MIAMI, Fla. — CSX Transportation must rely on volume growth – not cost cutting – to boost profits and earnings over the long term, CEO Joe Hinrichs told an investor conference this week.
“There’s only so much more you can squeeze out of the operating side of this business,” Hinrichs says.
The CSX CEO’s remarks echoed those made recently by Norfolk Southern and Canadian National.
A railroad’s operating ratio is important, Hinrichs says, but it’s not perfect and isn’t what CSX should focus on. Instead, CSX is taking a balanced approach to its financial metrics, from operating ratio and operating income to cash flow and earnings. “All these things are important,” Hinrichs says.
“We won’t shy away from it,” he says of the operating ratio. “But it can’t be the end game. The end game is to provide a solution and provide a service to the customer that they’re willing to pay for that allows you to make an attractive margin.”
If CSX runs the railroad well, treats its employees well, and provides good service, volume growth should follow, he says. But he’s under no illusion that growth is a given.
“Growth is a challenge. … We haven’t demonstrated it as an industry that we can do that over an extended time period. We also haven’t demonstrated we can give consistently strong customer service … over an extended period of time. So they’re related to each other,” says Hinrichs, who as a Ford Motor Co. executive was a longtime railroad customer.
CSX will continue to convert over-the-road truckloads to its intermodal network, Hinrichs says. He also expects the merchandise network to see growth in the next few years as major new plants come on line, including several auto assembly and battery plants and a new steel mill.
Further onshoring of manufacturing from Asia, combined with industrial development efforts alongside CSX lines, will also help merchandise volume grow, he says.
The low-cost Precision Scheduled Railroading operating model has gotten a bad name because of the way it was implemented, Hinrichs says, not because its principles are flawed.
“It’s how they were implemented and how people were treated when they were being implemented and how people felt. Were customers prioritized? They didn’t feel that way. Were employees treated with respect, were they talked to, did they explain why things were changing? Not necessarily.”
One of Hinrichs’ priorities since joining CSX in September has been to improve the labor-management relationship, which soured during the implementation of PSR and the long negotiating process for a new national labor contract.
“If you can get your employees really feeling like they’re a part of the team, and that they’re appreciated and valued, they’ll provide you the service we need for our customers,” Hinrichs says.
And that opens up the opportunity for CSX to have conversations with its customers about handling more of their freight, he says.
Hinrichs spoke at the Barclays Industrial Select Conference on Thursday.
Let us hope he actually believes what he said. Now, get the salesforce out to hustle loads and start moving trains more FREQUENTLY. Monday is the 194th for B&O; as a stockholder I want improved service for our shippers and consignees so we can truly be proud on the 200th
Talk is cheap. Let’s see what Wall St says when quarterly EPS doesn’t grow to their expectations.
One can look at trains from the 70s, and see how all those boxcars [retail] are now riding intermodal [wholesale]. The ‘boxcar’ traffic is long gone, and is unlikely to return. Trucks can provide better service.
After started with Santa Fe in January 1990, one of the first things I heard from President Mike Havert was “you can’t starve a railroad into prosperity”. True then and still true today.
One problem he’ll run up against is this. Once you’ve allowed middle and lower management to treat their boots on the ground employees like crap, it’s very difficult to make them change. If it’s possible at all. And bitterness has usually gotten pretty bad in both directions by then making changes even more difficult. Sad but from what I’ve seen true.
Fairly common, general, positive remarks by the top executive of a C1. What would be a tad more concrete would be specific short range, mid-range, and long range goals and an outline for the implementation of those goals. Suggestion: Give the team members out in the field, who are charged with being responsible for service, the authority to be “elastic not plastic”.
While this is a good thought, it’s questionable if they’ve got the marketing ability to identify and develop the opportunities.
Wish him well. Who knows if he’ll succeed, at least he’s set a direction to go forward.
I too, Charles wish Mr. Hinrichs well. He’s saying all the right things now. The test will come when there is a downturn in traffic due to purely outside circumstances like a pandemic.
And to Mr. Thompson above, you indeed said a mouthful. It’s gonna be a loooooooong road back to good, respectful, and caring attitudes between the contract employees and management at all levels. If in fact it will ever be achieved.
Astonishing! He’s re-inventing the wheel.
Best wishes, Mr. Hinrich.
So good to hear. Please let it be true.
Wow! Was that ever a refreshing news item!
I will second that, completely agree.