Solid Track

Solid Track

CSX was the first large transportation company to release its earnings in this fall’s financial reporting season, and that’s as it should be given what has happened to the economy over the last two years. The railroad’s chairman, Michael J. Ward, has earned his own place in the spotlight.

That’s because although most of the shipping and transportation industry has been hit hard by the economic shocks of 2008 and 2009, Ward and CSX had to cope more directly than any other business in the field with the financial undercurrents and threats that have been a disturbing feature of the downturn.

The third quarter, after all, was the first full period in which CSX operated without significant ownership held by The Children’s Investment Fund.

The British fund, which fought an epic battle with CSX management in 2007 and 2008 over the direction of one of the country’s four largest railroads, sold its 4.5 percent stake in the carrier during the spring, ending TCI’s attempt to imprint its own vision of transportation and rail shipping on the industry.

At times, it seemed other railroad executives and shippers believed TCI’s aggressive moves on CSX were aimed at the industry as a whole, and that’s because Ward was, in some ways, standing up for the rail industry and much of the transportation world. TCI’s fight was about more than simply CSX. Many believed that if TCI had succeeded in its attempts to remake CSX’s business, the effort would lure other like-minded financial operators with no long-term commitment to try to take apart standing transport companies and reap short-term profits from the pieces.

The activist hedge fund threw sharp criticism at CSX, much aimed at Ward’s inability, as TCI told it, to get the greatest shareholder value out of the railroad’s operations. Chris Hohn, the fund’s managing partner, wrote to shareholders in June 2008 that CSX “cannot afford to rest on its laurels in favorable pricing and market environments . . . should strive to achieve its full operating potential . . . and should be the best railroad in America.”

But how did TCI define being the “best,” and what would that mean in the market? Shippers, justifiably, feared it would mean using the railroad’s market grip to bully them on rates.

TCI’s history suggests there was more to it than that. The fund was the force behind a bitter fight at ABN Amro that ended with the Dutch bank being split apart and sold off to Royal Bank of Scotland. TCI got its shareholder value — the hedge fund reported a 555 million pound profit ($906 million) in its last fiscal year — but the customers and workers at ABN Amro were just wreckage along the way to TCI.

Meanwhile, CSX showed a $293 million profit in this year’s third quarter, down 23 percent from last year but a strong result in a dismal economy. And the company’s 73.9 percent operating ratio was the best CSX has ever had in a third quarter.

TCI may show a nice profit this year as well, partly from the sale of its 17.8 million shares of CSX stock. Like much of the transportation world, it can thank Michael Ward.

Paul Page is editorial director of The Journal of Commerce. He can be contacted at 202-355-1170, or at