What’s going on at CSX?

Written by William C. Vantuono, Editor-in-Chief

Hunter Harrison, what exactly is going on at CSX? I’m hearing lots of voices. They’ve become loud and frequent and as such are nearly impossible to ignore. They’re the voices of railroaders, from the executive to the train and engine service level. They’re former and present CSX employees. They’re people who have worked for you at other railroads. And they’re all saying basically the same thing: That the changes you are making at CSX aren’t the right thing to do, or aren’t working.

Herewith is a collection of accounts from various sources. Some of it is hearsay. Some of it has been published. Suffice to say that all these sources are credible. I name no names. I pass no judgment. My opinion, as a railroad industry trade journalist with 25 years of experience but who has never lined a turnout, pulled a coupler pin, laid a section of rail or devised a service plan, is irrelevant.

So, I leave it up to you, the reader, to draw your own conclusions. I’ll share one opinion: Much of this material may be disturbing to you. And based upon this publication’s previous experiences with Hunter Harrison—a two-time Railroader of the Year—it’s disappointing, even sad (though he is no less deserving today of these past awards as when they were given, in 2015 and 2002). Take these bullet points for what they’re worth—with a grain of salt, or a bottle of Pepto-Bismol.

First, what the newspapers have been reporting:

• The July 19, 2017 Jacksonville Business Journal: “Despite a strong second quarter for CSX Corp., the company’s stock is plummeting after a bombshell revelation from new CEO Hunter Harrison during the Wednesday morning earnings call. Harrison, whose arrival at CSX led the stock to hitting an all-time high, told analysts during a conference call that his tenure with the company would be short, and that he sees his role as an interim leader to get the company to solid footing before he exits.

“‘I’m a short-timer here,’ said Harrison. ‘I’m the interim person that’s going to try to get this company to the next step and good foundation.’ He’s not the only railroad employee who might not be there for long: During the call, the CEO said up to 700 more layoffs may be on the way.

“Harrison’s statement, combined with declines in overnight trading, has overshadowed the railroad company’s good second quarter.

“‘There’s a lot to like about the results,’ Edgar Jones analyst Dan Sherman told the Business Journal, who noted [an] 8% drop in expenses since the [previous] quarter. The drop in expenses is the result of CSX thinning its locomotive fleet, workforce and hump yards, and Harrison said more cuts are still to come. The fleet has been trimmed by 900 locomotives and could be trimmed 100 more. The workforce has lost 2,300 employees and could lose 700 more. The railroad started the year with 12 hump yards and could end with three, Harrison estimated. Other efficiencies include lengthening trains and bringing contracted work back in house. Harrison said these operational efficiencies would bear fruit in future quarters.

“‘If we make the improvements we make, we’ll be rewarded, and if we don’t, we won’t,’ he said. Harrison acknowledged the difficulties of the cuts his company has made and addressed the ‘culture of fear’ some have accused him of creating. ‘We can’t carry dead weight,’ he said. ‘Everybody has to do their job. Everybody has to do their part.’ Harrison said it is not his goal to create a culture of fear, but rather create a culture where everyone can add value to the company in the most effective way. He also said increased efficiency will attract more customers. Lastly, Harrison reiterated that his tenure would be short, and that he sees his role as an interim leader to get the company to solid footing before he exits.

“The company’s cuts have trimmed its footprint in Jacksonville. Earlier in the year, the company jettisoned 500 employees here. For investors, Harrison’s focus on efficiency brings hopes of faster future earnings, Sherman said. ‘(Harrison) is really delivering,’ said Sherman. ‘I don’t think [the management team is] going to let up. I think you’re going to keep seeing more efficiency.’

• The July 18, 2017 Jacksonville Daily Record: “CSX wants to renovate Jacksonville headquarters; $2 million investment in riverfront building comes after job cuts, introduction of new CEO: CSX Corp. not only is updating the railroad’s operating program. It also wants to renovate its Downtown Jacksonville headquarters at a cost of $1.85 million.

“The city is reviewing a building permit for Auld & White Constructors Inc. to renovate the 15th-floor executive offices at 500 Water St. on the riverfront. With all the other changes at the company, including a new CEO, job cuts and a focus on improving the operations, there were questions whether CSX was committed to maintaining its headquarters in Jacksonville.

