Dive Brief:
- CSX CEO Jim Foote teased the railroad was planning more changes to its intermodal business to get its efficiency up to speed with other parts of the business, while answering questions from investors in an earnings call on Tuesday.
- "Our intermodal network needs a ton of work," Foote said, offering few details on the specific initiatives the railroad would undertake. "We need to kind of go forward and reconfigure the franchise and make sure that it is properly and appropriately integrated into the rail company ... We are at very, very early stages."
- As investors pressed, Foote said the changes would not be large moves but rather "basic building blocks" for running a good railroad. This may include train design changes and terminal consolidations, and he promised, "very good and open communication with our customers."
Dive Insight:
The last time CSX made shifts to its rail network, a crisis ensued.
Hunter Harrison had just come on as CEO in 2017 with a vision to implement precision scheduled railroading as an operating model and boost profitability. In so doing, he converted seven hump yards and changed 1,300 train plans, altering supply chains east of the Mississippi with what many shippers claimed was far too short a notice.
It was a rollercoaster of a year for the railroad, its customers and its partners, and by the end of it, Jim Foote had been hired to succeed the late Harrison.
This time, however, conditions are very different for the CEO, both within the company and outside it.
"Six months ago, we ... [were] telling everybody how sorry we were for not running a very good railroad," Foote said. "The environment for us right now compared to where we were at the end of last year is dramatically different. In terms of the pricing environment and the capacity environment, it's a good time to be in the railroad business."
CSX is celebrating an all-time company quarterly record on its operating ratio, having brought it down from 67.4% under Harrison last year, to 58.6% in the second quarter of 2018.
The record, executives insisted, was a result of various initiatives, incredibly strong coal export volumes and a tight trucking environment that led shippers to convert to rail. "Precision railroad is clearly one" of the areas that helped set the record, CFO Frank Lonegro said during the earnings call.
But the one area not currently represented in gains from the new operating mode is intermodal, said Foote.
For years, CSX's intermodal business has been a stand-alone entity. Such an operating model runs counter to precision scheduled railroading, which relies on an integrated network of cars and locomotives, each with an individual plan. Changes to this system were necessary if the company had dreams of greater efficiency.
This may be the best time to make those changes, now that shippers are captive to a capacity crunch in trucking and cannot react strongly to shifts in a rail network.
"(It's) a good time to be in the railroad business and it's even a better time to be in the railroad intermodal business," Foote said. "We took 7% of our business off the network last year and we're flat today. So people are looking for capacity. We want to be able to provide that service and capacity to our customers."
Foote said the changes would not come right away, and it may even take quarters to implement the plan. He added all indicators suggest a stronger peak season this year than in the past, and so the company will implement any changes "methodically and logically and appropriately."
In the meantime, CSX will celebrate a record in operating efficiency that has helped shift customers' perspectives of Foote and the company.
"They went from ... when I showed up here to hating me to now on occasion even buying me a drink. So we made great improvements in our customer relationships," Foote said.
