This is from something that happened last week. It’s slightly river-related. It’s also coal-related, and since coal dominates traffic on the upper half of the Ohio River, it’s still relevant to this blog.
Last week CSX executives had an all-day meeting with investment analysts — people who work at the big firms and who study the details of company’s financials to determine if their clients should buy or sell the company’s stock.
CSX had a rough 2017. An investor group managed to replace the CEO with E. Hunter Harrison, who had used his Precision Scheduled Railroading methods to reduce costs and improve service at two Canadian railroads.
The problem was that Precision Scheduled Railroading was a big headache for CSX in the first weeks and months of its implementation. Customers complained to the Surface Transportation Board, which demanded weekly updates of the railroad’s service metrics.
Harrison was not in good health when he took the helm at CSX, and he died before the end of the year. His successor, James M. Foote, has promised to continue with Precision Scheduled Railroading.
From an investment point of view, something is working at CSX. On Jan. 1, 2017, CSX stock sold for about $41.69 per share. Yesterday, it closed at $56.14.
The overall theme at last week’s investor meeting was that Precision Scheduled Railroading is working and will drive CSX to better customer service and better investor returns. It was an upbeat, optimistic presentation.
Russ Epting, CSX vice president of coal sales and marketing, spoke toward the end of the day. CSX, he said, is matching the needs of origin to destination. In the fourth quarter of 2016, coal trains cycled every 9.8 days on average. In the fourth quarter of 2017, that was down to 8.1 days, he said.
Coal traffic is down, but it’s still an important part of CSX’s business, Epting said. It still comprises about 18 percent of the railroad’s total revenue, he said.
“It’s going to remain challenged and one that we’re trying to think about ways to do the business a little bit differently,” he said.
The export market remains volatile, but it provides long-term opportunities, he said.
Precision Scheduled Railroading, which matches capacity with customer needs, allows CSX to react to changing demands “relatively quickly,” he said. The key is matching train sizes between what is needed at the origin and the destination, he said.
In some cases, train sizes are reduced, Epting said. That happened when CSX looked at its export terminal at Mobile, Ala. At the beginning of the year, the terminal was served by 150-car trains. Trains were reduced to 100 cars, and with the same amount of resources, CSX’s business at Mobile increased 59 percent last year, Epting said.
CSX’s export terminal at Mobile was able to capture some business that had moved by barge, Epting said. He didn’t say how much business or whether it was long-term or short-term or anything like that, though.
Closer to my home area, Epting noted that coal train traffic in the corridor between Huntington, W.Va., and Richmond, Va., has changed since Precision Scheduled Railroading was begun, Epting said. The railroad had run 150-car trains on that route, reduced them to 110 cars and converted them to 220-car trains, he said.
“It allows us to move a lot more traffic faster with essentially less crews, and it gives us the capacity that we need on the growing export market that we’re seeing,” he said.
Speeding up trains through the system means CSX is requiring customers to load and unload their cars on arrival, Epting said.
In addition to Mobile, CSX delivers export coal to two terminals in Baltimore and two in the Hampton Roads area, Epting said.
The railroad serves 87 coal mines. Those include 17 in the Northern Appalachian fields, which are served by 130-car trains, and 54 in Central Appalachia, he said. There are four in Alabama and 12 in the Illinois Basin, he said.
The high-quality metallurgical coal from Northern and Central Appalachia have the greatest growth potential on the export market, he said.
In 2012, CSX delivered 48 million tons of coal to export terminals. That was down to 28 million in 2016 but rebounded to 36 million tons last year. CSX expects export tonnage to reach about 30 million tons this year, Epting said. About 68 percent of that will be met coal and 32 percent thermal, he said.
Epting was not so optimistic about coal on the domestic utility market. The domestic utility market is stabilizing, but it is not expected to reverse, he said.
In 2008, the railroad hauled about 174 million tons of domestic thermal coal. Last year it hauled 61 million tons, he said. CSX expects about 2 gigawatts of generating capacity on its system to be retired this year, which will reduce shipments by about 2 million tons.
CSX is doing what it can to help remaining coal-fired power plants remain competitive, Epting said. The market for utility coal continues to be driven by weather, natural gas prices and regulations, he said.
In a question-and-answer session that following Epting’s remarks, other CSX executives said the utility coal market could be down 2 to 3 percent this year, depending on natural gas prices. When natural gas sells for less than $3 per million Btu, the generating system burns more gas and less coal, they said. In the first quarter of this year, gas has sold for about $2.70, they said.
One analyst asked for a breakdown of the profits made on various segments of CSX’s businesses. The executives would not provide that information, but they did say coal provides greater margins (that is, profits) than the intermodal business.
The problem was that Precision Scheduled Railroading was a big headache for CSX in the first weeks and months of its implementation. Customers complained to the Surface Transportation Board, which demanded weekly updates of the railroad’s service metrics.
