Eastern Railroad Discussion > CSX: "we already got 2,000 employees out of the company"

highlights from the conference call.  In answer to Amit Mehotra's question about staffing, Jim   Foote indicated they've made this year's head count reduction.  And will articulate a target for 2019 in due time.  Locomotive count is down by another 800.

Mr Foote used the word employees.  Elsehwere he mentioned the reduction in contractors, especially in the IT area.

I feel honored to be one of those 2000.

Posted from iPhone

Mr Lonegro notes that the velocity / speed of trains rose again.  It was 17.8, and is now 19.  Still way behind the leader.

Here's why he says that matters:

And so, therefore -- again, that's how -- that's why the employee count goal is down. Employee headcount goes down because we need fewer load, as an example, we need 32 [fewer?] locomotives for every mile an hour we can improve on velocity. So, every 30 locomotives means you need fewer people to maintain the locomotives, which means you need fewer facilities to maintain the locomotive.

Lackawanna484 Wrote:
-------------------------------------------------------
> Mr Lonegro notes that the velocity / speed of
> trains rose again.  It was 17.8, and is now 19. 
> Still way behind the leader.
>
> Here's why he says that matters:
>
> And so, therefore -- again, that's how -- that's
> why the employee count goal is down. Employee
> headcount goes down because we need fewer load, as
> an example, we need 32 locomotives for every mile
> an hour we can improve on velocity. So, every 30
> locomotives means you need fewer people to
> maintain the locomotives, which means you need
> fewer facilities to maintain the locomotive.

I don't know that that philosophy makes any sense outside of drawings on a napkin....but you know what they say....Figures can lie and liars can figure!

Seems like a race to the bottom.

farmer Wrote:
-------------------------------------------------------
> I feel honored to be one of those 2000.
>
> Posted from iPhone

Enjoy your retirement/new gig whichever applies...
 

farmer Wrote:
-------------------------------------------------------
> I feel honored to be one of those 2000.
>
> Posted from iPhone

Dayum, I'm sorry I didn't know that you got cut off! It'll come back to bite them all in the butt!

Posted from Android

RFandPFan Wrote:
-------------------------------------------------------
> Seems like a race to the bottom.

I agree 100%.  Here's a novel concept, how about getting off your ass Mr. Foote and finding profitable work for the 2000 employees and 800 locomotives.  The emphasis should ALWAYS be on more customers, not fewwer employees, ESPECIALLY in a booming economy.

Lackawanna484 Wrote:
-------------------------------------------------------
> Mr Lonegro notes that the velocity / speed of
> trains rose again.  It was 17.8, and is now 19. 
> Still way behind the leader.

Here's a little perspective on velocity and dwell time. From a report by Moody's from earlier this month:

The conclusion reached by Moody's is blunt: "Service levels improve at railroads using precision scheduled railroading," the report said. However, the report pretty much finds one overreaching problem with precision railroading: customers may not like some of the things they need to do to adapt to it. "The model's train schedule is established with the primary objective to enhance the efficiency of railroad operations," the report said. "This narrows the scope to accommodate customer needs and may cause customers having to adapt to the railroad's train schedule." Although CSX' benchmarks might still be below the base year of 2013 that Moody's uses for the purposes of comparison, its network speed is only 2% less than that 2013 level. Dwell time at CSX compared to 2013 is down 16% from its average in 2013, according to Moody's.

This means that after all the PSR bluster so far, CSX traffic is still moving 2% SLOWER than 5 years ago, surely meaning that any seeming gains by PSR are simply the REVERSAL OF YEARS OF SERVICE DETERIORATION. Not sure I would be so excited when taking this into account. And the customers are not always getting better service from any seeming gains. The reason this is so is because the railroads are using the wrong metrics to measure performance. They're using metrics like velocity and dwell time for their own purpose, to impress Wall St., and not using metrics that really matter. Consider this:

From expert Larry Gross in a recent interview by Logistics Management: "I’ll add that there’s a dearth of meaningful, publicly available statistics for measurement of rail service. The two available stats—average train speed and yard dwell—don’t really tell the customers what they need to know. They are equivalent to an airline telling passengers what the cruising speed of the airplanes are and how much time they are typically spending taxiing to and from the runway. Interesting information, but not particularly useful when what I want to know is how long will it take me to get to a destination and how likely it is that the flight will be canceled or delayed. Having said that, to the limited extent that the available statistics convey information, the news is not good. Average merchandise train speeds have lately been running slightly below prior year—and almost 12% below the average for this season over the past five years."

