Isn't CSX fascinating?

Posted by Fred Frailey
on Monday, March 5, 2018

Obliterate it, and the railroad world would be boring indeed. In two decades, we have gone from the uninspiring leadership of John Snow to the railroad’s revival under Snow’s successor Michael Ward, to Ward’s own ultimate bewilderment on how to move the company forward, to Ward’s being thrust aside to let Hunter Harrison work his magic, to Harrison’s death after nine months of chaos at the company, to Jim Foote’s ascension to a job he frankly wasn’t prepared for, to . . .what? See, that’s why CSX is so fascinating. What the heck happens next?

In the email-centric world I inhabit, a fierce debate rages. One circle of friends I would describe as largely senior statesmen of the railroad business. Most of them—but not all—are convinced that CSX is liquidating itself, going out of business. Here is the evidence they present: The railroad borrows money to buy back an astounding $5 billion of stock, making every dollar of profit worth more to shareholders who stick around because the same amount of earnings is spread among many fewer shares. The railroad is putting who knows how many of its routes up for sale, some of them supposedly quite profitable. Freight rates are being jacked up to cover fully allocated costs, a direction I’m told only Union Pacific has gone up to now—milk the cow until it collapses, the saying goes. Its carload business has been steadily eroding since the turn of the century.

Now look at how CSX projects itself to the world, and there’s no better way than to read my colleague Bill Stephens’ accounts on the Trains News Wire of its Investor Day earlier this month. Go here:

These stories do not describe a railroad wanting to go out of business—quite the opposite. They do, however, reveal the precarious position CSX finds itself in today. I said at the start that Foote wasn’t prepared to run this railroad when that role was thrust upon him in December. I’ve spent only an hour in his company and came away with these impressions: He’s a smart man, a quick learner, a fast talker. I liked him. But until he ran marketing under Harrison at Canadian National, his background had primarily been investor relations at Chicago & North Western and CN. And recall that when Foote was doing Harrison’s bidding as chief marketing officer, customers were so enraged by that railroad’s attitude toward them that Harrison’s successor Claude Mongeau had to publicly apologize. Failing to succeed Harrison at CN, Foote was running a company seeking to convert locomotives to liquefied natural gas when his old boss plucked him up and made him heir apparent and president of CSX. Barely a month later, Harrison was dead.

In the email wars over CSX, I’ve kept quiet because, frankly, I don’t know what to think. Is Jim Foote up to this? Recall that until last November he knew as much about the inner doings of that company as the man or woman on the street. He is, as Stephens reports, sticking to the Hunter Harrison model of running a railroad. To help him on the operations side, he brought out of retirement (for the second time) Ed Harris, another Harrison alum from CN. He and his people revealed at Investor Day their big plans. Now they have to follow through, but can they, will they? That’s what I wonder.

Here is one thing I’ll be looking for: Will CSX revive its marketing department and actually look for new business? I hear that this department has been cut to the bone and is unprepared to do much more than answer phones and deliver news of the latest rate increases. And higher rates that began going into effect in January will discourage prospective carload shippers. So take marketing out of the CSX backwaters and make it fully functioning, and I’ll begin to believe both in miracles and Jim Foote.—Fred W. Frailey

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