CEO's turnaround plan wreaks havoc on supply chains for farms,
mines, factories
By Paul Ziobro
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 23, 2017).
The freight-train ride from Chicago to Colesburg, Tenn., usually
takes a few days. Earlier this month, though, the ride was 18 days,
13 hours and 57 minutes, logs show.
Congestion, delays and erratic service are hitting CSX Corp.,
one of only two railroad operators that handle nearly all the
shipments that move by train east of the Mississippi River. The
problems began in May and became much worse this summer, according
to customers and weekly performance data reported by the
Jacksonville, Fla., company.
It's a colossal mess for businesses that have spent years
streamlining supply chains to run with just-in-time
inventories.
Coal producers say their stockpiles are growing because CSX is
taking longer than it should to pick up coal-filled railcars from
mines in Ohio and West Virginia. Food makers have slowed production
in hopes that ingredients such as oils and sweeteners will last
until the next delivery. Some companies are trying to avoid the
worst bottlenecks in CSX's system, including by switching to trucks
and other railroads.
McDonald's Corp. has supplemented its regular train shipments of
frozen french fries into the Nashville, Tenn., area with truck
deliveries, according to a person familiar with the matter. Kellogg
Co. has called in truck-hauled tankers of cooking oil to ensure
uninterrupted production of Pringles at a Jackson, Tenn., factory,
a person familiar with the matter said.
A spokeswoman for McDonald's said french fry eaters haven't been
affected because "we have contingencies in place to ensure there is
no disruption in our supply." Kellogg didn't respond to a request
for comment.
Much of the blame is aimed at Hunter Harrison, the 72-year-old
railroad-industry veteran who became CSX's president and chief
executive in March as part of a shake-up led by an activist
investor. He promised to run the company's 21,000-mile network more
efficiently by idling excess equipment, closing some freight yards
and running trains on a tighter schedule.
Mr. Harrison used a similar strategy to turn around Canada's two
largest railroads, Canadian National Railway Co. and Canadian
Pacific Railway Ltd. He conceded that the program is off to a rocky
start at CSX but said any short-term problems will lead to improved
service in the long run.
"I'm sensitive to the issues that we've had. I don't want to
give the impression that I'm not," Mr. Harrison said in an
interview. "Some of the characterizations of some of the issues
have been inaccurate and have been far overstated."
He added: "Each one that has come to our attention, we have
worked and continue to work very diligently" to address the
problem.
Mr. Harrison said some of the recent snarls were beyond his
control, such as a derailment in Pennsylvania that interrupted
service in that region for more than a week in July. Some CSX
employees also are resisting the efficiency plan, he said.
In June, CSX fired nine employees in Cincinnati who Mr. Harrison
said falsified computer reports about train-car movements to avoid
being criticized about delaying customer shipments. He said this
month's derailment of a CSX freight train in South Carolina appears
to be suspicious. Local news reports said a bulldozer was partially
blocking the tracks.
Unions representing CSX workers disputed Mr. Harrison's
comments. In a letter to Mr. Harrison earlier this month, they said
the unions refuse "to accept responsibility for service disruptions
that negatively affect the customers when we have no input on
operational changes."
Late last month, the federal Surface Transportation Board
ordered CSX to hold weekly meetings with the railroad regulator to
discuss the problems. Last week, the STB told Mr. Harrison in a
letter that it is concerned about "widespread degradation" of rail
service.
"The network needs to be fluid," Ann Begeman, the agency's
acting chairwoman, said in an interview. Several companies have
told the STB that they were close to shutting down factories
because of service-related problems at CSX, she added.
A broad group of freight shippers, the Rail Customer Coalition,
told lawmakers in a letter that the service woes "put the health of
our nation's economy in jeopardy." The group called on Congress to
investigate the problems.
CSX's Mr. Harrison responded that the letter contains "unfounded
and grossly exaggerated" statements.
Chemical company Chemours Co. expected Mr. Harrison to make big
changes at CSX but was in the dark about when they would occur,
said Eddie Johnston, federal government affairs manager at
Chemours. The Wilmington, Del., company, spun off from DuPont Co.
in 2015, makes Teflon coatings, pigments for automotive paints and
cosmetics ingredients.
In May, CSX trains started missing expected stops at Chemours
plants in the eastern U.S., according to Mr. Johnston. Sometimes,
CSX trains delivered raw materials to Chemours but left behind
outbound freight cars meant for customers farther up the supply
chain.
