BOSTON – CSX Transportation still expects to see growth in revenue ton miles this year despite declines in several key commodity segments, CEO Joe Hinrichs told an investor conference today.
While the railroad’s automotive, coal, minerals, and metals business has been strong, its chemicals, forest products, and international intermodal traffic are all down year over year.
“It’s a mixed bag. We’re seeing some strength and some weakness,” Hinrichs says, noting that the railroad expects revenue ton miles to increase in the low single-digit percentage range for the full year.
Overall intermodal traffic is down 9.4% for the year to date, although domestic intermodal has been growing for the past few months, Hinrichs says. International intermodal was expected to begin to rebound in the second half of the year but has yet to do so.
Looking longer term, the proposed new interchange with Canadian Pacific Kansas City at Myrtlewood, Ala., will give domestic intermodal a boost by connecting the high-growth areas of the Southeast with Texas and Mexico, Hinrichs says.
CSX and CPKC will acquire Genesee & Wyoming short line Meridian & Bigbee, which connects with CPKC in Meridian, Miss., and CSX outside of Montgomery, Ala. The three railroads expect to seek regulatory approval for the deal this month.
Hinrichs expects the Surface Transportation Board to approve the transaction because it will increase rail competition. He declined to provide specifics on how much CSX and CPKC will spend to upgrade the short line, whose route requires bridge improvements, but said the new interchange should be in service sometime in 2024.
CSX is down to just a handful of locations where train crew employment levels are tight, Hinrichs says. Despite the 2.6% overall decline in volume this year, CSX has no plans to furlough train and engine crews and continues to hire conductors.
CSX and the other three big U.S. railroads furloughed engineers and conductors when volume plunged at the onset of the pandemic, only to have traffic come roaring back. With the railroads short of crews, they were unable to handle the surge of freight in 2021 and 2022.
“There’s nothing in the principles of scheduling railroading that says you should optimize your manpower for the low point in the cycle. … We still get confused by that. We all acknowledge that we left a lot of revenue on the table by not having manpower,” Hinrichs says.
During traffic downturns CSX can manage costs through cutting overtime or pausing its hiring efforts and letting its high rate of attrition bring employment numbers down, Hinrichs says. But it doesn’t make sense to furlough conductors when it takes six months to hire and train them, he says.
Keeping enough crews on hand will enable CSX to capture freight demand when it returns. “We want to be very clear that we want to be able to take advantage of the cycle when it comes back up,” Hinrichs says.
CSX remains focused on improving its workplace culture, Hinrichs says.
“We’re a service business and we have to be focused on delivering better service to our customers … This industry hasn’t grown largely because we’ve pushed customers away by not serving them well, in my judgment. I was a customer on the other end for decades,” says Hinrichs, who worked as an automotive executive for General Motors and Ford before joining CSX a year ago.
CSX’s service metrics lead the industry currently, Hinrichs says, but they’re nowhere near where they need to be or where the railroad wants them to be. A key to improving service is having motivated employees who feel their work is being valued, Hinrichs says.
“It’s our employees that create that service. Any good customer service organization understands that and appreciates that the employees being motivated, inspired … is a critical part of delivering a high level of service,” he says.
CSX has not treated its employees well in recent years, Hinrichs says, but is making progress on rebuilding the labor-management relationship. Employees have been through a lot, he says, due to the implementation of scheduled railroading in 2017-18, the pandemic, and having four CEOs since 2017.
Hinrichs says he’s confident that the railroad industry can regain volume lost to trucks. Railroads have cost and environmental advantages, he notes. But growth will hinge on the entire railroad industry providing consistent and reliable service, he says, because 40% of CSX’s traffic is interchanged.
“I’ve talked to many of our customers. They want to do more business with us. They need to believe we will be there for them through the cycle and that we’re going to prioritize serving them,” Hinrichs says. “That’s up to us, and we’re focused really hard on it. There is growth opportunity. I believe that.”
The on-shoring of manufacturing will help lead to long-term traffic growth on CSX, Hinrichs noted, citing a number of new auto assembly plants, electric vehicle battery plants, and steel and aluminum mills that are being built at CSX-served locations.
Hinrichs spoke at the TD Cowen 16th Annual Global Transportation Conference.
“Hinrichs says he’s confident that the railroad industry can regain volume lost to trucks. Railroads have cost and environmental advantages, he notes. But growth will hinge on the entire railroad industry providing consistent and reliable service, he says, because 40% of CSX’s traffic is interchanged. ”
Customers choose trucks because of service advantage, not cost advantage. And trucks don’t interchange.
he’s sounds good, but said nothing about getting rid of PSR.
To quote the Mom of my girlfriend when Mom learned from her daughter that I “put a ring on it”:
“It’s a start”!
FINALLY! A real manager that will appreciate the employees that MAKE THINGS RUN. Happy employees do great work and appreciate the message from Mr. Hinrichs. WELL DONE!
About the Myrtlewood route. Has CPAK and CSX started yet moving any through trains? Know that CPAK is doing some work in Meridian on the KCS tracks only. When will the STB be taking this up? Will NS try to put some sand in the gears for getting the approval quickly?