I'm a little shocked that there has been no discussion on this forum of CSX CEO Joe Hinrich's brutally frank assessment of the Class I's failings in dealing with customers and employees and the subsequent fallout with the STB. He even makes the point that the industry tee'd itself up for a major backlash from Congress after the East Palestine disaster. His comments were posted on the News Wire page two days ago: https://www.trains.com/trn/news-reviews/news-wire/first-step-toward-improving-rail-service-is-treating-employees-better-csx-ceo-says/
I am normally very skeptical of rail CEO speeches because they are usually completely disconnected from reality. This speech could have been prepared by a major rail labor union leader. He addresses just about every major problem in the industry that has been driving me nuts over the past few years and he doesn't sugar coat anything. He seems to be the real deal in terms of shaking things up at CSX. The cynical side of me wonders, however, how long he will last at CSX especially since the actions proposed to be taken will by necessity adversely affect the OR and profit margins.
Haven't seen or heard the speech. Hinrich is not a CEO that was raised in the rail industry, he was raised in a rail customer industry - Ford.
If Hinrich can get everyone on CSX to pulling the same direction the results could be interesting.
Never too old to have a happy childhood!
ns145... especially since the actions proposed to be taken will by necessity adversely affect the OR and profit margins.
This by itself is probably enough to doom him and his efforts.
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...
tree68 ns145 ... especially since the actions proposed to be taken will by necessity adversely affect the OR and profit margins. This by itself is probably enough to doom him and his efforts.
ns145 ... especially since the actions proposed to be taken will by necessity adversely affect the OR and profit margins.
He addressed the profit margin issue head-on in his speech.
Some on Wall Street have questioned how CSX’s focus on employees and customers would affect its profit margins. But Hinrichs says that’s the wrong way to look at the issue.
“What’s it costing us to have our employees not motivated, our employees mad, our employees quitting and leaving?” Hinrichs asks. “Or we hire new employees, we do all the work to train them, we bring them in, they go to the yard, and the guys say, ‘Why are you working here? They treat you like crap, you should leave. And by the way, they want to get rid of you.’ ”
All I can say is "wow". That's exactly what veteran railroaders say to new hires. Saw this kind of thing for years on the old Yardlimits.com forums. He's not pulling any punches.
Then there's that "wisdom" that says that the railroad brings you on, trains you, then spends all its time trying to fire you.
ns145The cynical side of me wonders, however, how long he will last at CSX especially since the actions proposed to be taken will by necessity adversely affect the OR and profit margins.
It should NEVER have been about profit margins and OR. It's net that matters. Or more precisely, the net present value of all future net profits.
Net is volume x margin. Somehow, everyone forgot about the volume part - because it's harder to understand and do.
You can't grow volume without a top-performing product. That means all parts have to work well together. Managment's prime job is to facilitate work that supports the product.
Maybe that's sinking in, finally.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
oltmanndYou can't grow volume without a top-performing product. That means all parts have to work well together. Managment's prime job is to facilitate work that supports the product.
Wick Moorman tried 10 years ago with NS. Problem is there was no buy-in from just about every manager below him. And if the mngmt doesn't buy into it, what hope is there for the labor?
Decades and decades of mistrust aren't going to be erased overnight. And with the last contract process, we're still a long way away from harmony.
The opinions expressed here represent my own and not those of my employer, any other railroad, company, or person.
My look at bringing in Hinrich and letting Foote go, the CSX Board was seeing the damage that EHH's PSR principles were doing to the employees, the customers and to the ability to sustain the bottom line. The PSR principles can ring up big 'profits' for the short term as those profits are beind derived from STEALING from the elements that are required to sustain the operation over the long term.
