CSX settles in with new management team, considers intermodal strategy and line sales

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CSX Chief Financial Officer Frank A. Lonegro
CSX Corp.
NEW YORK — CSX Transportation CEO E. Hunter Harrison continues to evaluate every aspect of the railroad’s business, including intermodal operations and potential line sales, as he begins to work with his hand-picked management team.

That’s the status update from Chief Financial Officer Frank Lonegro, whose remarks at an investor conference this morning were the first from a CSX executive since the railroad announced a management shakeup on Oct. 25.

CSX’s chief operations, marketing, and legal executives will depart the company next week. Veteran Canadian National executive James Foote, who worked with Harrison at CN, is now the railroad’s chief operating officer and also has marketing responsibilities.

“We’re delighted to have Jim Foote on the CSX executive team,” Lonegro says, praising his no-nonsense style and deep knowledge of Harrison’s Precision Scheduled Railroading operating model.

“Jim knows where we want to go,” Lonegro says, and has Harrison’s trust.

The management changes prompted CSX to scuttle an Oct. 30 investor day, where executives were expected to outline their long-term outlook for the railroad. Instead, Harrison called a “restart meeting” with CSX’s 30 most senior executives in West Palm Beach, Fla., where the investor day was going to be held.

“Hunter spoke non-stop for six hours,” Lonegro says.

CSX’s evolving intermodal strategy had been on the agenda for investor day, Lonegro says.

“Hunter’s driving force around the intermodal strategy is to improve the profitability of that segment of the business,” Lonegro says.

CSX had been relying on its container-sorting hub at North Baltimore, Ohio, to funnel traffic to and from smaller intermodal markets, such as Louisville, Ky., Columbus, Ohio, and Detroit. But the handling adds cost and reduces profit in a business that already has razor-thin margins.

CSX aims to end container-sorting at North Baltimore this month and has cancelled a similar terminal that was to be built in North Carolina.

Intermodal is all about creating traffic density, Lonegro says.
“If it costs you more to create the density, then you shouldn’t artificially create the density,” he says.

Intermodal will continue to be important to CSX, Lonegro says, but the railroad will approach what he calls “ultra-low density lanes” differently.

CSX has dropped intermodal service in scores of these low-volume origins-destination pairs. In others, it’s moving the light intermodal traffic into the merchandise network.

CSX continues to evaluate shedding lines and terminals that are no longer crucial to its business. Lonegro was asked about potential line sales or leases during the Stephens Fall Investor Conference this morning.

“We are in the evaluation phase,” Lonegro says, noting that Harrison has said everything is for sale at the right price.

“Things that are non-core to the long-term business that we have and the long-term success of CSX, those things will ultimately be for sale,” Lonegro says.

Lonegro did say that the intermodal terminal in Valleyfield, Quebec, outside Montreal, has not lived up to expectations and that Harrison has said CSX should dispose of its Canadian trackage.

“Never underestimate the power of an external catalyst,” Lonegro says, noting that Harrison and now Foote bring a fresh perspective to the railroad and question everything.

“Everything’s on the table. Hunter’s singular focus is on creating shareholder value,” Lonegro says.
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