CSX improves cost base but customers grumble about service

For the past quarter, the third largest railroad in the US saw revenues edge up 1% to US$2,743m and operating profit increase by 4% to US$876m. This was despite the effects of Hurricane Irma and was in great part due to control of costs such as fuel.

Domestic market conditions are far from perfect, with key customer groups such as automotive, chemicals and coal experiencing soft demand. More encouragingly, intermodal traffic and coal exports sustained volumes. CSX has also been successful in increasing prices.

However, in its drive to control costs, CSX may have gone a little too far. Major customers such as Cargil and Dow Chemical have been grumbling about service disruptions and slower trains.

What CSX’s new CEO, Hunter Harrison, has been focussing on is what he calls a programme of “Precision Scheduled Railroading”. This includes longer trains, with loading of mixed commodities on individual trains. CSX has also shut down a number of depots and reduced staffing levels. Whilst this may improve the utilisation of rail assets it does run the risk of damaging customer service.

Hunter Harrison appeared in front of the U.S. Surface Transportation Board last week and admitted that there has been “service disruptions” but he blamed these on specific issues such as derailments rather than any policy decisions.

He commented: “We have made some mistakes, but this is not a failure of precision scheduled railroading”.

He also asserted that over the past few week service levels had improved.

However, a number of large customers appear to be unconvinced. Several major customers and trade groups representing the chemical and agricultural sectors are pressing for greater competition by enabling other rail companies to access routes presently served by CSX.

The question is whether Mr Harrison’s improvements in efficiency aimed at improving short-term returns will affect the strategic competitiveness of the railway over the long-term.

Source: Transport Intelligence, October 19, 2017

Author: Thomas Cullen


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