Driven by hedge-fund activism, former Canadian Pacific CEO Hunter Harrison has now moved to major rail transportation provider CSX and is prepared to undertake a modernization and turnaround plan based on the “precision scheduled railroading” model which optimizes equipment, personnel, loads, and routing. Of course, the only fly in the ointment is unanticipated events such as equipment failures, derailments, or significant changes in both scheduled and unscheduled demand.
As the recent Cowen and Company investor’s conference, CSX Chief Financial Officer Frank Lonegro presented optimistic news about CSX’s recovery and growth prospects. Unfortunately, as noted by slide 12 in the presentation deck, the improvements came with a very heavy cost in employee layoffs. Lonegro explained, “The industry has made great progress, but we did not make meaningful progress when others did.” Last year (2016) CSX’s operating ratio was 69.4% with a target of mid-60’s in 2017.
As per a previous post, NO LOVE AT UNION PACIFIC RAILROAD, UP was “prepared to spend approximately $90 million, including $15 million for severance pay plus pension benefits and other expenses, to reduce their operating ratio from last quarter’s 61.8 percent to a more desirable 55.5%.”
This shows how far CSX may have to go to play catch-up. Look for continuing reductions in force.