CSX seeks to expand capacity by growing headcount

CSX has been hustling over the last nine months to increase employee headcount so that the Eastern U.S. railroad can meet existing and future capacity needs, its executives said late Wednesday in a third-quarter 2021 earnings call.

“We’re clearly constrained. There was more business out there this quarter. There has been more business out there throughout this year that we could not handle. The primary reason for that is our inability, like everyone else in the world right now, to ramp up our workforce coming out of the steep declines of the early phases of the [COVID-19] pandemic,” CSX President and CEO Jim Foote told transportation analysts during Wednesday’s call.

Foote continued, “We’re now starting to see the fruits of all of our hard work for the last nine months or more and are beginning to bring on more people and actually deploy those people into the field so we’re able to operate a little bit better.”

To attract potential candidates and streamline the hiring process, CSX (NASDAQ: CSX) “redesigned our recruiting process to eliminate unnecessary steps and significantly shorten the time from application to offer,” said Jamie Boychuk, CSX executive vice president for operations. That has meant implementing new recruiting tools and referral programs, he said.

As a result of these efforts, the size and frequency of CSX’s conductor classes have grown, as have the numbers of those working for intermodal operations and supplemental support in order to keep terminals fluid.

CSX has also taken steps to increase the availability of its train and engine crews through attendance-based initiatives, Boychuk said.

Foote said, “We have a strong hiring pipeline and we will hire until we have staffed the network to match demand.”

In addition to the labor shortage, a lack of equipment affected CSX and almost all of the markets the railroad serves, resulting in a volatile environment, according to Kevin Boone, CSX executive vice president of sales and marketing.

To address the supply chain challenges, CSX has “accelerated investments to create new capacity,” including adding 13 overflow container yards and Transflo sites as well as quickening the repositioning of containers.

CSX has “been aggressively expanding our customer solutions team to further supplement the significant investments we are making in customer-facing technology,” Boone said. “Our team is working diligently to create new solutions and options for shippers with supply chain disruptions unlikely to improve in the near term.”

The efforts to expand network capacity come as Surface Transportation Board Chairman Marty Oberman sent a letter to Foote dated Monday asking CSX to explain how it plans to meet the needs of customers, some of which have contacted STB over inadequate rail service.

“CSX customers have relayed examples of substandard performance, including missed switches, extended transit times for both manifest and bulk shipments, unfilled car orders and the inability to contact customer service and operating personnel. … As a result of these problems, customers incur premium freight costs, idled production, lost sales and damaged commercial relationships, typically without meaningful recourse from CSX,” Oberman wrote.

Oberman also asked CSX to evaluate its performance metrics from 2021 versus 2019, as well as explain what factors might be hindering its ability to attain past levels of fluidity and service.

In response to a question about STB’s letter, Foote acknowledged that CSX has had a challenging time hiring new employees and bringing back furloughed ones, which Foote attributed to being in the “epicenter” of the COVID-19 pandemic. CSX’s headquarters is in Jacksonville, Florida, with operations in hard-hit states such as Florida, Georgia and Alabama.

That challenge attracting employees hindered CSX’s ability to handle capacity needs, Foote said.

“If you can figure out who the customer is that’s having a problem from the letter, I don’t know why they just don’t call me. I tell every customer I meet — I give them my business card, I give them my cellphone number — I say, ‘If you’ve got an issue, give me a call.’ … So I wish they would just call me if there is a challenge,” Foote said.

Separately, CSX said in a statement about the STB letter: “We look forward to providing a fulsome response to Chairman Oberman’s letter. CSX is committed to providing reliable and efficient service to our customers and we take any complaints very seriously and do everything we can to address them when they are brought to our attention. It is difficult to identify the anecdotal issues that are raised in the Chairman’s letter as we currently do not have any formal complaints pending before the STB and have not experienced an increase in informal service complaints.

“We are proud of what we have been able to do in the face of the significant challenges that our industry has faced since the onset of the pandemic. No one in the industry is doing more to overcome these challenges. Through incentive programs and expanded training capacity, we have already hired more conductors in 2021 than in 2019 and 2020 combined. We also have the highest velocity in the East and lowest dwell in the U.S. We know that there is more work to do to get our performance levels back to the record levels we delivered in 2019, and we’re confident that we can build upon our industry leading position to get back to those levels.”

Third-quarter 2021 financial results

CSX’s third-quarter 2021 net profit rose 32% year-over-year to $968 million, or 43 cents per diluted share. In the third quarter of 2020, net income was $736 million, or 32 cents per share.

CSX’s acquisition of Quality Carriers supported operating income of $1.4 billion, leading to an operating ratio of 56.4% in the third quarter of 2021, compared with 56.9% last year.

Third-quarter revenue rose 24% to $3.3 billion, while operating expenses slipped 23% to nearly $1.9 billion.

The company declined to provide OR guidance for next year.

“I want to thank all of CSX’s railroaders for their continued dedication to our customers amidst the combination of ongoing supply chain disruptions and challenges presented by the COVID-19 delta variant this quarter,” Foote said in a release. “We are committed to helping our customers overcome current supply chain constraints and will continue to take action in order to keep our network fluid and design new solutions that enable the delivery of critical goods to millions of Americans.”