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Sept.4, 2017

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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. 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