Harrison was not in good health when he took the helm at CSX, and he died before the end of the year. His successor, James M. Foote, has promised to continue with Precision Scheduled Railroading.
From an investment point of view, something is working at CSX. On Jan. 1, 2017, CSX stock sold for about $41.69 per share. Yesterday, it closed at $56.14.
The overall theme at last week’s investor meeting was that Precision Scheduled Railroading is working and will drive CSX to better customer service and better investor returns. It was an upbeat, optimistic presentation.
Russ Epting, CSX vice president of coal sales and marketing, spoke toward the end of the day. CSX, he said, is matching the needs of origin to destination. In the fourth quarter of 2016, coal trains cycled every 9.8 days on average. In the fourth quarter of 2017, that was down to 8.1 days, he said.
Coal traffic is down, but it’s still an important part of CSX’s business, Epting said. It still comprises about 18 percent of the railroad’s total revenue, he said.
“It’s going to remain challenged and one that we’re trying to think about ways to do the business a little bit differently,” he said.
The export market remains volatile, but it provides long-term opportunities, he said.
Precision Scheduled Railroading, which matches capacity with customer needs, allows CSX to react to changing demands “relatively quickly,” he said. The key is matching train sizes between what is needed at the origin and the destination, he said.
In some cases, train sizes are reduced, Epting said. That happened when CSX looked at its export terminal at Mobile, Ala. At the beginning of the year, the terminal was served by 150-car trains. Trains were reduced to 100 cars, and with the same amount of resources, CSX’s business at Mobile increased 59 percent last year, Epting said.
CSX’s export terminal at Mobile was able to capture some business that had moved by barge, Epting said. He didn’t say how much business or whether it was long-term or short-term or anything like that, though.
Closer to my home area, Epting noted that coal train traffic in the corridor between Huntington, W.Va., and Richmond, Va., has changed since Precision Scheduled Railroading was begun, Epting said. The railroad had run 150-car trains on that route, reduced them to 110 cars and converted them to 220-car trains, he said.
“It allows us to move a lot more traffic faster with essentially less crews, and it gives us the capacity that we need on the growing export market that we’re seeing,” he said.
Speeding up trains through the system means CSX is requiring customers to load and unload their cars on arrival, Epting said.
In addition to Mobile, CSX delivers export coal to two terminals in Baltimore and two in the Hampton Roads area, Epting said.
The railroad serves 87 coal mines. Those include 17 in the Northern Appalachian fields, which are served by 130-car trains, and 54 in Central Appalachia, he said. There are four in Alabama and 12 in the Illinois Basin, he said.
The high-quality metallurgical coal from Northern and Central Appalachia have the greatest growth potential on the export market, he said.
In 2012, CSX delivered 48 million tons of coal to export terminals. That was down to 28 million in 2016 but rebounded to 36 million tons last year. CSX expects export tonnage to reach about 30 million tons this year, Epting said. About 68 percent of that will be met coal and 32 percent thermal, he said.
Epting was not so optimistic about coal on the domestic utility market. The domestic utility market is stabilizing, but it is not expected to reverse, he said.
In 2008, the railroad hauled about 174 million tons of domestic thermal coal. Last year it hauled 61 million tons, he said. CSX expects about 2 gigawatts of generating capacity on its system to be retired this year, which will reduce shipments by about 2 million tons.
CSX is doing what it can to help remaining coal-fired power plants remain competitive, Epting said. The market for utility coal continues to be driven by weather, natural gas prices and regulations, he said.
In a question-and-answer session that following Epting’s remarks, other CSX executives said the utility coal market could be down 2 to 3 percent this year, depending on natural gas prices. When natural gas sells for less than $3 per million Btu, the generating system burns more gas and less coal, they said. In the first quarter of this year, gas has sold for about $2.70, they said.
One analyst asked for a breakdown of the profits made on various segments of CSX’s businesses. The executives would not provide that information, but they did say coal provides greater margins (that is, profits) than the intermodal business.
Systemwide, CSX is reducing the number of locomotives, cars and employees on its system. According to presentation materials, CSX had 31,800 employees in 2016. That number included contractors. Last year it had 27,200. It's goal is to get it down to 25,000 this year and 21,000 by the end of 2020.
What that means to places in the Ohio Valley is uncertain. Here in our Tri-State area where West Virginia, Ohio and Kentucky meet, CSX has many, many fewer employees than it did a few years ago. It wasn't that many years in the past that CSX built coal cars at Raceland, Ky. It has a large yard at Russell, Ky. People here in Huntington have seen workforce reductions at the heavy repair and rebuild shop.
Maybe I'm wrong, but it seems that a number of locomotives retired or withdrawn from service have been parked or stored here in Huntington.
Change is any business is expected. Some places benefit and some don't. It's like the river. It erodes soil from some places and deposits it in others. The question for us in places where any industry has a large presence is whether we will be the beneficiaries of all this change.