“‘With these updates, CSX expects that the headquarters building will accommodate our needs for the foreseeable future,’ said spokesman Rob Doolittle on July 17. Plans show remodeling of 20,450 square feet of space for offices, conference rooms, a recording studio, work café, a warming kitchen, and more, including the C-Suite. That suite appears to be for CEO Hunter Harrison and two other top executives. Their offices are near the almost-1,200-square-foot boardroom.

“CSX said the building, which it owns, was constructed in 1959 and opened in 1960. It comprises almost 487,000 square feet of space. Gresham, Smith and Partners is the architect for the renovations. Doolittle said CSX is renovating to modernize and update the space ‘and to accommodate changes to the office space needs of our staff.’ He said projects include modifications to the lobby area, the 15th floor and several other locations. He said the work is expected to be completed over the next year in phases so that it can minimize disruption for employees.”

Commentary from railroaders and other observers, as noted above:

• Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl: “Our concerns about service stem primarily from direct channel checks with a number of rail customers as well as our [most recent shipper] survey, in which shippers expressed some displeasure with CSX’s service, with 24% calling it ‘poor.’ No other railroad received a ‘poor’ rating from more than 6% of shippers. However, we suspect this view of CSX is related to a reduction in the number of offerings rather than the poor quality of service, given the company’s fairly solid productivity metrics. In addition to potentially impacting the company’s ability to get price, the service issues could lead to some market share loss. A key point here is that we believe the percentage of the rail network in the east that is peer- and truck-competitive is materially greater than that north of the U.S. border, where Harrison achieved two of his big successes.”

• “The 2Q 2017 financials are squishy, and the related commentary is only marginally credible. Start with revenue: It was ‘goosed’ by $58 million in ‘liquidated damages’ for a volume commitment that was not met in previous periods. This was almost certainly a coal shipper, as revenue for coal is shown as up 27% on a volume increase of only 7%. This has nothing to do with current quarter operations.

“On the expense side, ‘a favorable judgment related to a previously condemned property of $55 million’ was credited against ‘Materials, Supplies and Others.’ Again, nothing to do with 2Q 2017. Further, a rental income of $13 million that formerly was treated as ‘Other Income’ (i.e., it had no impact on the Operating Ratio) was moved to be a credit against ‘Equipment and Other Rents.’ Thus, $126 million of favorable one-time adjustments were made. The 2Q 2017 OR without the restructuring charge was reported as 63.2, but in reality would have been 66.8 but for the above factors. Other ‘non-material adjustments’ were alluded to.”

• “All helper crews are to be eliminated system-wide and crews will double grades. EHH had all CSX division superintendents and assistants escorted off the property on Friday (July 14). Then, a dozen or more CN operating officers are leaving to come to CSX with much higher pay and stock options.”

• “One casualty of EHH’s new plan: napping breaks, which train conductors and engineers are allowed to take for up to 45 minutes under a strict protocol when trains are stopped.”

• “EHH is now making CSX employees buy their own work boots and personal protective wear if not covered by union agreements. He’s eliminating as many ‘long pools’ as he can, in favor of more frequent, shorter crew starts that don’t require a hotel stay. ‘Three-Point Protection’ is gone, and yard speed limits were increased. Dispatchers will be moving back to Jacksonville by the end of October. No more use of brake sticks that allowed crews to release or engage hand brakes without getting in between cars.”

• “EHH eliminated Road Foreman of Engines positions. He eliminated yard cabs, and Trainmasters are now required to take crews out to trains in their own cars. He closed most of the hump yards—Birmingham, Atlanta, Toledo, Cumberland, Selkirk, Louisville, Hamlet and Willard Westbound. Avon and Willard Eastbound are currently still open but probably will be closed. Cincinnati, Waycross and Nashville are the only ones left.”

• “Hunter did away with the rule banning getting off moving equipment. He currently has a team working on a design to single-track from Albany, N.Y. to Chicago.”

• “We have no senior leadership in the field other than Trainmasters and Chief Dispatchers, and many of the Trainmasters are so young and new they have no real knowledge of how CSX works—or how a train works, for that matter.”

• “Things are really slowing down on CSX in Ohio. Train movement in and out of Willard is at a crawl. Sidings are filling up. Even the daily train from the Wheeling & Lake Erie to Willard is taking much longer to get in and out of Willard. Twelve hours to run from New London, Ohio, to Willard and return—about 30 miles.

