CSX Transportation bullish on intermodal growth prospects

RELATED TOPICS: CSX | OPERATIONS | FINANCIALS
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CSX Corp.
NEW YORK CITY — CSX Transportation has made three major changes to its intermodal network that will enable the railroad to capture growth, improve service, and reduce costs, executives say.

“This is a very exciting time to be in the intermodal business at CSX,” Dean Piacente, vice president of intermodal sales and marketing, said at the railroad’s March 1 investor day.

The new strategy focuses on point-to-point service, using merchandise trains for lower-density intermodal moves, and running a balanced train plan with daily service.

Until last fall, CSX operated a hybrid point-to-point and hub-and-spoke intermodal strategy.

The first change was dropping its hub-and-spoke system that served lower-volume intermodal markets.

“Our goal was to be everything to everybody,” Piacente explains. “What we quickly determined is that we can’t do that.”

Given intermodal’s relatively low profit margins, it was difficult to make money in low-volume intermodal lanes when the containers were handled three times: Once at origin, again at the hub-sorting terminal at North Baltimore, Ohio; and then finally at destination. Besides adding cost, the North Baltimore hub added transit time and delays and often required trains to travel out of direct routes simply to reach the terminal.

CSX lost 7 percent of its intermodal traffic by closing the sorting center and exiting several low-volume lanes. But the railroad has already replaced the lost traffic with more profitable business in higher-volume routes, Piacente says.

The Northwest Ohio terminal in North Baltimore will retain its role serving the growing local Ohio market, Piacente says, and will get a new one: As a block-swapping facility for intermodal traffic bound to and from Western railroads at Chicago.

Last week, CSX and an unnamed Western railroad began forwarding run-through eastbound intermodal traffic from Chicago to North Baltimore, where the traffic is block-swapped for destinations on the CSX system.

This helps free up much-needed capacity in Chicago, Piacente says, while shaving 24 to 48 hours off coast-to-coast transit times. Westbound service will begin soon.

The second change to the CSX intermodal strategy is rolling low-volume traffic into the merchandise network. Today, almost a quarter of CSX’s intermodal traffic moves in merchandise trains, Piacente says, up from less than 1 percent a year ago.

There wasn’t enough volume to launch a dedicated intermodal train to capture international containers moving via highway between the port of Wilmington, N.C., and Charlotte, for example. But CSX already operated merchandise trains seven days a week between the two points. So it now tacks intermodal loads onto the existing merchandise trains.
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CSX Corp.
The third change was bringing balance to the intermodal network by combining trains and operating them seven days per week. This boosted train length by 13 percent despite flat volumes, Piacente says.

And by having 90 percent of its intermodal trains running every day — up from 30 percent a year ago — CSX can begin offering demand-based pricing based on the day of the week. The idea is to flatten out peaks and valleys in intermodal loading, which can help maintain balance in the network.

The network redesign meant CSX closed four underused intermodal terminals: New Orleans, Evansville, Ind.; Mobile, Ala.; and Toronto, where traffic was trucked from Buffalo, N.Y.

But during the next two years CSX is expanding lift capacity by a combined 600,000 units at a half-dozen high-growth terminals, Piacente says. These include the new terminal in Pittsburgh, as well as Atlanta, Cincinnati, Detroit, Memphis, and Winter Haven, Fla.

Capacity will be nearly doubled at the Fairburn terminal in Atlanta next year. And the terminal in Winter Haven will get new fully automated, unmanned cranes — a first for domestic intermodal terminal use.

CSX also will tap surging international traffic flowing into East Coast ports. The railroad is partnering with ports to serve new inland port facilities in South Carolina, Georgia, and New York.

A new terminal in Dillon, S.C., will open next month. The inland port facility in Chatsworth, Ga., northwest of Atlanta, is slated to open this fall. And a terminal in Syracuse, N.Y., is on the drawing board.

The changes — along with favorable trends such as tightening truck capacity, driver shortages, rising fuel prices, and a growing economy — should help CSX intermodal traffic grow in the mid-single digit range this year, and faster in 2019.

“Highway-to-rail conversion is really what we are all about,” Piacente says.

Intermodal customers have reacted positively to the changes, he says. The railroad’s largest domestic intermodal customer, Schneider, recently said adding service via the merchandise network will give the trucker the opportunity to reach new intermodal markets.
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