Cutting crews so that customers that got daily service on get service three times a week doesn't leave a good taste in the customers experience and sets customer on a path to see if they can meet their own standards by getting ZERO rail service. Furloughing employees into a 'hot' job market means those employees are GONE - during their short railroad career, they got all the WORST the industry can present and other jobs become more to their liking. Stinting on plant investment and maintenance just runs the property down, if carried on long enough to the levels of Penn Central. Fortunately the CSX board seems to have seen through the brown bull haze of PSR's 'quick profits' to see the damage being done.
BaltACD My look at bringing in Hinrich and letting Foote go, the CSX Board was seeing the damage that EHH's PSR principles were doing to the employees, the customers and to the ability to sustain the bottom line. The PSR principles can ring up big 'profits' for the short term as those profits are beind derived from STEALING from the elements that are required to sustain the operation over the long term. Cutting crews so that customers that got daily service on get service three times a week doesn't leave a good taste in the customers experience and sets customer on a path to see if they can meet their own standards by getting ZERO rail service. Furloughing employees into a 'hot' job market means those employees are GONE - during their short railroad career, they got all the WORST the industry can present and other jobs become more to their liking. Stinting on plant investment and maintenance just runs the property down, if carried on long enough to the levels of Penn Central. Fortunately the CSX board seems to have seen through the brown bull haze of PSR's 'quick profits' to see the damage being done.
During Michael Wards era at CSX here's the kicker... Between 2009-2010 CSX traffic growth had produced a lower OR. It declined 3 percentage points from 71% to 68%.. In fact the OR was already dropping during the so called rail renaissance which began in 2003. IIRC CSX was hovering around a 77% OR. by 2010 it had dropped to 68%. During an era of traffic growth before and after the 2008 GFC mind you..
To save face in failure, declare victory and change direction. That's likely what's happening with PSR and the obsession with the OR. Bringing in an "outsider" was I think a smart move...sometimes those of us who have been in transportation for decades are set in our ways and can't see the forest for the trees. An outsider who isn't vested in PSR brings a fresh perspective, and perhaps that's what's needed most of all. Hopefully Hinrich is able to get his team behind him..
UlrichHopefully Hinrich is able to get his team behind him..
I'm sure his team will do just fine. He's got to have the backing of his board against Wall Street or he'll be gone in no time if the OR goes up...
The worship of the low OR is over.. some CEOs and others have openly stated as much. And Wall Street and Bay Street are onside as well..there are good examples of transportation companies with relatively high ORs that have outperformed the rails. Investors.. at least the intelligent ones.. don't look at just one number.. we look at the business in its entirety and make our decisions based on a wide range of factors that point to the overall quality of the business. The OR is only one number and far from the most important one at that.
I think most investors don't have a clue about rail, so OR was sold as a way to demystify railroads. A single number for comparison made it a no-brainer.
'most investors' ??
Pension funds and trust funds are the "most investors". We individuals have very little influence because our numbers are so small when compared.
diningcar 'most investors' ?? Pension funds and trust funds are the "most investors". We individuals have very little influence because our numbers are so small when compared.
I should have said most retail investors, but even the institutional investors seem to go along with the hedge funds.
With interest rates climbing maybe we will see an end to the loading up on almost-permanent long-term debt to buy shares back to artificially drive up stock prices. The carrying cost of all that debt loaded on over the last 13-or-so years as it rolls over will most certainly impact future profits and dividends.
Overmod is right - ultimately over the long term it is about the total net income.
Better to have a larger pool of net income at year end from more volume and a higher operating ratio than a smaller pool of net income from less volume and a lower operating ratio.
The railroads have lost so much talent and insitutional knowledge the past few years at all levels.
It's going to take a long time to build that back up.
kgbw49With interest rates climbing maybe we will see an end to the loading up on almost-permanent long-term debt to buy shares back to artificially drive up stock prices. The carrying cost of all that debt loaded on over the last 13-or-so years as it rolls over will most certainly impact future profits and dividends.
Good thing "I" am getting out while the stock is high... Isn't that what it's all about?
Disclaimer: I don't own any railroad stock...