So railroads, and even railfans, that measure railroad performance only by these metrics are taking their eye off the ball in evaluating service. These mean nothing to the customer, just like knowing how fast UPS trucks go or how long they sit in the sort center yard when you're waiting for an important package. It's meaningless...


Another consultant, Bill Rennicke, stated: "But short-term preoccupations with operating ratio may, in the long run, structurally harm service levels... Our first wish would be to see the railroads better understand that growth and service are not in opposition to operating ratio improvements. Cost cutting is wonderful if it’s focused on asset utilization and cycle time, but operating margins improve the most when revenue is increasing." This goes straight to what another poster mentioned, that instead of cutting assets to save money short-term, long term growth and viability of the franchise would be better off with the opposite approach. This shows the short-sighted and greedy nature of management and their real motive for implementing PSR.

Moody's, overall happy with PSR, concludes with this concession: 

"A material reduction in capital expenditures concurrent with the implementation of precision scheduled railroading may affect the railroad's ability to maintain good service levels over time if sustained too long." 

Lots more good stuff here:

www.logisticsmgmt.com/.../8th_annual_rail_intermodal_roundtable_work_in_progress

www.freightwaves.com/.../precision-railroading-moodys-report

Clearly, PSR with it's super-low operating ratio as the main goal, is NOT the way forward for the railroads long-term...

JG



Edited 2 time(s). Last edit at 10/17/18 21:15 by jgilmore.

What an excellent analysis. Thanks for this overview of PSR. It seems as though the big picture is being ignored for a quick return.


jgilmore Wrote:
-------------------------------------------------------
> Lackawanna484 Wrote:
> --------------------------------------------------
> -----
> > Mr Lonegro notes that the velocity / speed of
> > trains rose again.  It was 17.8, and is now
> 19. 
> > Still way behind the leader.
>
> Here's a little perspective on velocity and dwell
> time. From a report by Moody's from earlier this
> month:
>
> The conclusion reached by Moody's is blunt:
> "Service levels improve at railroads using
> precision scheduled railroading," the report said.
> However, the report pretty much finds one
> overreaching problem with precision railroading:
> customers may not like some of the things they
> need to do to adapt to it. "The model's train
> schedule is established with the primary objective
> to enhance the efficiency of railroad operations,"
> the report said. "This narrows the scope to
> accommodate customer needs and may cause customers
> having to adapt to the railroad's train schedule."
> Although CSX' benchmarks might still be below the
> base year of 2013 that Moody's uses for the
> purposes of comparison, its network speed is only
> 2% less than that 2013 level. Dwell time at CSX
> compared to 2013 is down 16% from its average in
> 2013, according to Moody's.
>
> This means that after all the PSR bluster so far,
> CSX traffic is still moving 2% SLOWER than 5 years
> ago, surely meaning that any seeming gains by PSR
> are simply the REVERSAL OF YEARS OF SERVICE
> DETERIORATION. Not sure I would be so excited when
> taking this into account. And the customers are
> not always getting better service from any seeming
> gains. The reason this is so is because the
> railroads are using the wrong metrics to measure
> performance. They're using metrics like velocity
> and dwell time for their own purpose, to impress
> Wall St., and not using metrics that really
> matter. Consider this:
>
> From expert Larry Gross in a recent interview by
> Logistics Management: "I’ll add that there’s a
> dearth of meaningful, publicly available
> statistics for measurement of rail service. The
> two available stats—average train speed and yard
> dwell—don’t really tell the customers what
> they need to know. They are equivalent to an
> airline telling passengers what the cruising speed
> of the airplanes are and how much time they are
> typically spending taxiing to and from the runway.
> Interesting information, but not particularly
> useful when what I want to know is how long will
> it take me to get to a destination and how likely
> it is that the flight will be canceled or delayed.
> Having said that, to the limited extent that the
> available statistics convey information, the news
> is not good. Average merchandise train speeds have
> lately been running slightly below prior
> year—and almost 12% below the average for this
> season over the past five years."
>
> So railroads, and even railfans, that measure
> railroad performance only by these metrics are
> taking their eye off the ball in evaluating
> service. These mean nothing to the customer, just
> like knowing how fast UPS trucks go or how long
> they sit in the sort center yard. It's
> meaningless...
>
>
> Another consultant, Bill Rennicke, stated: "But
> short-term preoccupations with operating ratio
> may, in the long run, structurally harm service
> levels... Our first wish would be to see the
> railroads better understand that growth and
> service are not in opposition to operating ratio
> improvements. Cost cutting is wonderful if it’s
> focused on asset utilization and cycle time, but
> operating margins improve the most when revenue is
> increasing." This goes straight to what another
> poster mentioned, that instead of cutting assets
> to save money short-term, long term growth and
> viability of the franchise would be better off
> with the opposite approach. This shows the
> short-sighted and greedy nature of management and
> their real motive for implementing PSR.
>
> Moody's, overall happy with PSR, concludes with
> this concession: 
>
> "A material reduction in capital expenditures
> concurrent with the implementation of precision
> scheduled railroading may affect the railroad's
> ability to maintain good service levels over time
> if sustained too long." 
>
> Lots more good stuff here:
>
> www.logisticsmgmt.com/.../8th_annual_rail_intermod
> al_roundtable_work_in_progress
>
> www.freightwaves.com/.../precision-railroading-moo
> dys-report
>
> Clearly, PSR with it's super-low operating ratio
> as the main goal, is NOT the way forward for the
> railroads long-term...
>
> JG

