AMELIA ISLAND, Fla. — CSX is banking on a U.S. manufacturing renaissance to fuel a billion-dollar revival of its carload traffic over the next three years.
A record number of industrial development projects — largely in the Southeast but also scattered around the CSX network — should produce annual merchandise volume growth of 1% to 2% above the rate of industrial production, executives said during the railroad’s investor day on Thursday.
“We’re seeing a sea change,” Chief Commercial Officer Kevin Boone says. “If you think about the last decades, we’ve seen industry leaving our network every year and having to overcome that headwind. What we see over the next three years and beyond is that will now become a tailwind with industry coming back to the U.S. And it’s a huge factor in our growth outlook.”
The projects in CSX’s industrial development pipeline could add between 150,000 and 300,000 carloads annually by 2027, says Christina Bottomley, the railroad’s vice president of business development and real estate.
The lion’s share of the projects — roughly 95% — involve merchandise business worth $1.2 billion in revenue from 2025 through 2027. The balance is intermodal or automotive traffic.
Aside from new traffic from specific development projects, CSX expects rising demand in several merchandise categories. Among them: Cement and aggregates business; waste traffic in the Northeast; transloads of chemicals, forest products, and agricultural shipments, plus gains in soybean traffic due to booming production of renewable fuels.
CSX also says it will see growth from extending the reach of its network, including Pan Am Railways territory in New England and the new corridor linking the Southeast with Texas and Mexico through new interline service with Canadian Pacific Kansas City via the former Meridian & Bigbee short line. CSX and CPKC will launch their first trains in the corridor on Dec. 1.
Although CSX’s merchandise volume is still 2% below pre-pandemic levels, carload volume has been in revival mode. It has grown faster than the economy and outpaced other U.S. Class I railroads. Since 2022, CSX’s merchandise volume is up 1.2%, while U.S. Class I merchandise volume is down 0.7%, industrial production is off by 0.4%, and truck tonnage has decreased by 2.4%.
It’s a sign that CSX is regaining market share by converting truck business to rail, Boone says.
The CSX sales and marketing team has worked to get the railroad more deeply involved in customer supply chains. Executives say the conversations with more than 40 shippers were made possible by more reliable service, listening to customers, and being proactive about service problems.
“Service does make a difference,” Boone says. “Service creates opportunity. It doesn’t necessarily beget growth — it begets opportunity.”
The improved service — and those customer conversations — would not have been possible without cultural changes at CSX, CEO Joe Hinrichs says.
Since becoming CEO a little over two years ago, Hinrichs has focused on developing a One CSX culture that aims to improve the labor-management relationship. If employees feel valued and appreciated, they’ll be more motivated to provide better service, the thinking goes.
“That’s why One CSX is so important. Positive energy and teamwork is infectious,” Hinrichs says. “It creates energy, it creates opportunity, and it delivers great results. That’s what differentiates CSX.”
Intermodal
CSX expects intermodal traffic to grow 2% to 3% above overall economic growth over the next three years through a combination of gains in domestic and international traffic.
The railroad will grow through inland ports that handle containers imported through East Coast ports such as Savannah, Ga.; Charleston, S.C.; and New York and New Jersey.
On the domestic side, between 4 million and 5 million truck shipments are ripe for conversion to intermodal service. Last year CSX handled a total of 2.7 million domestic and international intermodal shipments.
Although domestic intermodal is sold through wholesale channels on the U.S. Class I railroads, CSX has been talking directly with intermodal shippers to learn which truck lanes are the best candidates for conversion to intermodal, says Maryclare Kenney, vice president of intermodal and automotive.
Once those lanes are identified, CSX works with the cargo owner and intermodal customer to convert the business to rail, she says.
The Howard Street Tunnel clearance project in Baltimore will enable CSX to offer double-stack service for the first time in its I-95 Corridor from New England to Florida. It also will enable the railroad to offer stack service between Baltimore and Chicago — and to Western railroads via steel-wheel interchange. In all, the tunnel project is expected to bring 75,000 to 125,000 potential new annual intermodal shipments.
New intermodal service via the Meridian & Bigbee shortcut will allow CSX’s intermodal customers, including Schneider, to participate in automotive supply chains in the Southeast and Mexico. “We see tremendous truck volume moving in those lanes today that we’re going to convert to rail and in a very, very efficient service,” Boone says.
The total potential new business from industrial development projects, extending the reach of the network, the Pan Am and Meridian & Bigbee acquisitions, Howard Street Tunnel project, inland ports, and Quality Carriers chemical transload business to generate between 600,000 and 700,000 loads annually.
Coal
CSX expects coal volume to be flat over the next three years as strength in metallurgical coal exports should be able to offset declines in domestic utility coal.
Financial targets
For its 2025-2027 outlook period, CSX expects:
- Low to mid single-digit volume growth
- Compound revenue growth of around 5%
- Mid to high single-digit operating income growth
- Earnings per share growth of around 10%
- Capital expenses of $7.5 billion to $8 billion total
“We’re not banking on significant economic growth in order to meet our numbers,” Chief Financial Officer Sean Pelkey says.
If this sounds cheerful and positive, it’s only in the context of so many recent years of slow industrial growth and terrible Class 1 merchandise service, combined with the resultant steady declines in the group’s carloadings. First, industrial growth of 2-3% in the next couple of years would be decent, but there’s no gaurantee of that, or of CSX’ projection of 1-2% of their own merchandise growth above that. Of course, any growth would seem noteworthy at this point, and maybe CSX is turning the corner with Heinrichs at the helm, but I think all of this says more about how terrible Class 1 service has been and how the market has been summarily rejecting the railroads’ service offerings, except intermodal. Bulk is slow and monopolized, so it don’t count. It’s quite sad, really, because with truckers’ costs escalating and shippers everywhere begging for anything half-way decent in service and pricing from the rails, that they ‘ve failed so miserably to implement any meaningful growth strategies. Something that would move the needle, including on ROI, instead of the psychotic and almost satanic (evil) focus on PSR. Slightly less profitability now but longer sustained growth and goodwill among a much broader range of shippers, including the more profitable loose car ones. Capacity and equipment is already there, and they’ve discovered people can be added much quicker than previously. Will it actually happen, or get re-established long term? Time will tell, and your mileage may vary. Me, I’m not holding my breath…
Injuns
A pleasure to see all the stress on the revenue side of the operating ratio! With the increases in tariffs now expected, more domestic production should further increase the projected growth (and on BNSF and UP, some contraction as landbridge business from the West Coast ports declines).
Don’t expect domestic production to just come back from overseas over night. Companies have a lot invested in plants abroad and any interruption to move back to the States will make the shareholders heads explode. Those tariffs, if they go into affect, will have a wide ranging affect on all of us.