“In New York State, we’re starting to witness some problems on the Water Level Route. As the name implies, it’s pretty much flat, save for six miles of 0.89% westbound grade near Batavia. I’ve gone on lunch break from work a couple of times now in the past two weeks and heard crews talking on the radio about some heavy westbound train stalled into Batavia, and they’re single-tracking around it. ‘In-the-field’ reports suggest that the average size of merchandise freights these days is 800-900 axles with only two units up front. The best that one of these trains could hope for is 5 mph up the 0.89%.

“Willard had two yardmasters per shift, one Eastbound and one Westbound. In July, Eastbound was handed all of New Castle’s work, which includes three different yards—totally overwhelming. And then Saturday, Willard WB yardmasters were abolished, so we now have one person per shift running everything between Willard and New Castle. It’s absolute chaos. Already, one yardmaster is out of service for a side swipe.

“The most important point is that they closed the westbound hump in the process! Now the eastbound hump processes both east and west traffic. The no. 2 main is now a yard track, and the westbound receiving and block-swap tracks are departure tracks for both directions.

“EHH abolished the long pools between Buffalo and Willard, and Willard and Chicago. The North Baltimore to Chicago and the New Castle to North Baltimore long pools still exist—for now. So, any train not going to and from North Baltimore is short-pooled: Buffalo to Cleveland, Cleveland to Willard, Willard to Garrett, Garrett to Chicago.

“CSX workers say that Willard and Avon are in meltdown mode, with way too many cars and trains being held back. One person said New Castle has 700 cars for Willard that Willard can’t take, and Willard is actually sending cars back to New Castle to get them out of the way.

“Willard Yard was running about the mid- to high 20s in dwell hours up until three weeks ago. As of July 7, dwell was at 36.2 hours. Avon Yard was running about the same as Willard Yard until about four weeks ago. As of July 7, dwell was at 34.2 hours. Larger dwell hours exist at the following yards as of July 7: Montgomery, Ala.: 52.6 hours. Louisville, Ky.: 45.7 hours. Nashville: 44 hours. Russell, Ky.: 43.3 hours. Toledo: 50.1 hours

“Avon is packed with cars; it is bursting at the seams right now. It doesn’t have enough power to move trains out of the departure yard, and there are another 1,200 enroute. There 700 in receiving, 1,000 in the bowl, and 1,150 in departure.

“To add insult to injury, EHH asked the BLET (Brotherhood of Locomotive Engineers and Trainmen) to start discussing converting our pay from mile/trip rates to hourly—the same game plan from the CN and CP.”

• “CSX is running empty cars sometimes thousands of miles without a load to avoid dwell and Increase velocity measurements. EHH has silenced the knowledge base that really runs the railroad, and that is never good. You can’t improve fuel efficiency by running empty cars away from loads. CSX is storing or selling equipment, creating a shortage of gons for scrap loading. Order fill rates are at about 23%, causing shippers to move scrap by truck, barge and ship. I estimate CSX lost more than 1,000 scrap loads in June, and July looks worse.

“The hump yard closings have caused congestion at other yards, causing CSX to move cars to other locations. Hundreds of loads are moving on wrong trains (‘right car, right train’ measurement seems to have been eliminated). Yards are moving cars on the wrong trains because there is no time to switch them, to avoid a ‘dwell beating’ from EHH. The same thing is happening with bad-order cars to get them off dwell numbers.

“When too much focus is put on dwell time, the field will find ways to avoid a ‘Dwell Spanking.’ It would be interesting to see what the bad-order and empty-miles numbers are showing before and after EHH came. The steel mills are the next group to complain because there is no scrap moving due to storage and possible sale of gons. CSX is a ‘spaghetti’ railroad and thus ‘Precision Railroading’ will not work.”

• Independent railway economist and Railway Age Contributing Editor Jim Blaze: “Car dwell in selected CSX yards is deteriorating vs. similar weeks one year ago. Upward-trending yard dwell times are a statistical indicator of poor origin/delivery freight movements. This is well known to network simulators that examine such technical material. That said, train speeds out on the main lines are much higher now for some customers. However, intermodal blocks that used to move in unit trains are clearly moving much slower. That doesn’t translate into a likely huge intermodal growth scenario. There is a likely negative market consequence from these operational performance metrics. Motor-vehicle shippers like Ford can’t be happy as their supply chain adjusts to slower manifest train speeds. Grain cars, often owned by shippers, are moving slower. So while CSX reports it is storing or scrapping cars, some of their customers likely face the problem of having to buy new cars.” (For reference, download the PDF of CSX yard dwell times and train speeds at the link below. Blaze compiled the data, taken from the most recent reporting week as of July 23, 2017, as reported by CSX to the AAR.)