junctiontower Wrote:
-------------------------------------------------------
> The emphasis should ALWAYS be on
> more customers, not fewwer employees, ESPECIALLY
> in a booming economy.

I’m glad you aren’t running a company of which I am a shareholder. Market share/number of customers is a horrible way to measure the success of a business. It’s similar to competing on price. Getting customers is easy. Getting customers on which you can make a profit is difficult.

Posted from iPhone

altoonafn Wrote:
-------------------------------------------------------
> junctiontower Wrote:
> --------------------------------------------------
> -----
> > The emphasis should ALWAYS be on
> > more customers, not fewwer employees,
> ESPECIALLY
> > in a booming economy.
>
> I’m glad you aren’t running a company of which
> I am a shareholder. Market share/number of
> customers is a horrible way to measure the success
> of a business. It’s similar to competing on
> price. Getting customers is easy. Getting
> customers on which you can make a profit is
> difficult.
>
> Posted from iPhone

Of course there is no profit if there are no customers....likewise we can provide no service without infrastructure. We pound our heads on pavement making the paper railroad mavens see that this is a service and we need to have customers to serve. 

All the while screwing over employees that depend on this career to support a family!

Posted from Android

altoonafn Wrote:
-------------------------------------------------------
> junctiontower Wrote:
> --------------------------------------------------
> -----
> > The emphasis should ALWAYS be on
> > more customers, not fewwer employees,
> ESPECIALLY
> > in a booming economy.
>
> I’m glad you aren’t running a company of which
> I am a shareholder. Market share/number of
> customers is a horrible way to measure the success
> of a business. It’s similar to competing on
> price. Getting customers is easy. Getting
> customers on which you can make a profit is
> difficult.
>
> Posted from iPhone

Tell that to Walmart and Amazon.  They were built on volume and price. Sell a LOT of it and sell it cheap.  Now of course a railroad is quite a different thing, but you must always put an emphasis on growing the business, not just concentrating on the low hanging fruit.  If you own an orchard, you don't cut off the top of the tree and only pick the fruit you can reach from the ground. I think these Wall Street butt kisser types would be perfectly fine with a $10 net profit if they could brag that they only spent $2 making it.  Low operating ratios are fine to a point, but at some point you can't make more money by serving fewer customers and doing less business.

with driver shortages, the time is right for railroads to TAKE a LOT of business away from trucks in both local and long distance routes.........

66

Can you imagine airlines behaving like csx does? We don’t want you because we don’t make enough off of you. I’m sure they’d love to have a 737’s flight paid for by one or two customers.

