CSX warned by STB on service issues

Growing concerns by shippers regarding service issues with CSX have prompted a response by regulators.

On Thursday the Surface Transportation Board sent a letter to Hunter Harrison, Chief Executive Officer of CSX, expressing concerns about deteriorated service resulting from the railroad’s recent operating changes.

The STB in the letter said it has received a number of informal complaints from the railroad’s customers and others in the industry regarding increased transit times, unreliable switching operations, inefficient car routings, poor communications and coordination with CSX customer service, and acute disruption to customers’ business operations. The Board said it met this week with senior CSX officials in Washington, but did not reveal details.

The developments echo a July 21 blog post by Railway Age Editor in Chief William C. Vantuono, relating concerns by railroaders from inside and outside CSX that the implementation of Harrison’s “precision railroading” was compromising the railroad. Harrison responded July 27.

The STB said in the letter to Harrison that it requested that CSX report its plan to restore reliable service to its shippers in weekly calls with the Board’s Rail Customer and Public Assistance program. “Specifically, CSX is expected to provide an overview of its operations, including congestion at critical yards and gateways, interchange operations with other Class I railroads, availability of equipment and manpower, local spot and pull reports, and service to customers with critical needs.

“The Board also requests that CSX establish a customer service hotline and provide frequent operations updates directly to customers.”

Commented Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jeson Seidl, “CSX has recently argued that the service issues, which are associated with its operational turnaround plan, are transitory. However, if under pressure from customers and now the STB, it finds itself having to address them more urgently than it had planned, it may have to recall some resources and pause some of the drastic operational changes it is implementing to optimize its network productivity and improve margins. Recall that in our July 14th 2Q17 Rail Shipper Survey, shippers expressed some displeasure with CSX’s service, with 24% calling it “poor”. No other rail received a “poor” rating from more than 6% of shippers. We also remain somewhat concerned that customer service disruptions, which may indeed prove to be transitory, could be affecting the company’s ability to get price. Overall pricing remained fairly solid in 2Q17 for CSX but continued to show sequential moderation. All-in same-store pricing was 3.7%, compared to 3.9% in 1Q17. Merchandise and intermodal pricing was 2.2%, compared to 2.5% in 1Q17. Given the highly competitive nature of trucking, poor rail service does not lend itself to easy price increases. We have also heard of customers switching traffic to rival NSC. Indeed, on the recent earnings call NSC management noted it “got a little traffic” from CSX due to the disruptions and added that shippers started calling them in March. Additionally, Hub Group noted some shippers in their Mode division switched over from CSX to NSC. Although investors in CSX should not be in full-blown panic mode over this, it does bear watching. If service does not improve, the diversions could become more meaningful in our opinion.”