It’s been more than a year since CSX implemented the controversial precision scheduled railroading operating model, and most signs show it paid off.
At its core, precision scheduled railroading is about moving the same amount of cargo with fewer trains, equipment and personnel.
Precision scheduled railroading was the brainchild of the late E. Hunter Harrison, who implemented the operating model at CSX when he was named president and chief executive officer of the Class I railway in March 2017. He also was a former president and CEO of Canadian National and Canadian Pacific and was credited with remarkable turnarounds in operating and financial performance at both.
After Harrison died in December, James Foote immediately was selected to fill the role of CSX’s president and CEO. Foote is an avid supporter of precision scheduled railroading.
Harrison wrote about the precision scheduled railroading philosophy in his 2005 book, How We Work and Why. It consists of seven principles: minimizing car dwell times in yards; reducing car classifications; using multiple traffic outlets; running general-purpose trains; balancing train movements by direction; minimizing power requirements; and striving for steady workflow.
CSX was in the hot seat last year when angry shippers spoke out against precision scheduled railroading, claiming it was causing service disruptions. But CSX was out of the spotlight by March of this year when the U.S. Surface Transportation Board sent a letter to all seven Class I railroads over deteriorating rail service after receiving complaints from shippers.
While CN is embarking on a record C$3.5 billion capital expenditure plan for 2018 in which it is heavily investing in new equipment and expanded infrastructure, CSX has been taking the opposite approach — spending less, decreasing headcount and soliciting bids for various rail segments.
CSX spent $823 million in capital investments in the first six months of 2018, a 14 percent decline year-over-year. At the close of the second quarter, CSX had 22,810 employees, down from 25,512 employees in the same period last year.
“We have been working to improve the quality of our service and work with our customers to grow our business throughout the last six months and with, I would say, pretty favorable results and responses from our customers,” Foote said on the second-quarter earnings call.
CSX increased Q2 net earnings and on both a year-over-year and quarterly basis.
CSX posted net earnings of $877 million, a 72 percent year-over-year increase and a higher rate of growth than all other Class I railways during the quarter, in which all but Canadian Pacific managed to increase earnings year-over-year. On a quarterly basis, CSX’s net earnings increased 26 percent during Q2. Its revenues totaled $3.1 billion, rising 6 percent year-over-year and 8 percent quarter-over-quarter.
Additionally, CSX increased train velocity and decreased car dwell on a year-over-year and quarterly basis. CSX considers train velocity to be the average train speed between the origin and destination in miles per hour — excluding locals, yard jobs, work trains or passenger trains — while car dwell is classified as the average amount of time in hours between car arrival to and departure from the yard.
Train velocity totaled 17.4 mph for the second quarter of 2018, up 7.4 percent year-over-year and up 0.6 percent quarter-over-quarter. Car dwell stood at 9.7 hours, down 11 percent year-over-year and down 6.7 percent quarter-over-quarter.
Despite CSX’s improvements in train velocity and dwell, the railway still needs to work on timeliness. The rate of on-time originations for the second quarter of 2018 was 85 percent, while the rate of on-time arrivals was only 61 percent.
CSX defines on-time originations as the percentage of scheduled road trains that depart the origin yard on time or ahead of schedule, while on-time arrivals are defined as the percent of scheduled road trains that arrive at the destination yard on time.
Although CSX saw an improvement from the first quarter of 2018, when the on-time origination rate was 81 percent and the on-time arrival rate was 57 percent, it still was down from the second quarter of 2017, when the on-time origination rate was 88 percent and the on-time arrival rate was 69 percent.