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Railroad Executive Hunter Harrison Could be at the Helm of CSX

03.01.17 | Roger Bull | The Florida Times-Union

Hunter Harrison is in the midst of discussions that could put him at the helm of CSX, the largest railroad in the eastern United States, third-largest in the country, and a fixture in downtown Jacksonville.

Shareholders won’t vote on that until this spring, but analysts have predicted the chances of Harrison taking over are very high. And those chances seemed to increase even more Tuesday, when the company announced that CEO and Chairman Michael J. Ward and President Clarence W. Gooden would retire in May. A year ago, Ward had said he planned to work three more years.

Larry Gross, a rail expert with FTR Transportation Intelligence, put it this way: “In terms of a railroad operating manager, he’s about as good as there ever has been. His record is extremely strong.”

Harrison’s resume and reputation have been built on his tenure at three railroads: Illinois Central, Canadian National and Canadian Pacific. At each one, costs went down and profits up. But the number of employees went down with the costs.

But he’s also done it with a plan, with what’s called precision railroading. With most railroads, each rail yard set its own work schedules, said Anthony Hatch, a railroad analyst. That often created clashing schedules, he said, which required too many people and too much equipment.

“But he wants the entire system run by a centralized headquarters and working more like a conveyor belt,” Hatch said, “with trains running seven days a week, 24 hours a day and exactly on time.”

The fact that Harrison usually reduces staff is more a reflection of efficient operations needing fewer people than staff reduction as a goal itself, he said.

The railroads

Illinois Central was on the brink of bankruptcy when Harrison arrived there in 1993. But he quickly turned that around and when Canadian National bought it in 1998 for $2.4 billion, he become chief operating officer at CN and went to work.

“He has a very significant focus,” Gross said. “That means more miles out of the assets he owns. He likes to run longer trains, which means fewer trains if the volume is the same.”

Gross said Harrison is very selective about the customer base.

“He’s just focused on trying to align the customer base with how the railroad can efficiently provide service. If you want two cars one week and 200 cars the next, that doesn’t work for him. He’ll either drop customers or raise your rates.”

CSX

Tuesday, the same day that CSX announced the retirement of Ward and Gooden, it also revealed that it would soon lay off about 1,000 management employees. But the company said that had been in the works well before Harrison and Hilal entered the picture.

In CSX, Harrison will find very different challenges than at his last two Canadian railroads.

“It’s just not because they’re Canadian,” Gross said. “They’re simpler systems, longer haul, more linear. CSX is a more complex network. If you look at it geographically, it’s more of a mesh than a string.”

Both Hatch and Gross said that CSX’s reputation in the industry has improved dramatically.

“It wasn’t necessarily viewed as the tighest organization,” Gross said, “but in recent years, it’s upped its game.”

“It’s much better,” Hatch said. “They have caught Norfolk Southern, their ancient rival. But U.S. rails are hurt by the 45 percent drop in their baseload commodity, coal, since 2008.”

The reduction in coal has been dramatic. CSX’s coal business dropped from $2.85 billion in 2014 to $1.8 billion in 2016. And while its stock has risen 29 percent to $47.99 since word came of Harrison’s involvement, Gross had this word of warning:

“What Harrison has not demonstrated is the ability to grow the business,” he said. “He can increase profitability in an existing portfolio, but not grow it.

“But no other railroad is growing either. The challenge of the next generation of railroaders is that they have to figure out a way to reverse decline in volume,” Gross said. “It’s not just a matter of increasing efficiency. That is not what you’d look at someone like Hunter to do."

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Larry Gross, Intermodal ExpertLarry Gross
Rail and Intermodal Expert
FTR | Transportation Intelligence
lgross@ftrintel.ccom
(888) 988-1699, ext. 58




 


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