Also, Jim Blaze offers his take on the definition of Precision Railroading. Download a PDF of his article, prepared especially for Railway Age, at the link below.

• A CSX engineering department system production team machine operator: “By far, the biggest change to me and my coworkers is the change from four ten-hour days to five eight-hour days for almost all jobs. Supposedly, the change was made due to switching from working curfews to working windows between trains to keep from holding them up. If you’re only getting three hours of track time, for example, between trains to put a system team on the track to replace ties or rail or surface, there is no sense in having a ten-hour work day. The downside is that there are system production teams with people living all over the eastern U.S. They’re getting off work Friday afternoon, with only two days off to drive home (sometimes very long distances), be with their families, take care of things at home and drive back to their hotel by Sunday night in order to work Monday morning. If you live very far from where the team is working, it’s very hard to do. A lot of people just end up having to stay on the road because they can’t go home. Going from three days off per week to two makes a huge difference to us on system production teams!

“Some other changes that occurred recently: They are doing away with warm-up stretching we used to do at the end of the morning job briefings. There are no more Safety Committees and Safety Committee meetings. 

“These changes are giving the impression that concern for the almighty dollar has become more important than worker safety or workers being with their families.”

• “Hunter is out of control. He’s destroying good, experienced railroaders’ lives and careers. He wants to take the premier high-capacity main line in the East, the (ex-New York Central-Penn Central-Conrail) Water Level Route, which Al Perlman reduced from a four-track main to two tracks, and reduce it to a single track. Ten or twelve years ago the railroads were saying they didn’t have enough capacity. Now he wants to reduce it? That’s insanity.”

• “Al Perlman reduced capacity because he had excess capacity and couldn’t afford to maintain redundant signals and track structure. I don’t know what the situation is now on the Water Level Route, or the projections, but one wonders  if the reason has more to do with cutting costs to improve the stock price than with being genuinely thought out and data driven.”

• “Hunter hasn’t learned his lesson from when he tried to take over Norfolk Southern: Railroad customers, the communities in which railroads operate and legislators collectively form a powerhouse. Few people know this, but Hunter didn’t voluntarily retire from CN. CN wasn’t planning on renewing his contract. He got angry, so he eventually teamed with the hedge funds. It’s all about personal gain.”

• “Harrison’s previous railroads—the Illinois Central, CN, and Canadian Pacific—were all linear railroads, while CSX is a network. It is a lot easier to do ‘Precision Railroading’ on a linear railroad. Harrison offended sufficient customers on his previous railroads to reduce traffic, and therefore reduce congestion, and he could then close a lot of yards. And then, Bingo! ‘Precision Railroading’ falls right into place. I’m not certain he will be able to pull off ‘Precision Railroading’ on CSX.

• “What really disturbs me about Hunter right now is that he knows he runs one of the largest, mostly unsupervised outdoor factory floors in the world, which means productivity and efficiency require a high level of worker effort possible only when morale is high. Yet in the midst of devastating employee layoffs sure to wreak economic havoc on an equal number of families, Hunter is spending to spruce up his executive offices! He earned the title, ‘Ugly American’ when in Canada for upsetting long-standing workplace cultural norms. Now he is cementing his image, among employees, as ‘The Ugly One.’ Loyalty is not a one-way street.”

• “In the ‘business ecosystem,’ company stakeholders consist of more than just shareholders. They include customers, employees, suppliers, business partners, communities, etc. Cost reduction can generate immediate financial results, but it is organic growth that makes a business sustainable for the long term. Looking through the eyes of just one stakeholder—the shareholder—makes the business ecosystem unsustainable.”

Pretty strong words, for certain. I’m not sure how much of what’s been said here is accurate, or how much comes from people with their own agendas. All I know is that it would be rather difficult to make some of this up. I certainly would like to hear from more of you, whether or not you agree with what’s been reported.

I have been hoping I would hear from Hunter Harrison, and he has indeed contacted me. Understandably, he strongly disagrees with what has been said in this article, and has asked for an opportunity to respond. There is a bigger picture here, he feels, that people aren’t seeing or aren’t willing to see. So, within short order, expect to see a response, unedited, from Hunter Harrison.

Tags: , , , , ,