CSX COO says internal, industry collaboration key to capitalize on opportunities
CSX’s new chief operating officer intends to break down internal information silos and support the railway’s role in a broader industry effort to work collaboratively to gain market share away from trucks.
An emphasis on cross-departmental information sharing can also benefit CSX (NASDAQ: CSX) in discovering any additional ways to cut costs and improve efficiency, COO Mike Cory said during CSX’s Thursday’s earnings call to discuss third-quarter 2023 financial results.
Cory, who assumed the role in early September after the surprise departure of Jamie Boychuk, is a 40-plus-year veteran of the rail industry and served as COO at Canadian railway CN (NYSE: CNI) from 2016 to 2019.
“[I look at the] visibility of waste and getting it and collating that information. … What I do is I try to teach and learn, learn and teach. That’s really what it’s about. We have a good group of people, — many of them younger — who haven’t been experienced in the positions they’re in,” Cory said during the earnings call. “That’s really where I’ve been focusing: first of all, to get a temperature read, but [also] really to start to share with them how to go about getting at that waste. And it’s not easy in a network like this. And it’s something that we will do as a team.”
By going “through the waste exercise,” he said, “it starts to allow you to get into understanding how to devise the network … and keep and even get better service.”
President CEO Joe Hinrichs added that Cory’s appointment was good timing for CSX, which he said has been steadily improving its rail service and will be in a position to take on additional business. CSX’s emphasis on improving company culture, a program called ONE CSX, will also support Cory’s efforts, according to Hinrichs.
“I think the timing of Mike joining us is perfect because we’ve had a year of taking advantage of the operating model that we have, engaging with our employees and doing a lot of things around culture and our ONE CSX,” Hinrichs said. “We’ve made tremendous progress, especially on the service metrics … and we have close industry-leading metrics across the board on the operating side.
“Now we have Mike coming in with his experience, a fresh set of eyes and all the opportunities that can now allow us to now step back and say, ‘OK, we’ve come this far, great work, proud of the team’s work. Now here’s the opportunity that we have to advance even further,’” Hinrichs continued.
Cory said: “What I’m trying to share with them is the availability of data and how to use it. I don’t see that they’ve had enough time. They’ve gone through a pretty tough period here over the last couple of years. They’ve rebounded extremely nicely. And to Joe’s point, this is to get to the next level where they’re self-sufficient. And I know they can be, they know they can be, but I’m here to show them that way.”
This effort to break down internal silos comes at a time when CSX and the broader freight rail industry are seeing more collaboration among Class I railroads to provide new or expanded service offerings.
Announcements this year include CSX’s plans to partner with Canadian Pacific Kansas City (NYSE: CP) to develop a corridor between the U.S. Southeast and Mexico and Texas; an expanded intermodal service among CN, Union Pacific (NYSE: UNP) and Mexican company Grupo México (GMXT); and CN’s partnership with Norfolk Southern (NYSE: NSC) to offer a domestic intermodal service connecting businesses in Canada and the Upper Midwest with the U.S. Southeast.
Many of these announcements occurred after CP and Kansas City Southern formally merged this past spring.
“You have Western Class Is going after the Mexico business. We can participate in that. We’re really happy to work with them. … [There is] a lot of momentum just around us all working together to create opportunities for ourselves, where I think for decades we’ve been pushing volume — quite frankly, off the railroad — onto truck. And now we’re all going to work collectively to really change that trend. And that’s exciting,” said CSX Chief Commercial Officer Kevin Boone.
Hinrichs reiterated that “in order for this industry to see significant growth, we have to work better together to be motivated to serve customers in new and better ways. And we’re starting to have some of those good conversations with other Class I railroads to be able to talk and think differently about how do we serve the customer and how do we get excited about that opportunity.
“So, there are a number of incremental steps we can take to grow the business beyond just getting better and all the work that we’re doing and the cynical nature of our business, which will be some things that should help us going into ’24,” Hinrichs continued.
Q3 2023 financial results
A decline in operating revenues put pressure on CSX’s net profit for the third quarter of 2023, CSX reported late Thursday.
Net earnings for the Eastern U.S. Class I railroad were $1.3 billion, or 42 cents per diluted share, for the third quarter of 2023, compared with $1.1 billion, or 52 cents per diluted share, for the third quarter of 2022.
Revenue totaled $3.57 billion in the third quarter, down 8% year over year (y/y). But expenses fell 2% to $2.28 billion on lower fuel expenses and lower costs for equipment and rents.
Operating income was $1.3 billion, down 18% y/y, while operating ratio — a metric that investors sometimes use to gauge the financial health of a company — rose to 63.8% from 59.5%.
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