone.”

CSX Said to be Talking With Harrison

January 31, 2017

The Wall Street Journal reported on Monday that CSX and E. Hunter Harrison are in negotiations about the railroad’s CEO position.

CSX logo 3Harrison has presented to CSX management his plans to revamp CSX. The former CEO of Canadian Pacific, Canadian National and Illinois Central, is teaming up with Paul Hilal of the Mantle Ridge hedge fund to seek a management shakeup at CSX.

Mantle Ridge was reported to be seeking three seats on the 12-seat CSX board of directors, a demand that may be a source of conflict the Journal reported.

News reports indicate that Harrison met with CSX officials last Friday in Atlanta.

If CSX, Harrison and Mantle Ridge are unable to reach an agreement, then the hedge fund has until Feb. 10 to nominate candidates to the CSX board. CSX usually holds its annual meeting in May.

It is not clear what plans that Harrison and Mantle Ridge have for revamping operations at
CSX.

In the past year, CSX management under current CEO Michael Ward has retooled rail operations. Among other steps, CSX has emphasized longer trains and focusing capital expenditures on core routes.

In 2015, Ward said he planned to remain the CSX CEO for three more years after Oscar Munoz, who was expected to replace Ward, left to head United Airlines.

While at CP last year, Harrison unsuccessfully sought a merger with Norfolk Southern.

Some analysts on Wall Street believe CSX will be receptive to having Harrison as CEO because of his experience in leading other class 1 railroads.