CSX chief Hunter Harrison eager to talk revamp with U.S. rail regulator

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CSX Corp. head Hunter Harrison says he is relishing the chance to face the U.S. rail regulator amid complaints about the company's service.

He'll get his opportunity to explain the merits of his top-to-bottom revamp of Florida-based CSX in Washington at an upcoming hearing called by the Surface Transportation Board (STB) over rail-network disruptions.

"I wouldn't miss it," Mr. Harrison told The Globe and Mail. "I'm going to say we're back."

With the support of investor Paul Hilal, Mr. Harrison became chief executive officer of CSX in March, after leaving Calgary-based Canadian Pacific Railway Ltd. Mr. Harrison's bare-bones, scheduled operating model – he calls it precision railroading – is credited with turnarounds at CP, Canadian National Railway Co. and Illinois Central Gulf Railroad Co.

Since arriving at CSX, he has rolled out his plan – slashing jobs, idling locomotives, closing some yards and retooling others.

"The goal is to improve shareholder return, and that's why I got here to begin with," Mr. Harrison said. "The shareholder, I'm going to represent their case, that I'm doing a good job for them."

Industry groups and rail customers have complained to the STB the changes have caused trains to arrive late – or not at all.

"Since mid-July, the board has been closely monitoring CSX's performance after widespread service problems resulted from CSX's implementation of changes to its operating plan," said the STB, an independent U.S. government agency that investigates and resolves rate and service disputes at railways and parts of other transportation industries.

Companies and organizations that will appear at the STB hearing include food and agriculture giant Cargill Inc., the National Grain and Feed Association and Pinnacle Polymers LLC, according to notices on the STB's website. The hearing was scheduled for Sept. 12‎, but the TSB said it will be postponed due to Hurricane Irma.

An official from Louisiana-based Pinnacle will testify that "CSX's ongoing delays and service problems are adversely affecting Pinnacle and jeopardizing its business with both its suppliers and customers," a company lawyer told the STB in a letter.

Another CSX customer, JCI Jones Chemicals Inc., cancelled its plan to testify, telling the STB in a letter that talks with CSX executives have addressed its concerns.

Mr. Harrison said operations have improved in recent weeks, and will continue to improve in the months and years ahead. He blames some of the problems on a culture that is resistant to change, "political" motives of shipping-industry groups and two derailments that slowed trains in parts of the network.

"Did we have some trouble? Yes, we had some trouble," Mr. Harrison said. "Our people, my team, got a little aggressive and maybe a little ahead of ourselves with the closure of facilities and didn't anticipate some of the pushback we've had."

He cited company data on train speed and car deliveries showing improvements in recent weeks. "If you look at any of the metrics, they've improved across the board," Mr. Harrison said. "All those are pretty good. Better than they were but not as good as they're going to be, and that's with [3,700] less people."

Mr. Harrison bristled at the findings of a recent Cowen Inc. customer survey that showed a large majority are unhappy with the railway's service.

He said the number of respondents was too small to be meaningful and that the positive comments he has personally heard from customers were not reflected. "Today is a good day," Mr. Harrison said. "It's better than it was when I got here, because there's a lot less people, a lot less locomotives, a lot less cars, a lot less emissions, but nobody talks about that much."

Investors anticipating Mr. Harrison's arrival at CSX in March drove up the stock price by 37 per cent. Since then, however, the share price is little changed, as investors wait for Mr. Harrison to deliver on the promised improvements in financial performance.

Jason Seidl, a stock analyst at Cowen Inc., said on Wednesday he is confident Mr. Harrison will succeed and that CSX's performance will improve.

Frank Lonegro, CSX's chief financial officer, stood in front of a room of investors in Boston on Wednesday to explain how "transformational change" will end six years of "range-bound" financial performance. Mr. Harrison "has to break the mould" to ensure the company grows even after the loss of $2-billion (U.S.) in coal revenue, he said.

He pointed to slides that displayed the moves the company has made – shedding 3,700 jobs this year, reducing the number of operating divisions to five from nine and streamlining several rail yards to reduce transit times and costs. "Hunter is resolute in terms of this being the right operating model. He is resolute that we need to muscle through these changes … to run a better railroad," Mr. Lonegro said.