“Our intermodal network needs a ton of work in order to become the efficient part of our system that it needs to be and we’re just really beginning to get in there and start to figure out how to rationalize that big part of our business,” CEO Jim Foote said on the railroad’s quarterly earnings call on Tuesday.
CSX is in the early stages of analyzing what Foote called a “dysfunctional” and inefficient intermodal network. The effort will involve changes to train design and terminal operations, and possibly terminal consolidations.
Unlike last summer, when former CEO E. Hunter Harrison made rapid and sweeping operational changes that created major service problems, CSX will take a go-slow approach to the intermodal redesign.
“We’re not going to do anything that’s going to screw up the railroad,” Foote says. “So if it takes a little longer than a quarter or two, I’m fine with that.”
Last fall CSX shed 7 percent of its intermodal volume as it dropped or scaled back service between low-volume intermodal terminals while shifting some intermodal traffic into the merchandise network. The hub-and-spoke strategy added cost and transit time to traffic that’s both low margin and service sensitive.
To serve the lower-volume markets, CSX had relied on its container-sorting hub at North Baltimore, Ohio, which touched more than a quarter of all CSX intermodal shipments before Harrison arrived. The terminal has been repurposed to serve local markets and as a block-swapping facility.
“At that point in time, it was my belief that a large part of that rationalization of intermodal had been accomplished,” Foote says. “Well, that’s not the case.”
Foote, who served as chief marketing officer at Canadian National while Harrison was CEO in Montreal, noted that a similar intermodal revamp was undertaken at CN.
“Intermodal at CN was a basket case,” Foote says. “When we were done fixing it over a couple year period, the average profitability of our intermodal business there was better than the corporate average.”
Intermodal at CSX is a different beast, however, with much shorter hauls than what CN enjoys.
Foote promised open communications with customers about pending changes — something that shippers and federal regulators said was lacking amid Harrison’s blitzkrieg of change last year.
With truck capacity tight and truck rates soaring to record levels, Foote says it’s a good time to be in the intermodal business.
“People are looking for capacity,” Foote says. “We want to be able to provide that service and capacity to our customers.”
CSX does not envision buying additional containers for the UMAX container pool jointly operated with Union Pacific. Both railroads have been scaling back their capital expenses.
