https://www.railwayage.com/freight/class-i/matt-rose-less-is-not-better/?utm_source=&utm_medium=email&utm_campaign=269
Interview of Matt Rose who is retiring next year from BNSF.
Jeff
As you read this think about what other RR's are talking about or doing. Being free from the investment community creats different opportunities; but perhaps not all "others" would share the Warren Buffet philosophy.
A really interesting interview. Rose is kind of an anti-EHH.
I especially like the part where Buffett told him to run it like he was going to own it for 100 years.
An interesting insite was the the EHH "cut to fit" style is likely to wind up causing regulatory push back.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
So many nuggets of wisdom in that interview. I hope to hell that other RR CEO's learn from it and ignore the Hedge funds path to doom.
diningcar.....Being free from the investment community creats different opportunities; but perhaps not all "others" would share the Warren Buffet philosophy.
BNSF is not influenced directly by the investment community. But Berkshire Hathway's stock is listed on the New York Stock Exchange. It is influenced by the investment community and, therefore, would have some flow impact on BNSF's behavior. Tracing the cause and effect, however, would be nearly impossible for an outsider.
Rio Grande Valley, CFI,CFII
Hedge Fund railroading is about Hoovering as much money out of the operation in as short a time as possible and then moving on to the next 'business' opportunity with the Hedge Fund's profits intact, and no cares about the skeleton of the business that was left behind. All in the name of 'shareholder value'.
Never too old to have a happy childhood!
BaltACD Hedge Fund railroading is about Hoovering as much money out of the operation in as short a time as possible and then moving on to the next 'business' opportunity with the Hedge Fund's profits intact, and no cares about the skeleton of the business that was left behind. All in the name of 'shareholder value'.
Of the Class 1 Railroads headquartered in the U.S., excluding BNSF, an average of 79.93 percent of their common shares are owned by pension funds, mutual funds, insurers (annunities), institutional investors, etc.
Most of the beneficiaries of the funds are middle class Americans, i.e. public servants, small business owners, bakers, candlestick makers, etc.
The hedge funds own less than three percent of the common shares of the railroads. BNSF is 100 percent owned by Berkshire Hathaway. I have never heard it described as a hedge fund.
Fund managers have a vested interest in the long-term viability of the company’s they invest in. Stripping them is not in their best interest.
PJS1 BaltACD Hedge Fund railroading is about Hoovering as much money out of the operation in as short a time as possible and then moving on to the next 'business' opportunity with the Hedge Fund's profits intact, and no cares about the skeleton of the business that was left behind. All in the name of 'shareholder value'. Of the Class 1 Railroads headquartered in the U.S., excluding BNSF, an average of 79.93 percent of their common shares are owned by pension funds, mutual funds, insurers (annunities), institutional investors, etc. Most of the beneficiaries of the funds are middle class Americans, i.e. public servants, small business owners, bakers, candlestick makers, etc. The hedge funds own less than three percent of the common shares of the railroads. BNSF is 100 percent owned by Berkshire Hathaway. I have never heard it described as a hedge fund. Fund managers have a vested interest in the long-term viability of the company’s they invest in. Stripping them is not in their best interest.
Sure seems like CP and CSX had a lot of stuff sucked out by the vampires...
Greetings from Alberta
-an Articulate Malcontent
SD70Dudeure seems like CP and CSX had a lot of stuff sucked out by the vampires...
CSX was pretty inefficient railroad back in the 1990s compared with CP. If you ask me they were distracted by coal traffic to the detriment of everything else. I used to live in Elizabethtown, KY a while back near the former L&N mainline and CSX trains would either outlaw or park in Elizabethtown sometimes days at a time waiting to thread their way through that single track to Louisville which was rather terrain challenged in areas. Also, when I lived in Michigain would see CSX yard jobs at automotive plants with the switch crew inside sleeping waiting for their next assignment (next to Ford River Rouge plant)....sometimes for hours just sitting in one place waiting. Maybe this is just me misinterpreting normal railroad operation. However using CP in Wisconsin as comparison. Never saw CP park a train for more than maybe 3-4 hours and that was rare. CP yard crews in Milwaukee, either they are on the locomotive and it is moving or the locomotive is parked and shut off with no crew onboard.
