CSX is ready to turn the page on past service issues

Coming off of last week’s Surface Transportation Board (STB) public listening session focusing on Class I rail carrier CSX’s service issues, CSX was again in the news this week with its third quarter earnings release.

While this won’t be a deep dive about how CSX fared in the third quarter, the numbers indicated it did pretty well in meeting Wall Street expectations, considering the issues it has been up against in recent months related to the starts and stops, not to mention customer pushback in some cases, as the company has been implementing significant changes to CSX’ operating plan, including Harrison’s longstanding practice of Precision Scheduled Railroading (PSR).

As previously reported in this space, PSR is a cornerstone of the ongoing implementation of CSX’s operating plan by its President and CEO E. Hunter Harrison, which he deployed in previous top executive positions at both CP and CN. Precision railroading requires cargo to be ready when rail cars arrive for loading or risk being left behind.

But in recent months, there were various issues stemming from CSX’s PSR implementation that were clogging the tracks, so to speak, in various ways in the form of things like informal complaints from both CSX customers and railroad industry stakeholders in regards to various service issues, including: transit times increasing significantly and/or becoming unpredictable; loaded and empty railcars sitting for days at yards; switching operations becoming inconsistent and unreliable; car routings becoming circuitous and inefficient; CSX customer service being unable to provide meaningful assistance; and slowing train speed and increasing dwell time along with numbers of cars online. These issues were cited in a late July letter to Harrison from STB leadership, including STB Acting Chairman Ann Begeman, former STB Vice Chairman Daniel Elliott, and Board Member Deb Miller.

CSX reported on October 5 that that some of its key service metrics are now showing positive gains as it works to implement its PSR efforts. And, not surprisingly, that was a theme Harrison made clear at last week’s STB hearing.

A Reuters report noted that Harrison apologized to its customers for the service disruptions, attributing them to derailments and internal mistakes such as closing too many yards.

And it added that Harrison said his PSR strategy was “critical” to turnarounds he orchestrated at both CP and CN, saying the “best is around the corner,” the report said. What’s more, the report said this plan requires some “fine-tuning,” also suggesting that more “layoffs and other yard changes” are possible.

On this week’s earnings call, Harrison drove home how these issues are on well on their way to being a thing of the past, which should be viewed as encouraging by railroad shipper customers.

“I think that we went through obviously some slippage service-wise in the third quarter, which we're not proud of,” Harrison said on the call. “I've been in this business a long time, and this company is back to where it was; it's back to where it was, and it's better, and it's climbing, and I see those issues, generally speaking, behind us, which I'm very proud of that. It reflects to some degree the resiliency of this organization, to go through what this organization has been through, and to be able to come out of an eight-nine-week, a little setback.”

Harrison was quick to defend his long-established and highly successful PSR model, too, explaining that these service issues did not represent the model being a failure as it is an operating plan that's been in existence for more than 20 years with an excellent track record.

“I think, as we reflect, it was more of an execution issue,” he said. “We didn't execute at a lot of levels, and we learned that. And as a result, we had to make some, what I would describe as painful changes, that's never pleasant to do, but we had to do that.”

And CSX CFO Frank Lonegro noted on the call that while CSX service “took a step back” in July and August, its velocity and dwell performance in September were in line with strong first quarter levels, with the expectation of more improvements coming. 

Lonegro also made it clear that the changes CSX made to its operating plan have enabled CSX to run both its railroad and company with fewer resources, with an estimate of its total workforce being reduced by more than 4,000 full-time equivalents from the end of 2016 to the end of 2017, a figure which includes more than 1,000 contractors and consultants.

CSX is probably not out of the woods yet, as some shipper customers made it clear more work needs to be done to improve service, but it is at least clearing a path out of those woods to continued service improvements. That is something that its customers need to keep top of mind.