CSX changes "Profound, Swift and Purposeful" Lonegro presentation says

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A slide from a presentation made Nov. 8 by CSX Corp.'s Chief Financial Officer Frank A. Lonegro.
CSX Corp.
CHICAGO — CSX Transportation Chief Financial Officer Frank Lonegro made the case for Precision Scheduled Railroading during an investor conference today, noting that the railroad’s operating ratio and operating income both have been stuck in narrow ranges since 2011.

“And that lack of progress, among other things, was the driving factor in bringing Hunter Harrison on board,” Lonegro says of the chief executive who joined CSX in March as part of a management coup orchestrated by a hedge fund.

In the third quarter, CSX set a new operating ratio record, while operating income was up 20 percent, Lonegro notes. CSX still expects to reach an operating ratio of around 66 or 67 percent this year, along with earnings per share growth of between 20 and 25 percent.

CSX has recovered well from its summer of service disruptions and now is the only Class I railroad that can claim year-over-year improvements in train speeds, terminal dwell, and the number of cars on line, Lonegro says.

The service problems were caused, in part, by the rapid rollout of changes to the merchandise network.

The major changes from March through mid-October include converting eight of the railroad’s dozen humps to flat-switching terminals, blending metals and rock unit trains into the merchandise network, restructuring local service plans, balancing the intermodal network by introducing seven-day-a-week service, consolidating Florida intermodal trains, and implementation of the full balanced network plan over the Fourth of July holiday.

CSX also consolidated its operating regions to five and replaced field leadership.

“These folks were handpicked by Hunter,” Lonegro says.

The regional operations leaders were either brought in with Precision Scheduled Railroading experience from Canadian National or were CSX operations officials who went through “Hunter Camps,” where Harrison realized their potential during the intensive training sessions.

CSX service has bounced back, as evidenced by average transit time improvements, Longero says. The average was around 6.5 days in early March and declined to around 5.9 days in May before nearing 8 days amid the height of the service problems in August. They’ve been declining steadily ever since and are now back below 6 days.

Many shippers, however, are still complaining about erratic service, delayed shipments, and errant carloads.

About 85 percent of the merchandise network changes have already been rolled out, with the focus now on properly executing the plan and then making refinements, Lonegro says.

CSX will continue to evaluate hump yard operations and could convert another or reopen another as traffic volume dictates, he adds.

Harrison and new Chief Operating Officer James Foote are currently focusing on improving the profitability of the intermodal network. Intermodal is an integral part of CSX, Lonegro says, but ultra-low-density lanes will be trimmed or moved into the merchandise network where it makes sense to do so.

Lonegro did not confirm that CSX is scrapping its hub-and-spoke intermodal strategy. But he did say that Harrison wants to emphasize service to higher-volume, point-to-point markets.

The hub-and-spoke strategy is reliant on the North Baltimore, Ohio, container-sorting hub, which adds both time and expense to traffic that is both service- and price-sensitive. The terminal is scheduled to stop container sorting this month.

Lonegro says Foote, who worked with Harrison at CN and has operations experience from early in his career at Chicago & North Western, is an important addition to the management team, particularly since he will head both operations and marketing.

“You want the commercial folks to sell the operations capabilities,” Lonegro says. “And you want the operating folks to be able to deliver what the commercial group is selling.”

CSX likely will scale back capital spending next year and beyond, Lonegro says.

The railroad will continue to store locomotives and freight cars and will take a “rolling stock holiday” for Harrison’s tenure, Lonegro says. CSX also has put siding expansion projects on hold amid changes to the operating plan.

The railroad is likely to hold off on intermodal terminal investments in favor of leveraging the investments made over the past decade, Lonegro says. In that vein, CSX officials say the railroad’s Carolina Connector intermodal terminal, which is to be built in Rocky Mount, N.C., is currently under review. Sources tell Trains News Wire that the railroad will not proceed with the project.

Lonegro spoke at the Baird Global Industrial Conference on Wednesday morning.
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