CSX Transportation’s overhaul of its network, which caused disruptions to international and domestic intermodal services, and the trimming of some of those services to Columbus, Ohio, and Detroit, ultimately may benefit shippers. It is too soon to tell, but CSX CEO E. Hunter Harrison plans to present his vision at an investors’ meeting in late October. CSX told investors on Oct. 17 that it is confident it will win back volume that migrated to trucks and rival Norfolk Southern Railway.
Other than CSX’s pledge that service will improve, there are other reasons intermodal shippers can be optimistic that Harrison’s “precision railroading” strategy ultimately will be beneficial to their supply chains. On the surface, the Jacksonville, Florida-based railroad’s discontinuing of some international and domestic services connecting to Columbus and Detroit looks like anything but beneficial. More service changes are likely, considering that CSX is reviewing its plan for routing cargo through its North Baltimore, Ohio, hub.
CSX said it is determining whether to lean more on other parts of its network, suggesting the railroad is moving away from the hub-and-spoke model that allows it to build density and route cargo away from Chicago. That could result in “using scheduled merchandise trains to support some intermodal customers’ requirements, and reducing the intermediate handling of intermodal traffic when possible, creating more reliable service and faster transit times,” CSX told The Journal of Commerce. The trimming on some parts of the network appears to be allowing CSX to focus on where it is seeing and expecting demand.
CSX, for example, has increased the frequency of services it will offer between the Port of Charleston and the inland port in Dillon, South Carolina, when it opens early next year, said Jim Newsome, president and CEO of the South Carolina Ports Authority.
“Theoretically, intermodal service will get more reliable and faster since [CSX] won’t have to wait to build density, although those railcars are going to have to be switched somewhere,” said Larry Gross, a senior transportation analyst at FTR Associates. On the potential downgrading of the North Baltimore hump, Gross said he wouldn’t be surprised because “Harrison hates hump yards and [the facility] is an intermodal hump yard using cranes instead of hump.” Block-swapping to create density is cheaper, he said.
The CSX Harrison leaves also may be better positioned to improve intermodal offerings. His successor at Canadian National Railway, Claude Mongeau, made the railroad a dynamo, and, more recently, Harrison’s successor at Canadian Pacific Railway, Keith Creel, is working to do the same, said John Larkin, who heads the transportation practice at investment bank Stifel.
CP has introduced two new international intermodal services since mid-August. “Once everyone Hunterizes their operations, what does one do for an encore? The answer is: offer new services, help your customers grow their markets, and improve transit time consistency, as measured by customers,” Larkin said.
Some of the operations Harrison has closed should have been done years ago, an intermodal analyst told The Journal of Commerce on condition of anonymity. The railroad’s challenge is keeping costs down while making sure there is enough capacity for intermodal surges. Railroads “have traditionally built the church for Easter Sunday, thinking Easter Sunday would be every day of the year,” when most days are akin to a weekday mass, he said.
The analyst suspects Harrison will try to implement day-of-week pricing to even-out intermodal flows, much like the airlines have done for the passenger business. Friday gate reservations would be the most expensive because that is the busiest day, whereas Monday reservations would be cheaper because demand is much lower.
Such a model would be attractive to shippers with strong control of their supply chains. It could aid the broader rail industry if other railroads follow suit. Railroads need to capture more intermodal volume to offset the decline of higher-margin carload business. At the same time, they have less money to invest as demand for higher-margin cargo recedes. Meanwhile, Wall Street pressure to keep operating ratios low, a key measure of profitability, is unrelenting.