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Coal mines, branches lines and E. Hunter Harrison

Posted by Chase Gunnoe
on Tuesday, March 07, 2017

Welcome to Jacksonville, Hunter. You’ve acquired a 23-state railroad with assets from Florida to the Northeast and Midwest. You have acquired a surplus of rail lines unlike nothing else in your portfolio of railroad management. These include obscure, rural branch lines with aging tunnels, bridges and limited options for profitability in a post-coal environment. You have acquired a respectable amount of these types of lines.

How do they fit into a precision railroading environment? What do you think, Hunter?

Well, I don’t know – because I’m not Hunter. But here’s where I see things going in the immediate future.

Coal is a volatile market and its decline is inevitable in the long-term. Coal has put a sour taste in the mouths of CSX shareholders. The railroad tried to divest from coal in late 2015. It closed down the Clinchfield Railroad, it got creative with the restructuring of its divisions and it furloughed an embarrassing number of railroaders (and managers) in coal country. Each quarter last year, the railroad blamed coal for its revenue losses – touting investments in intermodal and merchandise freight as a way to rebound from coal’s disappointment. 

Some would argue the graffiti recently spotted on this CSX coal hopper would be an appropriate statement in response to Hunter's appointment to CEO. Chase Gunnoe.

Nothing really blossomed there, either. Intermodal is stagnant and I have not seen, nor read any significant investments in building its portfolio of merchandise freight shippers.

So, here we are now. Hunter is getting situated in Jacksonville and I expect he’ll feel right at home within a couple of weeks.

What do I expect for coal country? I think Hunter will collaborate with other companies. The former Chesapeake & Ohio mainline through southern West Virginia isn’t going to be rail banked. It may change operators and the paint schemes of the locomotives running through the New River might change, though.

For the first time, I could see partnerships between CSX and Norfolk Southern that mirrors that of a Conrail Shared Assets arrangement or the partnership between CSX, NS and the Genesee & Wyoming’s Buffalo and Pittsburgh Railroad on former Monongahela Railway tracks. It’s been discussed before, but I believe it has the potential to be a reality now.

It’s tough – regardless if you’re Michael Ward or E. Hunter Harrison to market the coalfields in a post-coal world. There’s a lot of infrastructure there and a lot of branch lines that aren’t running the volume that Hunter finds financially advantageous. So what happens?

Shortlines and regionals get a little skin in the game. They get to operate the branch lines using run-through CSX power with their own railroaders. They inherit an existing customer, or perhaps a couple of existing coal businesses, and they run the trains for CSX. They get the burden of maintaining the lines to operating standard, but in turn, they get a little percentage of the unit train business.

After all, these rail lines aren’t in bad shape – in fact, they are in very good condition. CSX’s Coal River, Big Coal, Logan and Big Sandy subdivisions are all well maintained rail lines with modern infrastructure, heavy rail and the capacity to continue handling what coal business remains. CSX, in turn, brushes off the responsibility of having extra board train crews and it doesn’t have to be responsible for managing the rail lines – whether operationally or mechanically.

The shortline or regional company hands the trains to CSX at a mainline point on the C&O main and CSX ships it to eastern Virginia for export or wherever it’s destined. Want to sweeten the deal a little? Give the shortline railroad the chance to handle the loose car business, or let them have a little taste of the chemical and freight business in West Virginia.

On average, CSX still runs a couple hundred cars of freight through Huntington, W.Va., each day. That freight comes from the B&O Ohio River line near Parkersburg, Clarksburg and east toward Grafton. It also comes from South Charleston where several customers continue to ship chemicals and other freight. Give a shortline company the opportunity to grow that business – which in turn, benefits CSX at whatever handoff point is predetermined by the two companies. 

A CSX local meets an eastbound loaded coal train in South Charleston, W.Va. Chase Gunnoe.

CSX, again, gets to divest from its responsibilities in West Virginia and it doesn’t get to worry about what’s happening to coal. It still gets the responsibility of running the unit trains to their ultimate destination.

So, essentially, you end up with a collaborative operating partnership from Russell, Ky., to Clifton Forge, Va., that shares revenue, maintenance costs and operating responsibilities.

At the end of the day, everyone makes a little money.

Does it work? I think so. After all, look what NS and Watco Companies are doing across the river from the C&O on NS' former West Virginia Secondary near Charleston, W.Va.

I give it a few months. 

 

 

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