Dive Brief:
- Jacksonville, FL-based railway CSX announced Monday it would appoint three-time railroad veteran E. Hunter Harrison as Chief Executive Officer for four years, effective immediately.
- The move caps a two-month long investor activism campaign to force leadership changes on the East Coast railway, which caused its market value to surge by $10 billion in January, per The Wall Street Journal. However, Harrison may still resign as CEO if shareholders do not approve a compensation package including $84 million to cover the cost of the executive resigning early from Canadian Pacific Railway.
- If approved at the next annual meeting, Harrison has pledged to implement a precision railway management strategy as he previously accomplished at Illinois Central Railroad (IC), Canadian National Railway (CN) and Canadian Pacific (CP). Yet various reports imply CSX may be the veteran's biggest challenge yet.
Dive Insight:
The months-long shareholder activism to install Harrison as CEO sets the stage for a large shift in strategy from the East Coast railway toward the lauded precision-railway strategy Harrison has implemented at each of his previous companies.
Yet, CSX is a larger beast, having recorded $11.1 billion in revenue last year, compared to CP's $4.6 billion (6.2 billion CAD) in 2016, CN's $589 million (790 million CAD) in 2009, when Harrison was at the helm. In addition, various reports note CSX's reliance on coal transport, which is on the decline, may provide an additional and different challenge for the new CEO to turn the company around.
In addition, Supply Chain Dive has previously reported an additional challenge of precision-railroading in the U.S. East Coast, which has to do with the limited U.S. rail infrastructure and a lack of right of way when competing with passenger railroads. Freight railroads have frequently argued that preference given to passenger trains hampers freight's on-time performance, but have so far failed to change the regulation.
Nonetheless, the promise of a Harrison-led precision-railroading strategy appeals to investors and guarantees change. If history serves as a reference, Harrison will reduce operating costs by increasing reliance on intermodal yards, reducing railyards and slashing labor costs.
In fact, even before Harrison's appointment, CSX appeared to be going down this path, as it announced it would lay off 1,000 management employees, according to The Wall Street Journal. More details on the new executives precise strategy are certain to come ahead of the annual shareholder meeting, which has yet to be scheduled.