Also, seem to remember the derailments on the L&N line South of Louisville were fairly frequent as well. I always wondered what they shelled out yearly in derailment cleanup or traffic disruption on that line.
CMStPnP SD70Dude ure seems like CP and CSX had a lot of stuff sucked out by the vampires... CSX was pretty inefficient railroad back in the 1990s compared with CP. If you ask me they were distracted by coal traffic to the detriment of everything else. I used to live in Elizabethtown, KY a while back near the former L&N mainline and CSX trains would either outlaw or park in Elizabethtown sometimes days at a time waiting to thread their way through that single track to Louisville which was rather terrain challenged in areas. Also, when I lived in Michigain would see CSX yard jobs at automotive plants with the switch crew inside sleeping waiting for their next assignment (next to Ford River Rouge plant)....sometimes for hours just sitting in one place waiting. Maybe this is just me misinterpreting normal railroad operation. However using CP in Wisconsin as comparison. Never saw CP park a train for more than maybe 3-4 hours and that was rare. CP yard crews in Milwaukee, either they are on the locomotive and it is moving or the locomotive is parked and shut off with no crew onboard. Also, seem to remember the derailments on the L&N line South of Louisville were fairly frequent as well. I always wondered what they shelled out yearly in derailment cleanup or traffic disruption on that line.
SD70Dude ure seems like CP and CSX had a lot of stuff sucked out by the vampires...
Prior to the formation of CSX in 1980 - the L&N seemed intent on blowing up the South with all the HAZMAT derailments they were having.
There were times when Yard Jobs were under the supervision of the Industry they were assigned to work. The Yard Jobs would wait on the industry to tell them the moves to be made. In many cases the employees staffing these jobs reported directly to the industry, not the railroad when going on duty.
The GM plant at Parma, OH was switched jointly by both the B&O and NYC. B&O manpower staffed the job for 6 months of the year, NYC manpower staffed it for the next 6 months. Things in the 60's & 70's things were much different around the railroads than they are today - Post Staggers.
SD70DudeSure seems like CP and CSX had a lot of stuff sucked out by the vampires...
They don't have to be in the majority, they just have to have the right people's ears, which they did with EHH. I'm sure those investors who are in it for the long term weren't big fans.
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
SD70Dude Sure seems like CP and CSX had a lot of stuff sucked out by the vampires...
Greedy investors are such good judges of quality - think ENRON and Credit Default Swaps. When the numbers are 'too good' to be real, they aren't real.
BaltACD Greedy investors are such good judges of quality - think ENRON and Credit Default Swaps. When the numbers are 'too good' to be real, they aren't real.
What does Enron and credit default swaps have to do with CSX?
Are you able to saying anything about finance other than meaningless one-line quips? Why do you insist on demonstrating your ignorance?
In case you have not figured it out, you might want to review the organization chart for CSX or any large organization. You will find that the Chief Financial Officer is one of the top five members of the executive team. There is a reason for it.
Like it or not, finance is a major variable in the success or failure of a business enterprise. It is not the only variable, to be sure, but it is pretty important.
I don't trust your analysis nor do I trust CSX numbers - I didn't trust them under Michael Ward and they are even more suspect now!
The only CSX numbers I ever trusted were those on my pay check and I only trusted them to the extent that the check didn't bounce (like Penn Central checks did - back in the day).
And going back a couple of years, I noticed that during EHH's time at CPR, the CFO was being replaced on almost an annual basis. I have no idea why, but a repeating pattern, especially when it is the senior financial person, caused me to wonder. Especially when it was well known among railroaders that train performance metrics were sometimes enhanced by various subterfuges.
PJS1Investors like what they see.
Indeed - and if you're looking for return tomorrow then you're a vulture capitalist. That has been the general impression folks seem to have had of those backing EHH.
