Foote says CSX merchandise traffic will grow as service reliability improves

RELATED TOPICS: CSX | OPERATIONS | FINANCIALS | EAST
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NEW YORK CITY — CSX Transportation CEO Jim Foote touted his railroad’s operational and financial improvements at an investor conference on Thursday, saying that traffic volume growth will accompany increasing service reliability.

“We’re in the early stages of a turnaround and making great progress toward our goals right now,” Foote says.

CSX boasted the industry’s lowest first-quarter operating ratio, Foote noted, and is hauling the same amount of tonnage using roughly 1,000 fewer locomotives than it did a year ago.

It’s proof, Foote says, that Precision Scheduled Railroading can work in the East on a spaghetti-bowl network such as CSX.

While CSX’s key operating metrics — including average velocity and terminal dwell — are at all-time records, Foote says the railroad needs to boost on-time performance.

“Our on-time arrivals aren’t where they should be,” Foote says.

CSX is focusing on the trip plans for each individual carload and intermodal container that moves on the railroad, Foote says. It’s a strategy that makes CSX more like UPS, he says, because it emphasizes consistent on-time delivery for the customer rather than railroad-centric measures such as train performance.

Increasing reliability will be key for CSX to grow its merchandise traffic, Foote says.

Currently the railroad provides a baseload service for merchandise customers. Those same customers pay a premium for trucks to handle other freight to make sure that it arrives on time. As CSX’s merchandise network becomes more reliable, shippers will convert more traffic from road to rail, Foote says.

Soaring truck costs also should help the CSX merchandise network gain traffic from the highway, Foote says.

Foote emphasized that CSX is only looking for profitable traffic. Too many observers focus on weekly carload reports, he says.

“You can easily add a ton of volume to your railroad and look good on the charts,” he says. But it’s more of a challenge to put higher-margin business on the railroad, he says.

Foote says the only CSX business segment that’s a concern is domestic utility coal, which has taken a nearly $1-billion revenue hit over the past five years as utilities increase their use of lower-cost natural gas.

The export coal business should continue to see strong demand, Foote says. CSX has made significant operational improvements for its export coal traffic, he notes. Cycle times for export coal train sets have been cut in half. And by using distributed power, CSX has been able to combine three trains into two longer trains.

Foote was asked about the potential disruptive impact of autonomous trucking and what it would mean for the rail industry.

His response? Railroads are technologically ahead of trucking thanks to positive train control, line side sensors, a private right-of-way, and locomotive technology such as Trip Optimizer that essentially acts like cruise control.

“We could run the railroad with robots today, leveraging all of this technology,” Foote says.

Separate questions, however, involve regulatory and labor issues surrounding greater use of automation.

Another disruptive change that’s happening right now, Foote says, is unpredictable weather.

CSX needs to harden its infrastructure to be more resilient in the face of increasingly powerful and more frequent storms that have resulted in high water in areas the railroad’s engineering teams say have never flooded before.

Foote spoke at the 34th Annual Bernstein Strategic Decisions Conference.

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