CSX Transportation unveils three-year plan to grow revenue and traffic

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A view of CSX Transportation's Tilford Yard in Atlanta, without a yard hump. Crews unceremoniously bull-dozed the yard hump in December shortly after CSX CEO James Foote assumed his post from late CEO E. Hunter Harrison.
CSX Corp.
NEW YORK CITY — CSX Transportation executives today enthusiastically unveiled their three-year plan to overhaul the railroad by improving service, cutting costs and boosting profitability — all while rewarding shareholders in the process.

"Today marks the beginning of a new chapter for CSX, and we’re confident we have the right plan and the right team in place to achieve our goal of becoming the best railroad in North America,” CEO James Foote said at the investor day.

Faster, more dependable service will enable CSX to better compete with trucks, charge higher rates, and grow intermodal and merchandise traffic over the next three years, executives said.

The legacy of E. Hunter Harrison, who died in December after 10 months as CEO, loomed large at the conference. Executives repeatedly praised his transformation of a railroad in need of change, despite the service problems that came from Harrison’s rapid-fire rollout of Precision Scheduled Railroading.

Foote said that while he had to apologize to shippers for a summer of service failures after Harrison “carpet-bombed” the network with change, virtually overnight, he had nothing to apologize for today: CSX’s service metrics lead the industry, with trains moving 30 percent faster and cars spending 22 percent less time in yards.

“Hunter did a lot of the heavy lifting. He built the foundation of what CSX is today,” Chief Operating Officer Ed Harris said.

CSX will focus on continued operational improvement and efficiency gains this year, rather than big changes like converting eight of 12 hump yards to flat-switching facilities, as was done in 2017.

But Harris would not rule out idling additional humps. “I’m not going to say we’re done closing hump yards,” he said.

Operational streamlining — including running fewer, longer trains seven days a week — will enable the railroad to do more with less, executives said.

CSX expects to reduce its locomotive fleet by an additional 20 percent by 2020, to around 2,400 units. The fleet stood at 3,781 active units at beginning of 2017, prior to Harrison's arrival at the railroad, and was 3,000 units at end of 2017.

Its freight car fleet also will get smaller by 2020. By speeding up the network and reducing car cycle times, CSX plans to reduce the number of cars online by up to 20 percent, to somewhere between 104,000 and 109,000.

The reduction in train starts, locomotives, cars, shops, and yards will allow CSX to operate with far fewer people.

The railroad will shrink its workforce to 21,000 by 2020, largely through attrition, says Mark Wallace, CSX’s chief administrative officer. That’s a 23-percent reduction from the 27,000 who were on the payroll at the end of 2017.

CSX is taking a “very aggressive” approach to surplus real estate, Wallace says. During the next three years, the railroad expects $300 million in surplus real estate sales and $500 million in line sales.

Line rationalization is a by-product of broader network evaluation, says Amy Rice, vice president of strategic planning. It is not a key strategy for cash generation or a primary way CSX will reach its 60-percent operating ratio target.

Rice did not provide detail on how much low-density mileage CSX may ultimately shed, while dismissing as “wholly inaccurate” industry media reports that the railroad would sell 8,000 miles of trackage.

Trains News Wire reported in January that CSX was reviewing 8,000 miles of its network as candidates for sale or lease. The story did not say that CSX had a mileage target or that all of the routes under review would be put on the block.

CSX’s Northwest Ohio Intermodal Terminal, which supported the hub-and-spoke intermodal service that the railroad discontinued in the fall and was a candidate for sale or closure, will be reborn as a block-swapping facility for Chicago interchange traffic, says Dean Piacente, vice president of intermodal sales and marketing.

The terminal, in North Baltimore, Ohio, also will retain its role of serving growing local intermodal traffic.

CSX will add a total of 600,000 units of lift capacity at six intermodal terminals during the next two years amid new intermodal strategy that focuses on point-to-point service, hauling lower-density intermodal moves in merchandise trains, and a maintaining a balanced train plan with daily service.

Faster transit times for merchandise traffic put CSX in a better position to compete against trucks and expand the market for carload business, said Michael Rutherford, vice president of merchandise sales and marketing.

Precision Scheduled Railroading won’t change long-term decline of coal traffic. But CSX is moving coal trains faster, more reliably, and more efficiently under new operating plan, said Russ Epting, vice president of coal sales and marketing.

CSX will spend much less on capital expenses over the next three years, at it ratchets back spending to an average of $1.6 billion a year, down from $2.5 billion just three years ago.

“We are not reducing the emphasis on infrastructure and maintenance,” Chief Financial Officer Frank Lonegro said, noting that CSX will install more miles of rail, replace more ties, and add more ballast this year than in 2017.

Nearly all of the decline comes from not purchasing locomotives or rolling stock, as well as completing spending on positive train control installation.

Higher revenue, lower costs, and reduced capital expenses will allow CSX to generate $8.5 billion in free cash flow over the next three years, a $5-billion increase over the previous three-year period, Lonegro said.

That money is being returned to shareholders through a $5-billion stock buyback program and higher dividends.
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