Harrison says CSX is moving in the right direction

RELATED TOPICS: CSX | FINANCIALS | OPERATIONS | EAST
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JACKSONVILLE, Fla. — CSX Transportation CEO E. Hunter Harrison is pleased with the progress the railroad is making as he transforms its culture and operations.

“I thought we had a hell of a quarter,” Harrison said on the railroad’s earnings call on Wednesday morning. On Tuesday, the railroad reported that its profits rose, and its operating ratio improved, as traffic and revenue both grew.

“I’m very pleased with the direction the organization is taking,” Harrison says. But he sought to temper the high expectations that some investors and analysts have as he rolls out his precision scheduled railroading operating model at CSX.

Since Harrison joined CSX in March, the railroad has transitioned seven of its dozen hump yards to flat-switching facilities and says it has slashed transit times and improved on-time performance.

CSX has nearly 900 locomotives stored, up from 550 at the end of the first quarter, and Harrison expects to park at least 100 more units in the short-term. CSX’s active car fleet, meanwhile, is down by 60,000 as the railroad moves the same tonnage on fewer trains.

Train length remained stable year-over-year, at around 6,500 feet, as CSX shifted to providing daily through-train service, up from five or six days previously, Chief Financial Officer Frank Lonegro says. CSX expects train length to grow as it continues to move unit train traffic into the merchandise network.

Terminal dwell improved 2 percent, to 24.4 hours, although dwell is up significantly at some terminals since CSX idled more humps. Harrison says the goal with dwell is not to push it to new lows, but to ensure that cars make their connections.

What people on the outside can’t see, Harrison says, is that cars that used to be handled at two or three yards en route are now handled at just one, which shaves up to two days off transit time. But Harrison says operating officials are working to determine why dwell has increased to 40 or 50 hours at some yards.

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

Executives were asked if CSX will eventually shift from cost-cutting mode to a growth strategy. The answer, Harrison says, is yes — as long as CSX 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,” says Harrison, who has a four-year contract.

And to be successful, CSX will have to bring in more revenue, not just cut costs. “This is a balancing act between cost and service,” Harrison says.

Shutting down humps does not mean CSX will be looking to sell the land currently occupied by dormant classification bowls.

“We’re not having a garage sale here,” Harrison says, adding that he hopes the CSX in the post-Harrison era will grow traffic volumes enough to need the yard capacity again.

The most difficult part of transforming CSX is not making top-to-bottom operational changes — it’s changing the corporate culture, Harrison says. Employees need to adapt to a new way of doing things, he says, after being confused by several different strategies and operating philosophies the railroad has used over the years.

“We can’t carry dead weight. Everybody’s got to do their job, everybody’s got to do their part,” Harrison says. People who can’t adapt won’t make the cut, he adds. CSX had 25,495 employees at the end of June, down 2,200 compared to the same period last year. Harrison expects 800 more positions to be eliminated by the end of the year.

To build a field operations team that understands precision scheduled railroading, CSX has hired two “rock stars” in operations, Harrison says, as well as 15 “top-notch” people from railroads he would not name. The new hires, reportedly people who worked with Harrison at Canadian National, are replacing mid-level operating officials who were dismissed.

The first “Hunter Camp” — intensive sessions where Harrison explains the principles behind precision scheduled railroading — will be held the last week of 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 says. “It’s our job to find them.”

CSX has a favorable third-quarter outlook for two-thirds of its traffic, including export coal, intermodal, agriculture and food, metals and equipment, and minerals. Executives have a neutral outlook for fertilizers and forest products, which account for 8 percent of the railroad’s traffic. And the outlook is unfavorable for 26 percent of traffic, including automotive, chemicals, and domestic coal.

CSX will reveal its long-term strategy and outlook during an investor conference scheduled for Oct. 29 and 30 in Palm Beach, Fla.

CSX saw a spike in personal injuries, which were up 19 percent in the quarter, and Chief Operating Officer Cindy Sanborn expressed condolences to the families of two CSX crew members who were struck and killed by an Amtrak train in June in Washington, D.C.

NEWSWIRETrains News Wire

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