CSX Transportation says service is bouncing back

But operational problems take short-term financial toll
RELATED TOPICS: EAST | CSX | NORFOLK SOUTHERN | OPERATIONS | FINANCIALS
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BOSTON — CSX Transportation executives say the railroad has turned the corner on its operational problems and that service is returning to normal.

“I’m confident that many of the challenges we and our customers have recently faced are behind us,” CEO E. Hunter Harrison said in a statement on Wednesday, citing ongoing improvements in terminal dwell and average train speed.

But CSX did not highlight its on-time performance, which at 50 percent last week lags last year’s 66 percent mark and is well behind the all-time high of 88 percent recorded in May. And chemical shippers say CSX has a long way to go before service returns to acceptable levels.

The service problems in July and August will dent the railroad’s earnings, CSX said today as it revised its outlook for full-year earnings and operating ratio.

Earnings growth is now expected to be in the 20 to 25-percent range, down from the 25-percent range. Operating ratio, which was projected to be in the mid-60-percent range, is now expected to be in the high mid-60-percent range. CSX remains on track to achieve record productivity savings this year amid cost-cutting and more efficient operations.

“The CSX of the Hunter Harrison era is still under construction,” Chief Financial Officer Frank Lonegro told an investor conference on Wednesday. “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.”

Most of the heavy lifting regarding the implementation of Harrison’s precision scheduled railroading operating model has already been done. The focus now, CSX says, is on reliably executing and refining the new operating plan.

CSX converted seven of its dozen hump yards to flat-switching facilities and has made 1,300 train plan changes since March. The pace of change has moderated over the past few weeks, and in late August, CSX reopened the hump at Avon Yard in Indianapolis to relieve congestion at a half dozen terminals on its western corridor.

CSX is still aiming to reduce the number of active hump yards and is likely to wind up with between two and four humps, Lonegro told the Cowen & Co. conference.

Two-thirds of the railroad’s traffic is now flat-switched, which reduces the cost to process each car, improves yard productivity, reduces hump-related capital expenses, and cuts transit time by a day, Lonegro says.

Shifting some unit-train traffic into the merchandise network has helped CSX move the same amount of tonnage on far fewer trains. Average train length has grown 7 percent since July 1, while fuel consumption has declined 6 percent. The new operating plan has eliminated more than 300 crew starts per week.

Overall employment is down 2,700 at CSX this year, plus a reduction of about 1,000 outside contractors.

CSX has streamlined its operating structure to five regions, down from nine operating divisions previously. CSX has not evaluated lighter-density routes on a line-by-line basis, but it is willing to consider line sales.

“Everything’s for sale at the right price,” Lonegro says.

Amid the service problems, CSX’s traffic growth remained below expectations, in part because it has lost some traffic to trucks and rival Norfolk Southern.

“Our anticipation is that we are going to keep it,” Norfolk Southern’s chief marketing officer, Alan Shaw, told the Cowen & Co. conference.

“Customers are looking for a dependable service partner, one they can count on,” Shaw says.

But CSX expects to regain lost traffic as service bounces back.

“We’re coming back and we’re coming back strong,” Lonegro says.

Chemical shippers were not convinced that CSX has improved its service.

“Significant concerns about CSX’s service remain and there is a long way to go before service levels return to acceptable levels. We are looking forward to the listening session the Surface Transportation Board has scheduled for next week, which should provide a good opportunity to get more details from CSX and to discuss the ongoing service issues,” says Scott Jensen, a spokesman for the American Chemistry Council.

Lonegro said the STB was simply doing its job by scheduling the listening session that will allow shippers to express their views.

CSX is keeping a wary eye on Hurricane Irma, a Category 5 storm that is projected to hit Florida sometime this weekend. Dispatching of much of the CSX system is based in Jacksonville, Fla., along with other vital functions based at its headquarters.

If necessary, employees will move to alternate sites out of harm’s way.

“We’re going to make sure the railroad stays up and running,” Lonegro says.

Preparation also includes moving equipment away from flood-prone areas and pre-positioning ballast, rail, and ties that will aid in repairing any storm damage.

NEWSWIRETrains News Wire

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