Here’s where the railroads are failing: get the service levels up and you will have those premium customers. But then you fill the rest of the train (or plane in my example) in order to BOOST profits.

Shareholders are idiots. Period. When you run a company with them and only them in mind, it is doomed to fail. Right now, the stock holder is king. What happens when their rate of return begins to diminish? They take their money and run. Leaving the company to fight to survive with what the stockholder took from the profits by forcing the company to cut limbs off to feed a dying tree.

Joe


altoonafn Wrote:
-------------------------------------------------------
> junctiontower Wrote:
> --------------------------------------------------
> -----
> > The emphasis should ALWAYS be on
> > more customers, not fewwer employees,
> ESPECIALLY
> > in a booming economy.
>
> I’m glad you aren’t running a company of which
> I am a shareholder. Market share/number of
> customers is a horrible way to measure the success
> of a business. It’s similar to competing on
> price. Getting customers is easy. Getting
> customers on which you can make a profit is
> difficult.
>
> Posted from iPhone

The Moody's piece makes an important point about "the customers not liking" PSR inspired changes. Offending your customers without offering something of significant value to them is a huge risk.

CP and CN offered much lower grain rates to main line grain elevators which could originate unit trains.

JG, thanks for the great reference link.

Posted from Android

Joey makes several excellent points, but I'd like to focus on just two.

Airlines do segment customers to nickel and dime them. Low fares, then $25 to pick a seat. $30 to bring a bag. Lunch box costs $12.

-------

Shareholders aren't stupid. Most look for a good rate of return, and oversight by the board. CSX Board and major fund companies caved to a 2% owner. Get 4-5 major owners on board, and you have 51%.

I've said on many posts that employees are short shifting themselves by not owning 15% - 20% of their companies.

No way Mantle Ridge would have won control of CSX.

Posted from Android

Lackawanna484 Wrote:
-------------------------------------------------------
> The Moody's piece makes an important point about
> "the customers not liking" PSR inspired changes.

Yes, and the sad thing is they don't have to do this, as evidenced by BNSF's approach, also talked about in the Moody's report:

Although the report gives precision railroading glowing reviews, it concedes that it "is not a panacea for service problems." One of the supporting facts for that statement is that BNSF, which is not a precision railroader and is owned by Berkshire Hathaway, "has maintained good service levels that to date exceed its average 2013 levels." However, for the companies where investor focus is increasingly on OR, some metrics may mean less to Wall Street than it does at BNSF, which has the long-term growth philosophy of Warren Buffet as its standard.

Although perhaps riding high now, railroads are becoming less and less important to the transportation market and are still losing share overall. PSR and constant cutting have mitigated the financial repercussions of this, but offer no real longterm solution. Non-intermodal carloads have decreased over 15% from 2006 to 2017 despite the booming economy, and these are the very loads that offer the highest premiums. It takes real effort and more resources to compete in today's marketplace, something the rails have either forgotten or are unwilling to do. With this track record, will there even be railroads in the longer future?

JG

 

jgilmore Wrote:
-------------------------------------------------------
> Although perhaps riding high now, railroads are
> becoming less and less important to the
> transportation market and are still losing share
> overall. PSR and constant cutting have mitigated
> the financial repercussions of this, but offer no
> real longterm solution. Non-intermodal carloads
> have decreased over 15% from 2006 to 2017 despite
> the booming economy, and these are the very loads
> that offer the highest premiums. It takes real
> effort and more resources to compete in today's
> marketplace, something the rails have either
> forgotten or are unwilling to do. With this track
> record, will there even be railroads in the longer
> future?
>
> JG

JG, not sure if you or Moody's wrote this section of your post, but I would counter that the railroad will become obsolete because of the 15% decrease in carloadings between 2006 and 2017. I would argue that most, if not all of that decrease is due to the rapid decline of domestic thermal coal loadings. While crude oil stepped in for a while to help boost carloadings as coal declined, it too has tapered off, and wasn't a significant portion of the carloading numbers prior to 2006. Steel and auto loadings fluctuate with the economy, so those numbers will float. Really hard to more autos, grain, steel, met coal, lumber, aggregates, checmicals and large scale bulk goods without trains.

Russ