Post EHH Changes for CSX

QB 52.32 wrote:

mmi16 wrote:Cost reductions come from deferring maintenance - you can get by for a while with deferred maintenance, then the house comes crashing down.

This year, 2019, CSX is replacing ~21% more rail than NS, 39% more rail than BNSF, and 44% more rail than UP, and, replacing 9% more ties than NS, 100% more ties than BNSF, and 26% more ties than UP, proportional to each carrier's route mileage. CSX reported 1Q2019 FRA Train Accident Rate down 35% vs. 1Q2018. Of the 31% of operating ratio improvement last quarter, cost reductions came from fuel, labor and equipment rental with the rest, 69%, coming from pulling in more revenue.

Sources please?

According to the carriers NS has 19,500 route miles and CSX has 21,000 route miles. so, csx has approximately 10% more route miles

According to Progressive Railroading NS will spend 973 mill on mow in 2019 and CSX will spend 820 million. Which is to say that NS will spend 153 mill more than csx on mow this year

I will leave it to the math majors to empirically determine who is planning to spend more per route mile.

Safetee wrote:According to the carriers NS has 19,500 route miles and CSX has 21,000 route miles. so, csx has approximately 10% more route miles

According to Progressive Railroading NS will spend 973 mill on mow in 2019 and CSX will spend 820 million. Which is to say that NS will spend 153 mill more than csx on mow this year

I will leave it to the math majors to empirically determine who is planning to spend more per route mile.

Before EHH and PSR - CSX was investing between $1.2B and $1.5B yearly on CapEx.

NRGeep wrote:Sources please?

Readily and publically-available information provided by each carrier.

mmi16 wrote:

Safetee wrote:According to the carriers NS has 19,500 route miles and CSX has 21,000 route miles. so, csx has approximately 10% more route miles

According to Progressive Railroading NS will spend 973 mill on mow in 2019 and CSX will spend 820 million. Which is to say that NS will spend 153 mill more than csx on mow this year

I will leave it to the math majors to empirically determine who is planning to spend more per route mile.

Before EHH and PSR - CSX was investing between $1.2B and $1.5B yearly on CapEx.

Way too early to call in the math majors: you only got part of the way there...you have to look at what makes up a carrier's capital expenditure program as it has many components beyond what would indicate whether a carrier is "deferring maintenance", the most recent charge against post-EHH CSX. Same goes for pre-EHH CSX.

rr503 wrote: ↑Thu Feb 14, 2019 2:27 amTake UP and BNSF. BNSF has been growing strongly for a while; UP not so much, despite their superior route structure.

I can't help but be a bit puzzled by this remark; I would certainly say that, relative to BNSF, UP does not have a "superior route structure" on the main east/west corridors of Chicago - California and Chicago - Pacific Northwest. BNSF's routes to both are shorter. Were you talking about other parts of the systems?

UP has better routes along the I-10 corridor from CA to the Southeast, from Chicago and St Louis to the Gulf Coast, TX and Mexico and along the I-5 corridor. Chicago to Nor Cal and PNW is close to a push I’m guessing while BNSF definitely has the advantage from LA to Chicago. Overall it would seem to me that UP has the better route structure.

UP also hits SLC, Vegas, hits Denver better, has a really strong Bay Area network, a real central corridor, etc.

2Q2019 CSX operating ratio 57.4% vs. 58.6% 2Q2018 gained through cost reductions mainly from fuel (13%) and labor (3%) cost reductions though offset by 1% revenue decline with 4% net volume decline driven by 10% intermodal volume decline mitigated by merchandise volume, unit revenue (traffic mix, fuel surcharges, and rate increases) and overall revenue increases vs. NS 2Q219 operating ratio 63.6% vs. 65% 2Q2018 gained through equal cost reduction driven by fuel (7%) cost reduction and income gains from unit revenue (traffic mix, fuel surcharges, and rate increases) growth offset by a 4% net volume reduction.

6MO2019 CSX operating ratio 58.4% vs. 61.1% 6MO2108 gained through 60% cost reduction, 20% unit revenue growth and 20% volume growth improvements vs. NS 6MO2019 operating ratio 65% vs. 66.9% 6MO2018 gained through 25% cost reduction and 75% unit revenue growth improvements.

In this quarter NS matched CSX operating ratio improvement and with CSX now dependent upon cost reductions with headwinds provided by Philadelphia refinery traffic loss and both carriers facing domestic truck competitive and apparent overall economic activity headwinds, though with NS just getting started with potential upside PSR cost reductions and CSX just re-organized to further execute their intermodal pivot.

Also noteworthy, NS received the lowest positive Class 1 rating in Cowan's 1Q2019 rail shippers customer service survey. Additionally, shippers citing improved rail service for shift to rail 20% 2Q2019 up from 15% 1Q2019, however, with fewer shippers answering that they would shift greater quantities of freight should rail service improve.

In the 3rd quarter of 2019 CSX opened up it's widest operating ratio lead over NS at 810 basis points, coming in at 56.8. Even taking into account a one-time hit NS took over a legal issue, the 3rd quarter still would have recorded the widest operating ratio lead yet for CSX at 700 basis points.

Are they growing revenue or market share?

QB 52.32 wrote: ↑Sat Nov 02, 2019 10:53 am In the 3rd quarter of 2019 CSX opened up it's widest operating ratio lead over NS at 810 basis points, coming in at 56.8. Even taking into account a one-time hit NS took over a legal issue, the 3rd quarter still would have recorded the widest operating ratio lead yet for CSX at 700 basis points.

