Euphoria on Wall Street at Hunter Harrison’s arrival has been followed by anger from trade groups who say the service is worse © Bloomberg
Bakers are having to wait for flour, grain is arriving weeks late at feed mills and a chemical plant is shipping bulk liquids by truck because trains are not arriving at its rail yard.
These are some of the complaints lodged by big US industrial groups against CSX, the country’s third-largest railway company, since the new chief executive installed by an activist hedge fund launched his “Precision Scheduled Railroading” strategy.
Hunter Harrison arrived at CSX in March promising to make the 190-year-old network lean and efficient. Investors sent CSX shares skyward, his pay demands notwithstanding — shareholders agreed in June to pay Mr Harrison an extra $84m after he threatened to resign.
But euphoria on Wall Street has been followed by anger from trade groups representing companies such as Cargill, ExxonMobil and General Motors. They say Mr Harrison has made services on CSX’s 21,000-mile network worse.
Federal regulator, the Surface Transportation Board, has taken action in response. A letter to Mr Harrison earlier this month raised concerns about a “widespread degradation of rail service” and the board has asked CSX to hand over a schedule of further changes to its operating plan by Thursday. This information will be made public.
Mr Harrison is respected in the industry, having previously orchestrated turnrounds at the Illinois Central, Canadian National and Canadian Pacific railways. He took action immediately after joining CSX, revamping rail yards, loading cargo on fewer trains and cutting more than 1,000 jobs.
After an initial improvement, performance has worsened this summer. The average train speed was 18.4mph in the week ending August 11, nearly a fifth slower than in early June. The time railcars sit idle between trips has increased to nearly 30 hours.
The service problems raise questions about Mr Harrison’s ability to implement big reforms at CSX, whose complex network of tracks running through dense metropolitan areas is different from railroads he previously ran.
“Hunter Harrison is probably one of the best operating people in railroad history. He has a stellar track record,” said Larry Gross, partner at FTR Transportation Intelligence, a consultancy. “But there was a real question as to whether the CSX situation, by virtue of the route structure, was more complicated than in the past, where routes tended to be simpler and more linear.”
In a letter to the STB last week, agricultural and food groups including the American Farm Bureau Federation and the National Grain and Feed Association detailed what they called a “precipitous” decline in service that began in June, worsened in July and “does not appear to be abating”.
The groups said that feed manufacturers were waiting “several weeks” for trains to arrive and that chicken farms, short of feed, were being forced to “make emergency purchases of ingredients transported by truck to keep poultry alive”. Bakeries in Tennessee had run short of flour, sugar, tomato paste and starch. Shutdowns of CSX rail switching yards meant trains were “traversing thousands of miles out of route”, they said.
A customer coalition that included the Alliance of Automobile Manufacturers and the American Petroleum Institute sent a letter to Congress saying the company had “repeatedly failed to pick up and deliver cars”, putting “rail dependent business operations throughout the US at risk of shutting down”.
Moving goods such as coal, chemicals and grain is largely uneconomical in trucks and the complaints highlight the fraught relationship between bulk commodity shippers and the railways they depend on. Consolidation has left the US with two main railway companies east of the Mississippi river — CSX and Norfolk Southern — and their networks only partially overlap.
Mr Harrison has urged patience, saying his changes will eventually pay off in better service. “There’s going to be a little pain and suffering,” he told analysts last month. “I don’t know, frankly, how to get there without some bumps in the road.”
He was blunter in a letter to the customer coalition last week, calling its claims “grossly exaggerated” and suggesting members were capitalising on CSX’s troubles to lobby for long-sought rail competition reforms.
Mr Harrison was recruited to CSX from Canadian Pacific by Mantle Ridge, a New York activist hedge fund that owns a 4.7 per cent stake of the company. Paul Hilal, Mantle Ridge’s founder, has joined the CSX board.
CSX shareholders agreed the $84m payment to Mr Harrison as reimbursement for money he forfeited when he left Canadian Pacific.
In an April letter to shareholders advocating the payment, Mr Hilal said that railroads run using Mr Harrison’s precision railroading model “perform far better than railroads operating under traditional models”. He added that Mr Harrison “intends to effect the same transformation at CSX”.