JACKSONVILLE, Fla. — CSX Transportation today posted double-digit growth in revenue and earnings for the third quarter and maintained its financial outlook despite high inflation and signs that the economy might be softening.
Executives said they were confident that the railroad could regain volume as service improves, which would help offset a potential decline in freight demand.
New CEO Joe Hinrichs has traveled the system in his first weeks on the job, touring the railroad’s facilities and meeting with employees, union leaders, and customers. An analyst on the railroads’ earnings call asked the new boss whether CSX would focus on growth, maintaining its low operating ratio, or both.
Hinrichs says he’s talked with the railroad’s eight largest customers. “Almost every single one of them has told me directly … that when you deliver better service, and more reliable, more predictable service, we want to do more business with you,” he says. “So we don’t have to chase growth.”
Volume growth is important, he says, and so is maintaining profit margins by controlling costs and making the most of the railroad’s assets.
CSX’s service will improve once its train and engine crew levels reach full strength, executives say. The railroad is nearing its goal of having 7,000 active train crew members, and currently has 6,819 with 730 conductors in training.
Service is not where it should be but is improving as crew levels rise, says Jamie Boychuk, executive vice president of operations. “It’s all about people, people, people,” Boychuk says, noting the railroad is still a few hundred people short and as a result has pinch points on the network.
Amid crew shortages, the railroad’s on-time train originations and arrivals in the third quarter slumped compared to a year ago. On-time departures fell to 58% from 71% a year ago, while on-time arrivals sank to 46% versus 62% last year.
For the quarter, carload trip plan compliance fell to 57% compared to 68% a year ago. Intermodal trip plan compliance was 90% for the quarter, up from 88% a year ago.
But the railroad has made dramatic improvements since the beginning of the third quarter, when intermodal trip plan compliance was 84% and carload trip plan performance was just 48%. Intermodal is currently running at 93% on time, while carload on-time performance is 73%.
Railroad plans to handle crew levels differently if economy falters
If there’s an economic downturn and traffic declines, Boychuk says CSX will handle its crew levels differently than it did at the onset of the pandemic. As traffic fell in 2020, CSX furloughed crews. When traffic rebounded and the CSX sought to call conductors back to work, not as many returned to the railroad. Higher attrition worsened the crew deficit and a tight labor market made it more difficult to hire.
If freight demand softens, Boychuk says CSX wants to protect its active train and engine workforce and will rely on attrition and reducing conductor training class sizes before resorting to furloughs.
“We are going to be prepared to handle all the traffic that comes back at us,” Boychuk says.
An analyst noted that over the long term, railroads have gone through periodic crew shortages that have affected service, which in turn has hurt the industry’s growth prospects. After widespread crew shortages across the big four U.S. Class I railroads over the past year, will CSX look at surge capacity differently and take steps to better manage crews?
“We’re coming out of this learning lessons,” Boychuk says. “If we haven’t learned lessons along the way as an industry — it’s not just CSX — then we haven’t been watching or listening to our customers.”
Hinrichs, who as a former Ford Motor Co. executive was a CSX customer for two decades, says he’s challenged the management team “to look at things from a customer perspective to make sure that we are holding ourselves to a higher standard of service and accountability.”
Hinrichs also emphasized the need for CSX to improve labor-management relations.
For the quarter, CSX’s operating income rose 10%, to $1.6 billion, as revenue grew 18%, to $3.9 billion. Earnings per share increased 21% to 52 cents.
Expenses increased 25% thanks to higher fuel costs and the impact of inflation. The operating ratio rose 3.1 points to 59.5% for the quarter.
Volume was up 2% for the quarter, with intermodal up 2%, merchandise traffic up 1%, and coal down 2%.
“on horizon.” Seriously? How often are we haring Class I’s talk about better service IN THE FUTURE??!?!?! Short lines talk about great service NOW. It’s a sad joke.
Having the recent misfortune of owning a Ford with an Eco boost engine, “Quality is job 1” is an empty slogan. CSX is in trouble if he brought Ford’s commitment to quality and customer service with him.
As long as we keep improving service growth will chase US and we don’t have to chase it…we just open our arms and say welcome!
There is certainly a slowing in the economy. CSX will get a chance to show that their words aren’t empty.
When traffic slumps instead of laying off T&E they need to put some on a percentage of normal pay . What makes people leave the railroad are those damn furloughs with employees making zero money, throwing them into deep financial problems. I suggest 60-70% of normal pay. You can’t put all the suffering on the employees , the companies are going to have to share it to be able to keep a stable work force.
that guy knows nothing about business, you should always be chasing growth. and it looks like he will continue the destructive practice of PSR.
“Hinrichs says he’s talked with the railroad’s eight largest customers. “Almost every single one of them has told me directly … that when you deliver better service, and more reliable, more predictable service, we want to do more business with you,” he says. “So we don’t have to chase growth.””
You have to chase superior customer service every single day, every hour, every moment. Don’t wait for your 8 largest customers to tell you so, let *all* of your customers tell you so. Quality is Job 1 at Ford, so I hope Mr Hinrichs brought some of that mentality with him.
As it stands he is saying, “I don’t have to spend a lot of money or cut rates to get more revenue”. That will make Wall Street happy.