I would offer the opinion that EHH "left" CSX at an opportune time. He was there long enough to improve things a bit, but not long enough to reach the point of bleeding the railroad dry.
PJS1To get there it has to take care of its key stakeholders, i.e. customers, employees, creditors, regulators, and shareholders
Based on information seen after EHH first stepped in to CSX, the customers became a secondary concern. Maybe cooler heads have since prevailed and that has been remedied.
Every place EHH has been has undone some of his practices. Not so much his "PSR", using the assets better, but liquidating assets made surplus and curtailing investment to grow the business. (I liked Fred Frailey's blog on EHH laughing from the grave about the same time the cover article in Railway Age about CN unplugging itself from some of EHH practices.) Sure he got short term gain, but was his total package sustainable over time? I doubt it. His strategy reminded me of one somewhat advocated by J.G.Kneiling once in his column many years ago. Stop investing in the business and use up the assets, getting as much money out of them as possible. Only difference was JGK was talking about using up the current conventional loose-car network and building a new one built on integral trains of intermodal and bulk commodities.
But large investors don't care about long term. Pump and dump, going on to the next opprotunity.
jeffhergertEvery place EHH has been has undone some of his practices. Not so much his "PSR", using the assets better, but liquidating assets made surplus and curtailing investment to grow the business. (I liked Fred Frailey's blog on EHH laughing from the grave about the same time the cover article in Railway Age about CN unplugging itself from some of EHH practices.) Sure he got short term gain, but was his total package sustainable over time? I doubt it. His strategy reminded me of one somewhat advocated by J.G.Kneiling once in his column many years ago. Stop investing in the business and use up the assets, getting as much money out of them as possible. Only difference was JGK was talking about using up the current conventional loose-car network and building a new one built on integral trains of intermodal and bulk commodities. But large investors don't care about long term. Pump and dump, going on to the next opprotunity. Jeff
It is not possible to run a undertaking that requires long term investment which also has long term payback when you are dancing with Wall Streets infatuation with max profit NOW - tomorrow be damned. EHH was great at damning tomorrow.
The Wall Street people failed that experiment when offered one marshmallow or waiting and gettineg two marshmallows. They all ate it immediately.
BaltACDIn many cases the employees staffing these jobs reported directly to the industry, not the railroad when going on duty.
I think your correct there. I suspected the switch crews that switched the Ford Plant at River Rouge were reporting to Ford Motor Corp. Long time ago they used to be Ford Logo Industrial Switchers there. River Rouge if you never have been there is a combo, Auto assembly plant, Ore to Steel Furnace / Plant, Great Lakes to Ore unloading dock, etc. Huge monolith of a complex that consumes several square miles of land. CSX and Conrail both served the plant and had a small fleet of switchers stationed there to service the yards, auto plant, blast furnace, etc. River Rouge just builds the Ford Mustang now I think.
tree68 Indeed - and if you're looking for return tomorrow then you're a vulture capitalist. I would offer the opinion that EHH "left" CSX at an opportune time. He was there long enough to improve things a bit, but not long enough to reach the point of bleeding the railroad dry. Based on information seen after EHH first stepped in to CSX, the customers became a secondary concern. Maybe cooler heads have since prevailed and that has been remedied.
Where are the specifics to support your argument? The public financials show CSX is a company that has been moving forward for more than five years. Anyone can check them out.
Without venture capitalists we probably would not have Apple, Dell, Microsoft, Oracle, etc., as well as many of the innovative medical technologies that have served most of us well.
To be sure, there are unethical venture capitalists, but most of them are doing what most us do. Optimizing their returns by offering a service that in the long run hopefully benefits society.
I live in an active adult community. Some of my neighbor’s rant about greedy capitalists and business people. But suggest a reasonable change the Social Security COLA calculation, and they go ballistic. I guess greed is in the eyes of the beholder.
Venture Capitalists and Vulture Capitalists have different views and manufacture different outcomes.
PJS1Without venture capitalists we probably would not have Apple, Dell, Microsoft, Oracle, etc., as well as many of the innovative medical technologies that have served most of us well.
