CSX INTERMODAL WOES MOUNT
MA JOR S E RVICE DIS RU PTION S won't cost CSX
Transportation much intermodal business in the
short-term, but unless the railroad can convince
customers that the delays and missed cargo pickups
will be short-lived, it risks losing volume and pricing
power. A 6.2 percent increase in CSX's intermodal
volume over a recent four-week period shows that
although shippers are threatening to take their
cargo away, they have limited avenues to use, while
others aren't ready to bite the bullet of changing
their distribution strategies. Besides, there is only so
much capacity that truckers and their eastern rival,
Norfolk Southern Railway, can take on. Container
lines, such as Maersk Line and Mediterranean Ship-
ping Co., contract with CSX for their customers in
multiyear contracts, and major shippers may have
more wiggle room to move cargo off the CSX net-
work. Dealing directly with shippers, intermodal
marketing companies (IMCs) handle the majority
of domestic intermodal volume, moved in 53-foot
containers and trailers, for CSX. IMCs have some
ability to exit contracts if service suffers, but secur-
ing capacity either on trucks or on NS trains can be
challenging. Container lines and IMCs will enter
contract negotiations with CSX with plenty of com-
plaints on behalf of their domestic and international
shippers. It's too soon to determine just how much
intermodal volume is at risk and how concerned
CSX is about the loss of some accounts, considering
Harrison's history of letting lower-paying freight
leave to improve overall margins. According to
a recent Cowen & Co. survey, 80 percent of CSX
customers have experienced difficulties with the
railway. Of those, roughly 40 percent have switched
some freight to NS, and 67 percent have transferred
freight to truck. Since March, parcel giant UPS
has shifted at least some of its cargo from CSX to
NS, according to people familiar with the matter.
McDonald's has supplemented its regular CSX train
shipments of frozen french fries into the Nashville
area with truck deliveries, according to the Wall
Street Journal. Memphis-based Intermodal Cartage
Group (IMCG) said it has shifted roughly a quar-
ter of the volume moved by CSX to the NS network
because of Southeast delays. US East Coast port offi-
cials are also urging CSX to improve its international
rail services, following shipper complaints. Shippers,
and even some CSX employees, blame the service
disruptions on CEO E. Hunter Harrison's "precision
railroading" strategy, in which a railways' fleet, work-
force, and yards are thinned to cut costs, streamline
operations, improve train schedules, and, ultimately,
improve the company's operating ratio, an indicator
of profitability. It's worked at two other railroads in
the past, Canadian National and Canadian Pacific. In
the wake of cuts at CSX, however, the exact opposite
appears to have occurred, and by Harrison's own
admission, mistakes have been made as he attempts to
implement "precision railroading" for the first time in
the United States. According to Harrison's estimates,
CSX already has pulled approximately 900 locomo-
tives and could remove another 100, and shed 2,300
employees, with a further downsizing of 700 possible.
The railway also has shuttered or transitioned seven
of its 12 hump yards since March. Meanwhile, aver-
age intermodal train speeds at CSX dropped roughly
10 percent year over year, down to 25.4 miles per
hour the week of Aug. 12. In the same time, terminal
dwell time at CSX facilities increased from 25 to
30 hours.
EXECUTIVE EDITOR,
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