Retired CSX executive reflects on career, changes at railroad

Gooden says CSX should have closed 4 or 5 humps before Harrison arrived
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Former CSX President Clarence Gooden
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TARRYTOWN, N.Y. — Clarence Gooden, the CSX Transportation president who retired last year amid the management coup led by E. Hunter Harrison and his hedge fund partner, is never one to miss an opportunity for a joke.

Gooden spoke last week about his four-decade career at CSX, including what he learned — and what he would have done differently during the past 15 years.

“I probably should have read Hunter’s book,” Gooden wisecracked at a shipper forum.

In fact, Gooden and the CSX management team under former CEO Michael Ward did study Harrison’s Precision Scheduled Railroading operating model. And they adopted many of its strategies to slash costs as the bottom fell out of the coal market, Gooden says.

To reduce expenses in 2015, Gooden noted, CSX laid off employees, stored locomotives, mothballed some small yards, and closed 11 of its smaller car and locomotive repair shops. It focused on running longer trains, which reduced train starts and improved crew and locomotive utilization. And the railroad increased the use of distributed power.

While CSX closed a couple of the 14 humps it operated at the time of the Great Recession, Gooden says the railroad should have gone further.

“Without question we should have closed four or five humps years before Hunter arrived,” he says.

Harrison, who became CEO in March 2017, initially idled the humps at eight of CSX’s dozen classification yards and turned them into flat-switching facilities. He subsequently reopened the hump at Avon Yard in Indianapolis, and this summer CSX resumed hump operations at Radnor Yard in Nashville, Tenn.

Gooden says the swift decline of coal traffic, which had a 53-percent profit margin, was a major hit to CSX.

“Let me tell you what I just said in English: When a coal train went by, you bowed your head. Thank God,” Gooden says.

Gooden says CSX did a good job by treading water amid a $1.5-billion revenue hit as domestic utility coal shipments collapsed during a five-year span. Earnings were flat from 2012 to 2016, Gooden notes, and CSX was able to maintain an operating ratio of around 70 percent.

From 2004 to 2017, CSX’s stock price went from $5.13 to $36.88, Gooden notes.

“In fairness, in comes Hunter Harrison and that number goes from $36 to $48 in two or three days,” he says of the January 2017 bump in stock price after Harrison left Canadian Pacific early to target a management shakeup at CSX.

It was a clear signal from investors — and one that was not lost on Gooden.

“That’s when I walked in and told my boss: We need to pack our stuff and get out of here ‘cause the shareholders just voted,” he recalls saying.

CSX’s stock was trading at around $74 last week.

“Without question it’s been a great ride for shareholders at CSX,” Gooden says.

Gooden was asked if he thought Union Pacific could adopt an operating plan based on the principles of Precision Scheduled Railroading without “Hunterizing” the process and making disruptive changes to the entire company.

“No, I don’t,” Gooden says. “You’re either in or you’re out, in my view.”

UP has said it has no plans to idle hump yards or rationalize its 32,000-mile network of main lines and secondary routes as it rolls out a new operating plan in phases beginning this month.

“Hunter was a force of nature. There’s no question about it. I don’t know if fanatic is the right word. But he was an all-in guy,” Gooden says. “If you’re going to implement Precision Scheduled Railroading, you have to take people out. It’s not a pretty picture…. At CSX it was as painful a deal as I’ve ever seen. I’m sure it was at CP and I’m sure it was at CN.”

Gooden warns that CSX will have to weather another steep downturn in utility coal starting in 2023, when a wave of retirements of coal-fired power plants is expected to begin.

The likely outcome at CSX, and its eastern rival Norfolk Southern, is the spinoff or even closure of many of coal-dependent routes, Gooden says.

How to replace the lost coal revenue will be a major challenge, Gooden says. Intermodal traffic is growing, he says, but it’s not nearly as profitable as coal. Ultimately, the Eastern railroads may have to settle for higher operating ratios as coal dwindles and intermodal dominates, he says.

Gooden says CSX did a lot of things right in the time since he was named executive vice president in 2004. The railroad made hiring veterans a priority, launched an ad campaign touting the efficiency of rail, and at one time was the safest Class I railroad.

But, like all railroads, CSX should have adopted technology much faster, Gooden says. Automating yard operations and taking advantage of operational benefits of positive train control will be keys to reducing costs in the future, he says.

CSX also should have forged closer ties with short line and regional railroads because of their importance in feeding traffic to the Class I, Gooden says.

Gooden, who retired as president of CSX in 2017, spoke last week at the North East Association of Rail Shippers fall conference.

NEWSWIRETrains News Wire

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