It's not the venture capitalists that are the problem. It's the vulture capitalists - those folks who don't care about the long run - just what they can extract in the short term.
tree68 It's not the venture capitalists that are the problem. It's the vulture capitalists - those folks who don't care about the long run - just what they can extract in the short term.
What is a vulture capitalist? How about some railroad examples with specifics.
PJS1What is a vulture capitalist? How about some railroad examples with specifics.
Children's Fund, Mantle Ridge.
https://www.railwayage.com/news/hedge-funds-and-good-railroading-dont-compute/
I'm sure it will be hard to discern from CSX's financials, but one has to wonder how much of the "savings" that EHH's actions created went back into improving the railroad, and how much simply found its way into investor's pockets.
I know, that's what's supposed to happen - money goes into investor's pockets. The question is how long that type of cash flow can be maintained, ie, how many assets can be sold off before the railroad is unable to function and thus ceases to pay the investors.
tree68 Children's Fund, Mantle Ridge. I'm sure it will be hard to discern from CSX's financials, but one has to wonder how much of the "savings" that EHH's actions created went back into improving the railroad, and how much simply found its way into investor's pockets. I know, that's what's supposed to happen - money goes into investor's pockets. The question is how long that type of cash flow can be maintained, ie, how many assets can be sold off before the railroad is unable to function and thus ceases to pay the investors.
The article is one person's opinion, i.e. whether hedge fund investors harmed CSX. Many of the statistics seem to reflect trends that would have happened irrespective of who had control of CSX. Coal traffic, as an example, is declining, and there is little anyone can do about it.
People invest in hedge funds because they expect to have a return. Just like all of us.
Without access to CSX's books, it is not clear whether EHH's action were or will prove to be correct. But the company's cash flow statements for the past five years don't indicate that anyone was raping CSX.
From 2013 through 2017 the company invested $11.8 billion in property, plant, and equipment. In addition, through the first three quarters of 2018 it invested another $2.4 billion in its PP&E.
Over the same period the company’s cash flow from operations increased 6.27 percent while dividends increased 18 percent. However, during EHH’s reign, dividends increased just 4.1 percent.
For the year ended September 30, 2018, cash from operations increased 19 percent while dividends paid increased by 7.5 percent.
These are not my numbers. Anyone can look them up in the published audited financial statements of the company.
The present value of the dividend payments, including the liquidating dividend, is how he hedge fund recoups its investment. So, it appears that during most of EHH’s reign at CSX the dividend payments to the hedge fund declined significantly, only to increase modestly in 2018.
A better term for vulture capitalist would be corporate raider. One of the best know in Texas is T. Bone Pickens. His argument for what he does or did is straight forward. Corporate raiders tend to run off incompetent managements! I don’t like them. But he has a point worthy of consideration.
PJS1A better term for vulture capitalist would be corporate raider. One of the best know in Texas is T. Bone Pickens. His argument for what he does or did is straight forward. Corporate raiders tend to run off incompetent managements! I don’t like them. But he has a point worthy of consideration.
Corporate raiders tend to run off long term managements for their own form of incompetent short term syphoning of corporate revenues as 'shareholder value'. Mantle Ridge and EHH are such a incompetent short term raider. Mantle Ridge doesn't want to RUN a railroad, it wants to get the cash and move on the next victim.
If CSX was doing so well, wouldn't your traditional, long-term investor be delighted - slow and steady means my retirement account will be nice and strong when I quit working.
Why would a long-term investor be interested in the short-term gains the vulture investor/corporate raider wants? Sure, the stock is high right now, but what happens when all those cuts come home to roost?
Quoting PJS 1 "A better term for vulture capitalist would be corporate raider. One of the best know in Texas is T. Bone Pickens. His argument for what he does or did is straight forward. Corporate raiders tend to run off incompetent managements! I don’t like them. But he has a point worthy of consideration. "
You did mean T. Boone Pickens, did you not?
Johnny
Our community is FREE to join. To participate you must either login or register for an account.