Share buybacks are not unique to railroads.. alot of companies do it. It can be viewed as a vote of confidence in the business. Are railroad share prices artifically high due to demand created by share repurchases? I doubt it.. And fewer shares outstanding means a lower dividend payout as well.. i.e. if the quarterly dividend is $.79/ share (CN Rail) then obviously the total amount to be paid out is less if there are fewer shares outstanding. This results in LESS money out to shareholders every quarter.. hmmm.. I should hear clapping..
UlrichAnd fewer shares outstanding means a lower dividend payout as well.. i.e. if the quarterly dividend is $.79/ share (CN Rail) then obviously the total amount to be paid out is less if there are fewer shares outstanding. This results in LESS money out to shareholders every quarter.. hmmm.. I should hear clapping..
If I've got ten bucks to give away, and the number of people I have to give it away to is reduced from five to four, everybody gets fifty cents more...
oltmannd It should NEVER have been about profit margins and OR. It's net that matters. Or more precisely, the net present value of all future net profits.
Spot on!
I worked with many financial analysts, including some from Wall Street investment banks, during my 41-year accounting and finance career with Fortune 200 corporations. None of them focused on just one financial metric.
Rio Grande Valley, CFI,CFII
tree68 Ulrich And fewer shares outstanding means a lower dividend payout as well.. i.e. if the quarterly dividend is $.79/ share (CN Rail) then obviously the total amount to be paid out is less if there are fewer shares outstanding. This results in LESS money out to shareholders every quarter.. hmmm.. I should hear clapping.. If I've got ten bucks to give away, and the number of people I have to give it away to is reduced from five to four, everybody gets fifty cents more...
Ulrich And fewer shares outstanding means a lower dividend payout as well.. i.e. if the quarterly dividend is $.79/ share (CN Rail) then obviously the total amount to be paid out is less if there are fewer shares outstanding. This results in LESS money out to shareholders every quarter.. hmmm.. I should hear clapping..
If you give 2 dollars to each relative and you have ten relatives then you're giving away 20 dollars. If two of those relatives die off you're left with eight relatives, and now you're only giving out 16 dollars.
Your example assumes that the total divdend payout remains constant regardless of the number of shares outstanding.
PJS1 oltmannd It should NEVER have been about profit margins and OR. It's net that matters. Or more precisely, the net present value of all future net profits. Spot on! I worked with many financial analysts, including some from Wall Street investment banks, during my 41-year accounting and finance career with Fortune 200 corporations. None of them focused on just one financial metric.
It would be so easy if the OR was all that mattered. Just wait for that ONE super duper high paying load.. only move that load and then do nothing else. The OR drops to 1%.. (so what if total sales for the year are only 20K).
UlrichYour example assumes that the total divdend payout remains constant regardless of the number of shares outstanding.
Yes, it does.
Ulrich PJS1 oltmannd It should NEVER have been about profit margins and OR. It's net that matters. Or more precisely, the net present value of all future net profits. Spot on! I worked with many financial analysts, including some from Wall Street investment banks, during my 41-year accounting and finance career with Fortune 200 corporations. None of them focused on just one financial metric. It would be so easy if the OR was all that mattered. Just wait for that ONE super duper high paying load.. only move that load and then do nothing else. The OR drops to 1%.. (so what if total sales for the year are only 20K).
Railroading is a enterprise that requires a vast amount of investment in equipment, facilities, manpower and maintencance of the plant on a continuing basis.
The financial sharp shooters can decrease/eliminate those expenditures on a three to five year short term and rape the profits out of the undertaking. In doing so, after the five year mark - that lack of investment into everything it takes to make the enterprise operate AS IT SHOULD has the enterprise failing in small but catastrophic incidents - incidents that shouldn't be happening.
