Dive Brief:

• The Surface Transportation Board (STB) on Thursday sent a letter to CSX CEO E. Hunter Harrison requesting the company report its plan to restore "reliable service" and improve its customer service.
• The regulator was compelled to demand response after receiving numerous complaints from CSX customers and industry stakeholders, according to the letter. The STB also expressed concern over an apparent "lack of communication with customers," urging immediate response. 
• Customers have complained CSX's transit times have increased, loaded and empty railcars are sitting at yards for days, car routings have "become inefficient," switching operations are inconsistent, and the company's St. Louis and New Orleans gateways are congested. Such delays have "forced" shippers to curtail production or seek alternate methods of transportation. 

Dive Insight:

Harrison was bound to be scrutinized for sweeping changes of CSX's operating structure, but based on the STB's letter and recent industry reports, the debate over the railroad's future is shaping up to be an all-out war.

Unfortunately for Harrison, the battle lines being drawn are leaving the prestigious CEO facing a growing number of unhappy stakeholders, with only his company and anxious investors on his side. Meanwhile, regulators, trade publications and their readers, and apparently shippers are actively criticizing the company. 

The STB letter confirms industry reports of delays, congestion and decreased customer service since the CEO's arrival. The revelation that shippers are adjusting production schedules based on CSX's troubles is the ultimate nightmare for logistics companies.

The Wall Street Journal reports this is having an effect on CSX's clients, with its Class I competitor Norfolk Southern winning over the unhappy customers. But the STB's made it clear its main concern is not the company's operating structure, but the lack of customer service with which changes were made, which is causing ripple effects across the supply chain.

Yet, displeasure with CSX's changes are not limited to its customers. In a scathing editorial, Railway Age's editor-in-chief William C. Vantuono compiled a list of reports, tips and comments from staekholders. Vantuono writes, "Hunter Harrison, what exactly is going on at CSX? I'm hearing a lot of voices. They've become loud and frequent and as such are nearly impossible to ignore ... And they're all saying basically the same thing: That the changes you are making at CSX aren't the right thing to do, or aren't working."

The article focuses on decreased performance, a demoralized staff, questionable earnings and strategy, layoffs and changes in pay structure to workers. At the end of his editorial, Vantuono asks Harrison to respond. On July 28, the day after the STB's letter, Harrison complied.

"When I arrived at CSX four months ago, I saw a company with tremendous potential that needed only to refocus its energy on what we’re in business to do — move customer’s freight consistently, reliably and cost effectively," Harrison responds. "By virtually all measures, we have done exactly that, and in an incredibly short amount of time."

He later writes, "The majority of our customers, employees and shareholders are excited and fully engaged in what they see as a step-change improvement in what it means to run an efficient, cost-effective railroad." But he acknowledges, "if there’s one truth about change, especially far-reaching, dramatic change, it’s that it will be met with resistance by those who had become comfortable in the status quo. Yes, there have been disruptions and challenges as we have implemented changes on our network, but those challenges are being met and overcome as fast as we’re creating a new model of efficient railroading."

Harrison has previously warned shippers his proposed changes would come with growing pains. In the reply to Railway Age, he acknowledges these also include resistance from stakeholders.

It's a battle of wills now, and so long as investors are on the CEO's side, Harrison's will appears to be winning out. CSX's stock may have fallen 8.5% since Harrison cited growing pains in a Q2 earnings call, but shares are still up 38% from the start of 2017, largely thanks to his appointment.

Nonetheless, even Harrison cannot resist regulatory mandates. As such, or at minimum, the STB's letter provides an avenue for CSX to restore shippers' confidence in the railroads customer service, or at least be better informed of these "growing pains."