Service issues are front and center in STB letter to CSX

Spurred by what it called concerns about deteriorated service resulting from recent operating changes at Jacksonville, Florida-based CSX Transportation, the Department of Transportation’s Surface Transportation Board (STB) sent a letter to CSX CEO Hunter Harrison regarding a number of informal complaints from both CSX customers and railroad industry stakeholders.

These complaints included things such as:

• transit times increasing significantly and/or becoming unpredictable;
• loaded and empty railcars sitting for days at yards;
• switching operations becoming inconsistent and unreliable; car routings becoming circuitous and inefficient;
• CSX customer service being unable to provide meaningful assistance;
• the STB was notified of delays due to CSX congestion in critical gateways including New Orleans and St. Louis;
• slowing train speed and increasing dwell time along with numbers of cars online

“We understand that these disruptions have forced a number of rail shippers and their customers to curtail production, temporarily halt operations, and/or utilize other transportation options that have added additional expense and inefficiencies to their operations,” wrote STB Acting Chairman Ann Begeman, STB Vice Chairman Daniel Elliott, and Board Member Deb Miller in the letter to Harrison.”

These CSX service-related issues stem from the implementation of significant changes to CSX’ operating plan, including Harrison’s longstanding practice of precision railroading, which he deployed in previous top executives at both CP and CN. Precision railroading requires cargo to be ready when rail cars arrive for loading or risk being left behind.

Other operational initiatives cited by Harrison since he took over at CSX in March include idling around 550 locomotives and 25,000 railcars and converting hump yards to flat-switching yards that he maintains are more efficient.

STB leadership explained in their letter to Harrison that shippers have complained that CSX initiated changes to its operating plan without sufficient lead time and coordination efforts that would have allowed them to adjust their production cycles and supply chain logistics. They also cited a lack of communications on CSX’ behalf in regards to service changes.

The STB is now requesting that CSX have weekly service calls with the STB’s Rail Customer and Public Assistance staff in order to “better understand the scope and magnitude of CSX’s railroad performance issues and its efforts to resolve these problems,” adding that on these calls “CSX should provide an overview of its operations including congestion at critical yards, availability of equipment and manpower, local spot and pull reports, and service to customer with critical needs.”

The Wall Street Journal reported that CSX will provide the requested information and “respond fully and factually to the STB complaint.”

Cowen analyst Jason Seidl observed in a research note that CSX has recently argued that the service issues, which are associated with its operational turnaround plan, are transitory.

“However, if under pressure from customers and now the STB, it finds itself having to address them more urgently than it had planned it may have to recall some resources and pause some of the drastic operational changes it is implementing to optimize its network productivity and improve margins,” he wrote. “We have also heard of customers switching traffic to rival NSC. Indeed, on the recent earnings call NSC management noted it "got a little traffic" from CSX due to the disruptions and added that shippers started calling them in March. Additionally, Hub Group noted some shippers in their Mode division switched over from CSX to NSC.”