Harrison says CSX is performing well as Foote develops operations, marketing teams

RELATED TOPICS: CSX | EHH | EAST | OPERATIONS
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PALM BEACH, Fla. — CSX Transportation CEO E. Hunter Harrison says he’s proud of how the railroad is running and is glad to have former Canadian National colleague James Foote aboard as chief operating officer while intermodal changes are under way.

CSX stumbled this summer amid an accelerated rollout of Harrison’s Precision Scheduled Railroading operating model, prompting shipper complaints and increased scrutiny from federal regulators.

Harrison, as he has in the past, said the concerns over CSX service were overblown, partly as an excuse for shipper groups to lobby for regulatory changes that would hurt railroads.

“The network is good,” Harrison told the Credit Suisse Industrials Conference, citing terminal dwell and average train speed figures that top last year’s metrics. “I’m proud to see it working so well.”

Harrison said that CSX’s management team did not have the right chemistry after he arrived in March. Last month, the railroad’s chief operating, marketing, and legal executives were forced out. And Foote was brought in to head both operations and sales and marketing.

“Jim knows a helluva lot more about operating and Precision Scheduled Railroading than some have given him credit for,” Harrison says. “At the same time, he’s got a unique talent on the marketing-sales side and happens to be a team builder. And that’s one of the things we really need.”

Harrison, 73, says the hiring of Foote is one part of a succession plan. Harrison has a four-year contract but is in ill health, and who will succeed him became a greater concern for investors after October’s management changes.

Harrison says he’s stepping back a bit to let Foote and his operating and marketing teams develop.

Foote says his challenge will be to get operations and sales to see the world in the same way and to understand that Precision Scheduled Railroading is about efficiency and improving customer service.

“This is not a plan to shrink the railroad into profitability, but to grow the business,” Foote says.

Harrison said he’s never been a fan of intermodal traffic because of its razor-thin profit margins. And he was critical of CSX’s former hub-and-spoke intermodal strategy, which aimed to build density in low-volume lanes.

“We were doing some things that if you know anything about intermodal you don’t do,” Harrison says of container sorting at the Northwest Ohio Intermodal Terminal. “You don’t switch intermodal stuff. That’s why intermodal stuff came about.”

The old intermodal service plan had trains running up to 140 miles out of route to stop at the container-sorting hub at North Baltimore, Ohio.

“That’s not smart to me,” Harrison says, particularly when the traffic could be handled more directly on existing merchandise trains.

Container sorting has stopped at North Baltimore, which now serves as a block-swapping facility and is still handling some local intermodal containers. Harrison said CSX may have a trick up its sleeve for a future use for the $175 million terminal and hinted it might involve a western railroad looking to extend its reach into the East.

Harrison also explained the rationale for pulling out of the long-sought project to raise clearances in the Howard Street Tunnel in Baltimore. The private-public partnership would have enabled double-stack service through the tunnel to the Port of Baltimore.

Harrison says he’s philosophically opposed to receiving government money and that the East Coast has too many ports vying for traffic.

Foote says CSX remains committed to intermodal traffic and will work on creative ways to profitably grow both international and domestic business.

CSX is planning to sell or spin off underutilized routes, including all of its trackage in Canada and related lines in the U.S. The railroad is not committed to any underutilized route, Harrison says.

“Everything we’ve got out there is going to go through some scrutiny. If it creates shareholder value to sell it, we’re going to sell it,” Harrison says. “If it creates shareholder value to keep it, we’re going to keep it.”

Class I railroads typically analyze potential line sales to ensure that competitors won’t be able to turn them to their advantage. But Harrison says that’s less important than pruning underperforming routes.

“We’re not going to keep railroads for defensive purposes. I don’t believe in that,” Harrison says. “You’ve got a real weakness if you do that.”

CSX will pull out of Canada because its business north of the border is not successful, Harrison says. He singled out the intermodal terminal in Valleyfield, Quebec, outside Montreal, which has not lived up to expectations.

The $100-million terminal opened in December 2014 but now handles just a dozen containers per day, Harrison says.
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