Dive Brief:
- CSX continues to struggle with congestion, extended delays and now, uneven service, The Wall Street Journal reported Tuesday, causing shippers to shift freight to trucking and Norfolk Southern.
- As the railroad transitions to a new system — CSX CEO Hunter Harrison's "precision scheduled railroading" — it has cut more than 2,000 of its staff, closed or transitioned seven of its 12 hump yards, and pulled 900 locomotives from operations, JOC.com reports.
- The wave of changes is costing shippers, especially those who lack the scale to shift transportation modes. As a result, dozens of trade groups have called on Congress and the Surface Transportation Board (STB) to investigate the railroad's issues. Harrison claims concerns are overblown, noting performance should improve after Labor Day.
Dive Insight:
CSX is one of only two railroads handling almost all shipments moving east of the Mississippi River, and as such, its smooth performance is pivotal to the U.S. economy.
The railroad serves 23 states, has access to more than 70 port facilities and recorded $11.1 billion in revenue in 2016, according to the company's annual report. The railroad also provides connections to roughly 240 short-line and regional railroads, has contracts with major companies like UPS, Schneider and McDonald's, and additional partnerships with East Coast railroads for connections.
As a result, CSX's troubles can easily ripple to nationwide productivity losses. On the surface, that's exactly what has happened since railroad legend E. Hunter Harrison was appointed as the railroad's chief executive, with the promise that he would improve the company's margins by implementing Precision Scheduled Railroading.
It's easy to see how stakeholders bought into that promise. CSX had suffered two consecutive years of losses due, in large part, to a decline in the U.S. energy business. The company's volumes declined by 5% in 2016, which included a 21% fall in coal shipments. Perhaps as a result of these headwinds, CSX has seen a greater share of merchandise and intermodal shipments, supporting the manufacturing and retail economies.
Precision Scheduled Railroading promises to improve competitiveness for these on-demand economies. In general, the CEO's plan targets two primary endpoints to improve performance: customer service and asset utilization. In theory, Harrison seeks to raise margins by reducing inefficiencies in staffing, types of cars used per train, and increasing the length of trains, among other such tactics. In the long-run, this would reduce delays and congestion, and benefit the just-in-time customer.
However, the immediate effects of the plan have caused rail stakeholders to enter a sort of frenzy. To achieve his goals, Harrison closed various hump yards, laid off a significant portion of his staff, and reduced key perks for the remaining workers, demoralizing his own workforce. Meanwhile, other unfortunate events — such as a derailment in Pennsylvania — have led to unrelated delays in the railroad's operations.
The Wall Street Journal reports delays can cost shippers roughly $100 per day, and one train took 18 days to make a trip that typically only lasts "a few days." Such troubles have led to a series of combative written exchanges between Harrison and stakeholders — including the media, the STB, union workers and the Rail Customer Coalition — about the railroad's performance. By and large, Harrison has dismissed each complaint, citing overblown concerns over necessary growing pains and promising a stable future to come.
In its latest letter to CSX, the STB asked the railroad to provide a detailed schedule of its implementation and new operating plan through the end of the year, by Aug. 24. Meanwhile, Harrison claims problems should subside by Labor Day, citing already-improving statistics and a new methodology for measuring performance in its latest presentation to the STB.
If performance does not improve, however, CSX may lose many of its remaining customers' trust, to its competitors' benefit.