Pencil sharpening is a CSX specialty - long before EHH, he sharpened the pencils further.

mmi16 wrote: ↑Tue Nov 05, 2019 8:46 pm

QB 52.32 wrote: ↑Sat Nov 02, 2019 10:53 am In the 3rd quarter of 2019 CSX opened up it's widest operating ratio lead over NS at 810 basis points, coming in at 56.8. Even taking into account a one-time hit NS took over a legal issue, the 3rd quarter still would have recorded the widest operating ratio lead yet for CSX at 700 basis points.

Pencil sharpening is a CSX specialty - long before EHH, he sharpened the pencils further.

However, even a 3rd grader knows that if you sharpen a pencil too much, it will eventually break or run out.

they need a better value proposition for clients. Sure, they can implement shipping-tracking tools and better schedule freight shipments, like the rest of the freight transport industry had done long ago. But they also raised rates so much that the economic benefit of using trains instead of trucks now goes mostly to the railroad. My comments are based on CSX exec's comments to the effect that they wanted to raise rail rates to capture more of the shippers' benefits of using rail, from 80% of trucking prices more toward 90% to 100% and, of course, when they err in their estimates of trucking costs, they are showing shippers prices that may actually exceed trucking costs.

Why would a shipper undertake the logistical compromises of using rail when the railroad gets all the benefit? I am concerned that CSX may be showing shippers that they are a bad business partner, showing no value proposition, so that shippers will move further and further from rail transportation.

gokeefe wrote: ↑Sat Nov 02, 2019 7:26 pm Are they growing revenue or market share?

They're growing revenue and/or market share where it makes sense and larger economic issues from which they derive demand are favorable. In this past quarter they grew revenue &/or market share in industrial chemicals, feed grain & ingredients, sweeteners and oils, ethanol, trucks and SUVs and mineral traffic. In your New England region CSX is growing revenue &/or share in waste, wood pulp, intermodal and energy traffic. But, if you're looking for revenue and market share growth for its own sake that can't justify capital investment, congests the network and lowers service reliability, that's already been tried.

ccutler wrote: ↑Thu Nov 07, 2019 7:41 am they need a better value proposition for clients. Sure, they can implement shipping-tracking tools and better schedule freight shipments, like the rest of the freight transport industry had done long ago. But they also raised rates so much that the economic benefit of using trains instead of trucks now goes mostly to the railroad. My comments are based on CSX exec's comments to the effect that they wanted to raise rail rates to capture more of the shippers' benefits of using rail, from 80% of trucking prices more toward 90% to 100% and, of course, when they err in their estimates of trucking costs, they are showing shippers prices that may actually exceed trucking costs.

Why would a shipper undertake the logistical compromises of using rail when the railroad gets all the benefit? I am concerned that CSX may be showing shippers that they are a bad business partner, showing no value proposition, so that shippers will move further and further from rail transportation.

CSX does have a better value proposition since implementing PSR, and it's the most important when it comes to service: improved reliability. They're getting favorable reviews from shippers for this.

You have to keep in mind that railroads' business is made up of many different market segments, each with its own characteristics and rail competitive advantage, and that's how they are managed. So, a broad brush approach really doesn't work when evaluating CSX's pricing strategy vs. truck.

QB 52.32 wrote: ↑Sat Nov 09, 2019 7:33 am
They're growing revenue and/or market share where it makes sense and larger economic issues from which they derive demand are favorable. In this past quarter they grew revenue &/or market share in industrial chemicals, feed grain & ingredients, sweeteners and oils, ethanol, trucks and SUVs and mineral traffic. In your New England region CSX is growing revenue &/or share in waste, wood pulp, intermodal and energy traffic. But, if you're looking for revenue and market share growth for its own sake that can't justify capital investment, congests the network and lowers service reliability, that's already been tried.

Has it? I honestly cannot think of any railroad who stated that they'd pursue any traffic that'd pay for its carriage + the marginal cost of capacity. CSX certainly has been striking a different note lately -- including, recently, distancing them somewhat from the OR metric in recognition of its reductive quality -- but I would say this has yet to translate into good shipper scores or significantly increased traffic. I'm optimistic, but cautiously so. Talk is cheap, and the economy seems to be slowing a bit.

QB 52.32 wrote: ↑Sat Nov 09, 2019 7:33 am
CSX does have a better value proposition since implementing PSR, and it's the most important when it comes to service: improved reliability. They're getting favorable reviews from shippers for this.

You have to keep in mind that railroads' business is made up of many different market segments, each with its own characteristics and rail competitive advantage, and that's how they are managed. So, a broad brush approach really doesn't work when evaluating CSX's pricing strategy vs. truck.

The value of reliability really cannot be overstated. PSR in many ways is, once you cut through the shareholder-aimed fluff, just just-in-time strategies but for railroads: minimize inventory, keep things moving, etc. The world is heading in that direction, and railroads, what with their slow speeds, long terminal dwells and chronic shipment reliability issues, were not keeping up (or still are not, depending on who you talk to). The question in my mind about PSR is how much of PSR is PSR foisted as a cover for short termist capacity and institutional cuts rather than a long term strategy to fluidize operations.

Something I'm going to enjoy watch unfold over the next decade or so is how PSR interfaces with train length in what seems to be like likely scenario of one person train ops. There is a not-insignificant set of infrastructure, reliability and dwell costs incurred with increased train lengths; I'm curious as to whether reduced fixed costs of operation will help swing the needle towards shorter, faster traffic.