I read a report recently that East Palestine was caused by the HBD that detected the trending failure not being connected to the communication network properly and they trending warning was not sent to either the train or the NS office charged with the headquarter functional response. A small mistake, a BIG incident.
tree68 Ulrich Your example assumes that the total divdend payout remains constant regardless of the number of shares outstanding. Yes, it does.
Ulrich Your example assumes that the total divdend payout remains constant regardless of the number of shares outstanding.
BaltACDI read a report recently that East Palestine was caused by the HBD that detected the trending failure not being connected to the communication network properly and they trending warning was not sent to either the train or the NS office charged with the headquarters functional response. A small mistake, a BIG incident
If we are going to rely on 'point' detector locations, some have argued, they should contain multiple "modalities" -- end-on bearing scan, WILD, DED, ultrasonic and sound-spectrum analysis, low-light high-resolution camera -- and this is perfectly sensible. But expecting a human, however well paid (and you can almost bet they would not be...) to track and coordinate trends in subcritical sensor-fused data relative to train speed, OAT, and other variables, without the corresponding false-positive correlation rate that stops trains needlessly on the road, would be extremely difficult if not impossible... and you'd still have black-swan, holes-in-the-cheese, insert clever terms as required, events that didn't quite get recognized in time.
A large part of the difficulty is addressed, as perhaps in the report noted, when the AI/ES system detects a combination of magnitude and trend and 'kicks it out for human attention'. The problem is that the issue at East Palestine appeared to develop with anomalous speed at almost the worst possible place on the railroad where detection is concerned. By the time the trend was recognized, extrapolated, flagged and reported -- and note, this is before issues of communicating fully with the train crew about the right thing to do in response would have to be undertaken -- all the incident tracking in the world might not have prevented the accident (but might have moved the accident site somewhat... likely, at random).
We'll see what sense comes out of critical thinking about how data trends will be implemented without developing intermediate storage or forms that could be harvested for 'business intelligence' -- the same sort of concerns that made mapping train head-end and rear locations for 'smart crossing management' apps such a consternation.
Bit it is not less paid out to shareholders if they increase the dividend per share. Correct share buybacks are not unique to railroads. But they have proliferated based on the artificially low interest rates of the last approximatsly 14 years. Railroads are just part of the party. Several of them have tripled their debt outstanding from 2008. Whike they can afford the interest payments now, as they rollover at higher interest rates, their interest burden will increase correspondingly. If you don't have increased volume to help generate revenue to support the increased interest load, that is when the debt burden really starts to bite.
You will know an entity is being squeezed when it starts cutting its dividend.
You are going to see this on steroids in the commercial real estate segment of the economy over the next three years.
Debt coming due that needs to be refinanced. Refinancing at much higher interest rates. Not enough tenant revenue to pay that higher interest expense. Declare bankruptcy and turn the keys over to the bank. Then the bank will take a haircut and if cash reserves are too low, it could be bye bye bank.
Watch the dividends of the Big 5.
For years our company's strategy seemed to be to drive off all the customers but one. Then charge the heck out of that one remaining customer.
Jeff
kgbw49 Bit it is not less paid out to shareholders if they increase the dividend per share. Correct share buybacks are not unique to railroads. But they have proliferated based on the artificially low interest rates of the last approximatsly 14 years. Railroads are just part of the party. Several of them have tripled their debt outstanding from 2008. Whike they can afford the interest payments now, as they rollover at higher interest rates, their interest burden will increase correspondingly. If you don't have increased volume to help generate revenue to support the increased interest load, that is when the debt burden really starts to bite. You will know an entity is being squeezed when it starts cutting its dividend. You are going to see this on steroids in the commercial real estate segment of the economy over the next three years. Debt coming due that needs to be refinanced. Refinancing at much higher interest rates. Not enough tenant revenue to pay that higher interest expense. Declare bankruptcy and turn the keys over to the bank. Then the bank will take a haircut and if cash reserves are too low, it could be bye bye bank. Watch the dividends of the Big 5.
Cue the U.S. of A.
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