'There is no turning back'

CSX CEO Foote flattens Atlanta yard hump in nod to predecessor, E. Hunter Harrison
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JamesFoote
CSX CEO James M. Foote
CSX Corp.
JACKSONVILLE, Fla. — The Jim Foote-era at CSX Transportation began with a rumble that emphatically signaled his commitment to following through on what the late CEO E. Hunter Harrison began.

In a symbolic move, Foote’s first decision after being named chief executive in December was ordering the hump bulldozed at Tilford Yard in Atlanta. The yard was one of eight humps converted to flat-switching last year under Harrison, who died in December.

“Atlanta hump yard today is flat,” Foote says. “There is no turning back.”

Foote made the remarks in the opening minutes of the railroad’s fourth-quarter earnings call on Jan. 16.

“Hunter was a true legend, and CSX would not be in the position it is today without the tremendous changes that he was able to make during his time here,” Foote says. “I am committed to seeing his vision through and making CSX the best railroad in North America.”

New operations chief Ed Harris, who joined CSX just last week, says the railroad will continue to follow Harrison’s operating plan, including running fewer trains, putting more locomotives in storage, moving the same tonnage with fewer freight cars, and having a more fluid network.

“The table has been set,” says Harris, who worked alongside Harrison at Illinois Central and Canadian National. CSX will take advantage of technology and boost the use of distributed power, Harris says.

Harris says he’s a proponent of run-through interchange trains and would like to see CSX bypass the Belt Railway of Chicago by running merchandise trains directly to BNSF Railway and Union Pacific.

Also on his agenda: Partnering with short lines and other Class I railroads to create shorter, more efficient routes as well as to take advantage of directional running opportunities, particularly for longer trains. CSX also will continue to build longer trains powered by fewer locomotives per train, Foote says. As CSX operations improve, a key focus is on boosting on-time performance, which was just 56 percent in the fourth quarter. That’s not satisfactory, Foote says, and the development of scheduling plans for every carload will help raise on-time deliveries.

Harrison changed as much at CSX in eight months as he did at CN in three years, Foote says. And CSX executives fully understand that the disruption caused by the rapid-fire implementation of Precision Scheduled Railroading came at the price of lost traffic, frayed customer relationships, and regulatory scrutiny.

Most of the traffic will eventually return to CSX, Foote says, citing Harrison’s experience changing CN and Canadian Pacific.

“We are seeing some of those customers return already,” Foote says, although the railroad expects revenue to increase only slightly this year.

But CSX neither wants nor expects to regain the 7 percent of domestic intermodal volume that left the railroad when it jettisoned its hub-and-spoke intermodal strategy. CSX had used its Northwest Ohio Intermodal Terminal as a container sorting hub to build density required to serve hundreds of low-volume lanes. Foote says the increasing amount of container traffic landing at East Coast ports is an intermodal opportunity that CSX will tap.

CSX slashed capital spending by 25 percent in 2017, to just more than $2 billion. It will fall by another 20 percent this year, to $1.6 billion. Analysts expressed concern over the sharp decline and asked whether CSX would be investing enough to maintain its physical plant.

The railroad will spend about $1.4 billion this year — roughly the same as in prior years — on track maintenance, Chief Financial Officer Frank Lonegro says.

The biggest reasons for the drop are the elimination of spending on new locomotives and freight cars. With 900 locomotives in storage, and 20,000 cars parked, it will be years before CSX needs to buy more, executives said.

Foote says the railroad is revisiting Harrison’s decision to pull out of the long-sought Howard Street Tunnel clearance project in Baltimore. The railroad is crunching the numbers again to see if there’s a business case for clearing the tunnel for double-stacks or whether there are other alternatives. Foote will let Maryland and Port of Baltimore officials know once a final decision has been made.

Citing an investor day scheduled for March 1, CSX executives would not provide many specifics regarding their expectations for 2018 and beyond.

They did say, however, that they expect significant improvement in the railroad’s operating ratio each of the next three years as operational improvements and efficiency gains flow to the bottom line.

Executives also expect CSX’s employee headcount to fall by 2,000 people this year. The company had 3,282 fewer employees on Dec. 31 than it did a year ago, as the workforce dipped to 24,006 people.

The total number of positions cut in 2017 hits 4,700 when consultants are included, Foote says.
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