Other times, he said, CSX picked up finished goods from Chemours
but didn't deliver raw materials or empty freight cars needed for
the next pickup.
Mr. Johnston said one Chemours plant came within hours of
shutting down in late July before a CSX train arrived with a
critical ingredient. Chemours has slowed production at one plant to
make sure it can keep running.
"We're sort of hanging by a thread," he said. More than once,
Chemours complained to a CSX employee about the problems and then
found out the next day that the employee had left. CSX has
eliminated 2,300 jobs this year. It had about 27,000 employees in
December.
Chemours is using trucks to keep its plants running and deliver
finished products to customers. A conversation last month between
Mr. Harrison and Mark Vergnano, president and CEO of Chemours, has
led to better communications, but service levels haven't improved.
"There are people that think normalcy still could be months away,"
said Mr. Johnston.
Mr. Harrison said CSX customers were "well-informed" of what the
changes would look like, given his record at other railroads. "I
don't think anyone got caught by surprise," he said.
One of the most jarring changes by Mr. Harrison was the
elimination of hump yards, massive facilities that sort long trains
by rolling them down an incline and directing them toward tracks
where new trains are built. Those trains then roll out to new
destinations.
CSX's Mr. Harrison wants more freight trains sorted when the
railroad picks them up and to use locomotive power to break apart
and reassemble trains. Soon after taking over at CSX, he closed
eight of 12 hump yards, adding more strain to the four remaining
locations.
One of the closed hump yards, the Avon Yard in Indianapolis, has
since been reopened. "We might have made a mistake" there, said Mr.
Harrison.
CSX's closed Radnor hump yard in Nashville, Tenn., was part of a
500-acre facility. The entire terminal has struggled to adjust.
A measurement of freight-yard delays called dwell time averaged
53.5 hours in Nashville in the latest week for which CSX has
released figures, up 63% from a year earlier. Dwell time has more
than doubled since April.
Mr. Harrison said the Nashville terminal "didn't have the best
culture," so he brought in some new managers to try to unclog it.
He said the worst is behind CSX in Nashville, and dwell times have
begun to rebound.
After this article was published online Tuesday, CSX said it has
revised how it calculates three service measurements "to more
accurately reflect the company's operational performance." Using
the new methodology, average dwell time throughout CSX's network
was 12.5 hours in the week ended Aug. 18, an improvement of 2.3%
from a week earlier.
Some shippers complain that freight is taking roundabout routes
that add days to the travel time. The railroad industry calls it
ping-ponging.
"All of a sudden, we're seeing a flood of these types of
things," said Dennis Wilmot, chief executive of Iron Horse
Logistics Group, of Aurora, Ohio, which manages railcars for
customers. CSX took an Alabama-bound metals shipment to New
Orleans, where it was handed off to a Union Pacific Corp. train and
then headed west before turning around and eventually reaching
Alabama, according to Mr. Wilmot.
CSX said it has been "sending some cars to less-congested,
out-of-route terminals for sorting" to keep "customer deliveries
moving as efficiently as possible through some congested
terminals."
Poultry farmers are "incurring hundreds of thousands of dollars
in additional business costs to make emergency purchases of
ingredients transported by truck to keep poultry alive," according
to a letter to regulators last week from the National Grain and
Feed Association and other agricultural trade groups. The groups
said some CSX feed deliveries were delayed nearly three weeks.
Each day that a railcar is delayed costs the owner as much as
$100, estimates Herman Haksteen, president of the Private Railcar
Food and Beverage Association, which represents large food
companies like PepsiCo Inc. and Kraft Heinz Co. For now, companies
are absorbing the higher costs.
"They're doing everything they can so the consumer doesn't see
it," said Mr. Haksteen. "The customer might see it next year."
Brent Bilsland, chief executive of coal producer Hallador Energy
Co., of Denver, said service improved in July and August after
"subpar" performance in the second quarter. "The performance of the
CSX has been much more precise and really, really quite good," he
told analysts Aug. 9.
Shipments of corn and soybean meal by CSX are arriving at a
Gettysburg, Pa., facility in seven days, down from 12 days, said
Dan Sharrer, co-owner of Agricultural Commodities Inc. The company
makes pretzel flour, fertilizer and poultry feed.
"They stubbed their toe, but all in all, they have done me
well," he said.
CSX has told customers to brace for a few more rocky weeks.
"Shortly after Labor Day, you'll see things return to what we call
normal," Mr. Harrison said. "And then they'll start tracking up
again."
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
August 23, 2017 02:47 ET (06:47 GMT)
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