The CSX follies

First, what I know. Then, what I think.

I asked a railroader with excellent access to the details of CSX operations how he would rank the current disarray, on a scale of 1 to 10, a 10 being the equivalent of Union Pacific’s historic 1997 meltdown. His reply: “A 5 heading toward 7. A slow railroad dies faster than a fast one does.” And I agree.  Metrics continue to head down, and now there’s the pileup of a train descending Sand Patch grade near Cumberland, Md. You wouldn’t believe the detours this set off. One Chicago-Portsmouth, Va., intermodal train ran via Atlanta.

I thought the A Line from New Jersey to Jacksonville was immune to the mess until I took the measure of manifest trains on that route, the reason being they get least priority. And oh boy, they have waited hours and hours to get into both Richmond, Va., and Rocky Mount, N.C., in recent days.

Now Jacksonville itself is plugged, according to J. B. Hunt Transport, a big CSX customer, which put out a customer advisory yesterday. Intermodal traffic there is experiencing delays of two to three days, Hunt says. The same is true of intermodal delays in Central Florida, Tampa, Atlanta, Savannah, Charlotte and Memphis.

From Indianapolis comes word today that CSX decided against closing Avon Yard and moving its work to Hawthorne Yard. Hawthorne had been the finest yard on the Pennsylvania Railroad—in 1910. It was in sad shape before CSX spent millions recently to make it partially viable. Now the decision is to keep Avon open, just to shut down its hump yard later this week and flat switch cars. Earlier, a bevy of locomotives had appeared at Avon, assigned to empty yard tracks and haul everything to other yards, such as Louisville, Cincinnati and Willard, Ohio. Customers may get those cars in a week or two.

Three investment analysts have polled CSX customers since the start of last week. With each survey, the percentage of CSX customers who say they are diverting business grows. The most recent to report was Jason Seidl of Cowen & Company. He says half of the customers not captive to CSX are handing off carloads to rival Norfolk Southern. What really struck me was the anger that customers expressed to Seidl about CSX. A sample: “Service has declined to the point that it appears CSX is trying to drive my plant out of business. I have missed customer orders and been forced to idle my plant numerous times due to failure to get service. The only answers we get are basically, ‘That’s tough. Get used to it.’ The situation is untenable, and I am actively looking to switch my business elsewhere wherever possible, as soon as possible.”

Heard enough? As of last week, the only portion of CSX that seemed to operate normally and close to scheduled times was across the Water Level Route in upstate New York, between Buffalo and Selkirk. Today?

And an update. In CSX is about to look like CN I said Harrison had recruited a bevy of trusted CN people to help him whip CSX into shape. The number I hear is $50,000 per month. But they had to perform, and two of the CN alums have been sent packing. They couldn't untangle Boyles Yard in Birmingham or Radnor Yard in Nashville. I take from this that the boss demands the same from everyone, even his friends.

Now, what I think. Based on my correspondence with railroad luminaries, CEO Hunter Harrison doesn’t have a friend left, not even his dog. Why throw everything in such disarray—change everything at once, damn the consequences? I have a theory. Harrison knew what he wanted to do at CSX—who he wanted to keep, who to fire, what practices to change or abolish and on and on. He had done it all before at Illinois Central, then at Canadian National and finally at Canadian Pacific. I suspect he became impatient, abandoned caution and instituted every change on his list at once. I don’t think he anticipated the inability of his organization to cope with it all. Plus, Harrison publicly blames his own people (by inference, union members) for dragging their feet. Do you blame them? Without explanation, Harrison abolished a slew of safety measures that he thought impeded efficient operations and even told the operating trades to buy the safety gear that the railroad once furnished.

And for what purpose is all this chaos? One railroad executive has a possible explanation, which he shared with me. It goes like this: “He is completely unfazed by market share or business defections to competitors, rail or truck. Business that is prone to competition has, by its very nature, lower margins and is more service sensitive. Who needs that? If he can build a reliable efficient conveyor belt for mainly captive customers he wins. He only wants the revenue and the customers who want what he has to sell. Those who want something different are most welcome to look elsewhere. I’m not sure this ‘you can have any color you want as long as it is black’ model is truly sustainable.”

Those of you who know me know I have a lot of respect for Hunter. I still do, but a bit of it goes away every day that he fails to do what he is supposed to do, which is to operate CSX efficiently for the benefit of his stakeholders. Right now they’re all getting screwed, including investors, who have watched the share price tumble 10 percent the past two weeks.

I do know how this will all end—how all jackpots like this end. Enough business is taken away that the railroad catches its breath and begins to cope. This is already happening, if we’re to believe the analysts. BNSF Railway had a business bonanza in 1997 and 1998, something like a 10 percent traffic bump thanks to the troubles of Union Pacific. Ultimately, according to retired CEO Rob Krebs, every last bit of that bonanza went back to UP. I guess it shows that customers make fickle lovers.—Fred W. Frailey