CSX is playing a long-term game when looking at encouraging shippers to switch from using trucks to using the railroads, and quantifying what that might look like could take some time, executives said during the eastern U.S. Class I railroad’s earnings call to discuss second-quarter 2023 results.
“I think in terms of numbers we’ll probably put a finer point on the truck conversion opportunity over the next three years at some time in the future. There’s a huge focus by the team to really look at our pipeline and measure it and focus on those customers where there’s an opportunity. And some customers have a lot more opportunities than others and we are making sure we have the resources up against those customers to really drive that conversion,” Kevin Boone, CSX executive vice president for sales and marketing, told investors during the call late Thursday.
To measure what conversion opportunities are available, CSX has internal tools it uses to analyze the data it receives. The railroad has also been holding multiple whiteboarding or brainstorming sessions since the start of this year, Boone said.
But in order to bring about more market conversions from trucks to rail, the linchpin is proving that the railroad can provide reliability sustainably, Boone said.
“I think the most important thing for a customer is reliability, right? And in some customers’ eyes, they want to see more of that reliability. They like what they see today. We’ve got to continue to perform and have those conversations. And sometimes it’s lane by lane. It’s carload by carload where we get that confidence from a customer,” Boone said.
“And so we’re in the very early innings of this. We feel the acceleration from first quarter to second quarter, and I expect those conversations to pick up even more in the third and fourth quarters as we continue to perform,” he continued. “Sharing what we’re doing on the hiring side is incredibly helpful. Sharing with them what we plan to do to make our network more resilient, winning their confidence — that’s the No. 1 issue. It’s not price.”
CSX plans to keep ensuring reliability as a priority even if the market softens and there is pressure for the railroad to match resources with demand. CSX experienced volume and pricing growth in its merchandise segment in the second quarter, and there needs to be resources available to sustain trip plan compliance levels.
“We’re watching the volumes very carefully and making sure that we have the staffing levels to support sustained high levels of customer service,” CSX President and CEO Joe Hinrichs said on the call. He noted that the market is “mixed,” with growth in metals, minerals and automotive volumes but declines in intermodal and chemicals volumes.
“Our focus is really on making sure we have the manpower to be able to sustain” a certain level of service,” Hinrichs continued. “At the same time, of course, if we see volume reductions further than what we’re seeing right now, it will respond accordingly. But right now, the volumes that we’re seeing are supporting this merchandise volume growth and our high levels of service.”
CSX CFO Sean Pelkey said the company has “levers we can pull” should the railroad need to respond to slumping macroeconomic conditions. “We would look to do that but not jeopardize the ability to continue to gain momentum and gain share off of the truck, which is the ultimate goal here to kind of grow the pie and grow our profitability,” Pelkey said.
CSX Q2 2023 financial results
CSX’s second-quarter 2023 financial results “met our expectations” of having to manage through lower intermodal storage revenue and normalizing export coal prices, Hinrichs said on the earnings call.
But despite the lower intermodal volumes — due in part to slower imports and destocking — CSX’s merchandise segment saw stronger volumes and pricing in the second quarter, executives said.
“Our network continues to run well, and our company’s initiatives combined with our employees’ hard work and commitment to making a big difference and helping to set our railroad apart,” Hinrichs said in prepared remarks. “There was much more to do, but our results this quarter show signs of the progress we are making as we lay the groundwork for long-term growth and value creation.”
Revenue at the eastern U.S. Class I railroad fell 3% to $3.7 billion from the second quarter of 2022 amid lower fuel prices, reduced supplemental revenue, a decline in export coal benchmark prices and a decrease in intermodal volumes, the company said.
Net income for CSX (NASDAQ: CSX) in the second quarter of 2023 was $996 million, or 49 cents per diluted share, down 15% from $1.18 billion, or 54 cents per diluted share, in the second quarter of 2022. Second-quarter 2022 results were also affected by a $122 million gain related to a property sale agreement with the commonwealth of Virginia.
Operating income fell 13% to $1.48 billion, while operating ratio was 59.9%, compared with 55.4% in the second quarter of 2022. OR is a metric that investors sometimes use to gauge the financial health of a company, with a lower OR implying improved health.
Expenses increased 5% year over year to $2.2 billion amid higher labor and fringe costs as well as higher depreciation and amortization expenses.
Subscribe to FreightWaves’ e-newsletters and get the latest insights on freight right in your inbox.
Click here for more FreightWaves articles by Joanna Marsh.
- CSX’s Q2 profit slips 15% on lower revenues
- Sites across US primed for rail-served industrial development
- Railroads move to create more access between Mexico, Texas, US Southeast
- CPKC, CSX form joint venture for hydrogen locomotives
- Freight rail leaders realize relationship rebuilding required
The post CSX continues to target truck-to-rail conversions appeared first on FreightWaves.