CHICAGO — Service improvements at CSX Transportation are translating into merchandise volume gains and the diversion of freight off highways, CEO Jim Foote told an investor conference on Wednesday.
CSX has become the safest and most efficient railroad in the U.S., Foote says, and its on-time performance has improved dramatically in the past two years. Trip plan compliance is running in the 95% range for intermodal traffic and 82.5% for carload freight, measured to the hour.
“What it boils down to is running a really, really good railroad,” Foote says.
Like other railroads, CSX has seen its merchandise volumes fall for decades as traffic migrated to trucks and the better service they provide. Railroads couldn’t grow because their service was poor, Foote notes.
“We are to the point now where we’re beginning to reverse that,” Foote says. “Our customers are coming to us, in many instances, and saying how can we ship more by rail?”
CSX’s combination of improved service and lower rates than truck will help it regain market share, he says.
“There is a tremendous amount of opportunity for us to grow our merchandise franchise, just tremendous,” Foote says, citing rail’s 8% share of the transportation business in North America.
Foote was asked if merchandise traffic could grow as fast as the overall economy or at least faster than the rate of industrial production. He was reluctant to say, due to continued economic uncertainty amid global trade tensions and a slowing industrial economy.
But he did say that CSX’s merchandise volumes are outperforming the rest of the industry this year, which reflects regaining traffic from the highway.
CSX’s merchandise traffic is up 1% this year through Sept. 30, while merchandise volume at rival Norfolk Southern is down 3% over the same period.
Foote says CSX’s domestic intermodal volumes should grow next year, but that domestic and export coal will remain challenged due to cheap natural gas and reduced global demand for metallurgical coal.
Foote was asked if the railroad’s operating ratio, which was 56.8% in the third quarter, would remain in the mid-50% range.
The operating ratio is simply a scorecard of how well a railroad is growing revenue and controlling its costs, Foote says. It’s not clear whether an operating ratio of 56% or even 60% is the right number to enable the railroad to produce consistent earnings growth year after year, he says.
“It’s not a quest to get as low as you want it to be. If somebody was going to give me an award for giving you a 55, I could probably get to a 55 tomorrow,” Foote says. “But you’d have to chop off a whole bunch of business to do it, and that’s not what we’re here to do.”
Foote spoke at the Baird 2019 Global Industrial Conference.
