CSX (NASDAQ: CSX) says it’s ready to handle not only an anticipated increase in carload volumes in the second half of the year but also meet the demand to move e-commerce goods, according to executives on the railroad’s first-quarter 2021 earnings call late Tuesday afternoon.
CSX noted that its intermodal business has seen record volumes due in part to its efforts to reengineer its intermodal network so that the company can be a bigger participant in the e-commerce business model, according to CSX President and CEO Jim Foote.
Indeed, first-quarter intermodal shipments rose 10% from a year ago, while overall volumes grew 1% year-over-year.
“If people want to move more boxes and buy more things online, we want to be more and more and more involved in that supply chain. And we’ll continue to work in that area to the best that we can,” Foote told investors.
But CSX is also focusing on truck conversions in the merchandise side of its business by working with existing customers and ensuring that CSX service is equivalent to what shippers might experience using trucks, Foote said. Commodities in CSX’s merchandise segment include products such as metals, plastics, steel and cardboard.
The eastern U.S. railroad foresees “robust growth” in the second half of 2021 amid low inventory levels and expectations that the economic recovery will continue and truckload capacity will remain tight.
“We’re starting to now see it, feel it, have conversations with real-life customers about what they think is going to happen for the second half of the year,” and this helps CSX forecast and plan how to run the business for the rest of the year, Foote said.
The railroad announced Tuesday afternoon that its first-quarter 2021 net income slipped 8% to $706 million, or 93 cents per share, compared with $770 million, or $1 per share, for the first quarter of 2020.
CSX said it has capacity available on its network, and it is getting its locomotives ready.
“Where we can we’ll run intermodal with freight together and then in other areas where intermodal continues to grow. I still have room on the tail end of intermodal trains,” said Jamie Boychuk, CSX executive vice president of operations. “Very few of my intermodal trains, as it stands, are sold out. We have cars and storage that we’re able to pull out and we continue to pull out as we see the need.”
However, CSX doesn’t expect all of its assets to return to use because of the measures that the railroad has undertaken to increase asset and crew productivity.
“We are doing the same amount of work today with 1,500 fewer locomotives and dramatically improved locomotive utilization,” Foote said.
The railroad is also seeking to lower its dwell time to previous record levels for the company, and doing so will also help to improve asset utilization, Foote said.
Meanwhile, CSX has been actively recruiting and running conductor training classes in anticipation of market demand growing, according to Boychuk.
CSX measures its service and gauges its reliability through trip plan compliance programs.
“It doesn’t do any good if you get to train across at a super high speed and then it sits at the terminal. … Everything has to come together and that’s what’s reflected in this trip plan number,” Foote said. He described its trip plan compliance for intermodal as being on time for over 90% of the time, while trip plan compliance for carloads is in the mid-60s. CSX seeks to get the percentage for on-time performance for carloads back to the mid-80% range, but it noted that the range was in the 30s a couple of years ago.
However, CSX acknowledged that it has very little control over the hiccups in the supply chain, especially at the ports, which have been congested because of import demand and shortages for chassis and containers.
“We’re a link in the [supply] chain … and it’s easier to move the chain when there are no kinks and no problems in and everything is working smoothly,” Foote said. “I think that all of us could move more. Listen, the port guys don’t want to put boxes on the ground because they don’t have a chassis, because they don’t have a truck to dray it” and that can lead up to backups on the railroads.
“So we’re there. We’re ready. We’re growing, like I said, we’re setting records. And hopefully, we can get in the position where we just continue to set record after record after record after record. … We got the capacity. We have the ability. We just got to keep getting in there and fighting every single day to get as much freight as we possibly can,” Foote continued.
Foote declined to comment on the merits of the proposals by Canadian Pacific (NYSE: CP) and CN (NYSE: CNI) to merge with Kansas City Southern (NYSE: KCS). But he said industry consolidation has helped to improve service because consolidation can reduce bottlenecks and allow the railroads to invest in efficiencies.
“If it’s good for the customer, if it improves the quality of service for the customer, and [if] it’s in the public interest, I’m clearly saying, ‘Hey, let’s take a look at it and figure out what it all means.’ But in all circumstances, the devil is in the details of any transaction. And so until I get an opportunity to review any proposals, I just have to reserve comment on the transactions themselves,” Foote said.
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