CSX’s new CEO eyes yard closures, truckers’ market share

DETROIT/NEW YORK/MONTREAL: Shortly after being named CEO of Canadian Pacific in 2012, Hunter Harrison hoisted himself onto a roof near a Montreal rail yard, pulled up a beach chair and timed the company’s switch engines using a stopwatch and binoculars.

“I was seeing how long it took them to switch the cars,” Harrison, who was named chief executive of CSX Corp on Monday, told Reuters in an interview. Harrison’s appointment came amid shareholder pressure that was led by activist investor Paul Hilal of Mantle Ridge LP.

Harrison has already turned around three railroads – including Canadian National Railway Co and Canadian Pacific. For his fourth stint as CEO, Harrison plans to attack costs aggressively at CSX and says he believes he can deliver growth by taking freight business away from trucks.

“We lost a lot of business to the highway. There’s the possibility that that shift could be swinging back,” Harrison said, in his first comments on CSX opportunities since taking the role.

Harrison’s attention to detail – his Florida home was equipped with television screens displaying key switch points along CP’s network so he could see problems immediately – is one reason CSX’s stock rose 35 per cent since mid-January when Hilal first floated the idea of installing him as CEO.

His ability to squeeze railroads’ profits by shutting yards, cutting employees and driving efficiency using ‘precision railroading’ is another, which is why Harrison, 72, will likely cost CSX US$300 million for a four-year contract.

He takes the helm of America’s third-largest railroad at a time when revenue from coal, CSX’s most lucrative commodity, has fallen by a third from 2014 to 2016 and the company’s cumulative job cuts since 2012 are approaching 20 per cent of its workforce.

Now, the question is whether he can work the same magic work a fourth time and also grow the railroad’s business absent a coal rebound.

Just weeks before CSX bowed to investor pressure and appointed Harrison as CEO, the company announced it was cutting 1,000 of 4,500 management positions.

“The concern is they may already be cutting into muscle as well as fat,” said independent railroad analyst Anthony Hatch.

Hatch lauds Harrison as a ‘de facto change agent’ for turning around two Canadian railroads and the Illinois Central Railway.

But Hatch questions whether the differences in size, shape, scale and population density between CSX and Canadian peers mean the Jacksonville, Florida-based railroad will be a tougher nut to crack. — Reuters