Wednesday, August 16, 2017

Irrepressible coal baron takes aim at CSX

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Irrepressible coal baron takes aim at CSX

The luster is fading from Hunter Harrison’s “Dr. Fixit” image faster than an old jalopy’s back-alley paint job. His boisterous March arrival as CEO of CSX put in motion warp-speed, backfiring directives changing culture, operating practices and marketing practices.

The results, so far, threaten to shred a hall-of-fame quality reputation earned at Illinois Central, CN and Canadian Pacific—a supernatural ability to mend struggling railroads using a trademark “precision railroading” that delivers, through an obsession with efficiency, better, faster and lower-cost operations.

Yet at CSX, service is melting faster than a frozen Daiquiri in the Florida midday summer sun. While a slippery slope of deteriorating service began well before Harrison’s arrival, his world-renowned “Dr. Fixit” ability was a primary reason for his recruitment.

Yet here is Harrison at CSX, suffering a well-publicized siege from customers, the Surface Transportation Board (STB), employee labor unions, and even some once-fawning investors. Harrison’s anticipated glory days running CSX are mutating into volleys and thunder of cannon firing from all sides.

robert murray coal murray energy 336x188Still darker clouds are gathering. Consider an angry, historically litigious and perennially locked-and-loaded for battle 77-year-old coal baron, professional engineer and activist Republican donor named Robert Murray, who commands the nation’s largest privately owned coal company.

With an equally larger-than-life presence as Hunter Harrison, Murray stands in opposition to Harrison’s recent claim that “coal is dead.” Two of Murray’s coal holdings—Consolidation Coal and Foresight Energy—allege CSX is “jeopardizing Murray Energy’s existence” through “gross lack of service” and “lack of effectively doing anything to correct their failures.”

In addition to a lawsuit against CSX to recover damages, Murray, through Consolidation Coal and Foresight Energy, has filed complaints with the STB alleging CSX is in violation of its common carrier obligations by failing to provide trains and crews on schedule, failing to provide a sufficient number of trains, failing to pull loaded trains on schedule, delaying in-transit shipments, prioritizing other shipments without a valid cause, and failing to communicate critical logistics information. (Links to the complaints are below.)

Although the allegations date to 2015, the complaints allege that that CSX’s “performance has substantially deteriorated in 2017 under the tenure of Mr. E. Hunter Harrison as Chief Executive Officer, which follows logically from Mr. Harrison’s well-publicized aversion to devoting any of CSX’s efforts and assets toward the shipment of coal.”

“By failing and refusing to transport and deliver by rail all the coal requested … CSX has refused and failed to comply with its obligation to provide transportation service on reasonable request,” the complaints say.

Additionally, the complaints allege CSX “engaged in unreasonable practices and business activities … imprudent cost-cutting initiatives detrimental to CSX’s ability to provide adequate service … [failed] to adopt and implement operating plans sufficient to meet shipper demand … [and failed] to engage in reasonable proactive steps to improve the severe and prolonged service failures brought to its attention.”

Two recent letters signed by the three Senate-confirmed STB members—the latest demanding specific hard data to be made public—plus an Aug. 14 phone call to Harrison from STB Acting Chairman Ann Begeman expressing growing impatience with CSX service failures, add measurably to Harrison’s woes. (Download STB’s Aug. 14 letter at the link below.)

With a top-tier professional athlete-like compensation package—bestowed by a CSX board in tow of an activist hedge fund that recruited Harrison for his fabled super-human abilities to turn underperforming railroads into darlings of the stock exchange—patience is wearing thin, especially as other railroads and modes poach CSX business, and shippers engage in uncharacteristic public revolt.

As for the complaints filed with the STB, they are from coal producers, not by customers who are likely the actual shippers. That perhaps because the actual shippers have transportation contracts with CSX, and, under provisions of the Staggers Rail Act, disputes as to all aspects of rail transportation contracts must be adjudicated by the courts—not the STB.

Unclear is what standing the complainants have before the STB. For example, where and when do rail-shipper contracts give way to general obligations of a railroad? The purpose of the lawsuits filed by the complainants may be intended to encourage courts to invoke the legal doctrine of “primary jurisdiction,” whereby the court retains jurisdiction while seeking the STB’s expert views.

Matters could become messier. More than 40 assorted shipper groups, representing a wide range of bulk and manufactured commodities, have separately complained to the congressional committees with STB oversight, alleging “CSX has repeatedly failed to pick up and deliver cars, [placing] rail dependent business operations throughout the U.S. at risk of shutting down, caused severe bottlenecks in the delivery of key goods and services, and has put the health of our nation’s economy in jeopardy.”

Not in dispute is federal law at 49 U.S.C. 11101(a) providing that railroads must “provide transportation or service on reasonable request.”

A former STB-predecessor Interstate Commerce Commission (ICC) trial attorney suggests, only half-jokingly, that if all else fails, the 1917 Esch Car Service Act remains in the law as 49 U.S.C. 11123.

Named for House Commerce Committee Chairman John J. Esch (R-Wisc.)—later an ICC member—the Act requires railroads to establish “just and reasonable” car service rules; gives regulators power to prioritize traffic; and authorizes regulators to direct the movement, distribution and return of freight cars. Vague is what effectiveness it could have given that most—but not all—freight cars today are privately owned.

Certainly not by design, CSX and Harrison have visited upon opinion leaders and decision makers, never fully paroled from the debate over the limits of economic liberty and leviathan, a fundamental question asked by President Rutherford B. Hayes almost a decade before railroads were first regulated by Congress in 1887: “Shall the railroads govern the country, or shall the people govern the railroads?”

LINK TO CONSOLIDATION COAL COMPLAINT

LINK TO FORESIGHT ENERGY COMPLAINT

Frank N. Wilner, Contributing Editor

Frank N. Wilner is author of six books, including, Amtrak: Past, Present, Future; Understanding the Railway Labor Act; and, Railroad Mergers: History, Analysis, Insight. He earned undergraduate and graduate degrees in economics and labor relations from Virginia Tech. He has been assistant vice president, policy, for the Association of American Railroads; a White House appointed chief of staff at the Surface Transportation Board; and director of public relations for the United Transportation Union. He is a past president of the Association of Transportation Law Professionals. Wilner drafted the railroad section of the Heritage Foundation’s Mandate for Change (Volumes I and II), which were policy blueprints for the two Reagan Administrations; and was a guest columnist for the Cato Institute’s Regulation magazine.

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