CSX is about to look like CN

In recent weeks, Hunter Harrison-led CSX Transportation has terminated all nine of its division superintendents (called managers) and their assistants, among many other field personnel, according to multiple sources close to the company. None has been replaced.

The firings appear to be part of a broad realignment of the transportation structure of CSX. When the smoke clears, the railroad will cease to have divisions but be managed from as few as two regional headquarters. A couple of sub-regions may be designated, but with minimal management in the field. This closely resembles the structure of Canadian National Railway, from which Harrison retired eight and a half years ago. And when those regional managers are named, guess where they’ll be from?

If you guessed they’ll be Harrison’s lieutenants from his CN days—people he knows and trusts to carry out his vision for CSX—then step right up and claim your prize. Word is that Harrison has hired a slew of seasoned CN people to work in the U.S. Senior operations jobs were advertised recently on CSX.com for a day or two—long enough for people preselected for the slots to apply—then abruptly taken down.

This could be a spectacularly successful gambit, for as independent analyst Anthony Hatch is fond of saying, never bet against E. Hunter Harrison. Harrison practices a brand of railroading foreign to the managers he inherited when he became chief executive of CSX this spring. So if he can put people he trusts to share his vision of what CSX should become, and with the skills to make it happen, hooray.

But it’s also very risky. Few if any of the CN immigrants will know CSX from Cheerios. What if they parachute in from the Dominion and don’t know the right levers to pull, or who to ask to find out where the levers are? Let’s assume, as I do, that Harrison and hedge fund investor Paul Hilal, who engineered the bloodless coup that put Harrison in the top job, did a wealth of research about CSX by hiring former managers as consultants to Hilal’s company. Maybe Harrison and his new hires will know exactly how to make this railroad take off and land nicely.

If they don’t know what to do and how, look out. Right now, the evidence I see portrays a CSX in great disarray. "We have no senior leadership in the field other than trainmasters and chief dispatchers," says one insider, "and many of the trainmasters are so young and new they have no real knowledge of how CSX works--or a train, for that matter." Cowen & Company’s latest shipper satisfaction survey shows 24 percent of CSX customers unhappy with service the railroad provides, calling it “poor.” Three months earlier just 6 percent of CSX customers felt that way. In this latest survey, only two other railroads--Norfolk Southern (6 percent) and Kansas City Southern (3 percent)--garnered any "poor" ratings from customers.

In any event, word I get is that in its present leaderless state, the railroad is in danger of grinding to a halt--most recently, Cleveland and Willard, Ohio, were plugged. So the race is on to put these new immigrants from Canada in place in the restructured company and get them to work magic before the roof caves in. As things stand, terminals are putting long trains together and running them as X (extra) movements to the next terminal. It’s a game called Railroad Ping Pong, and it never ends well.--Fred W. Frailey