Employed as: APE, for 20-30 years
Posted: 18 December 2019
Below the article in the Jacksonville Business Journal cited by i about
Toyota suing the railroads, is a link to this article from last
It gives examples how, after EHH arrived, CSX re-defined it's metrics
to make everything look great.
Dwell time, velocity, operating ratio... you can't believe any of it.
CSX is making lots of money not by better service, but with the fuel
surcharges (see: Toyota lawsuit), raising rates and making it harder
for customers to release cars while simultaneously almost doubling the
"fine" charged for late releases.
They are also profiting by selling off real estate and using the
unrepeatable income to boost the operating ratio, which apparently
other railroads do not do.
Don't think BNSF is immune from PSR financialization (or that Saint
Warren Buffet actually gives a crap) as it looks like Bill Ackman is
starting to sink his teeth into BNSF.
I excerpted what I thought were the most interesting parts of the
article with my own headings in ALL CAPS.
In March 2017, after Hilal’s fund triumphed over a reluctant CSX
board, Harrison took the helm. Newly installed and dealing
with health issues that would lead to his death later that year,
Harrison moved quickly to make sweeping changes. He laid off
thousands of employees and contractors, shuttered railyards and sold
hundreds of locomotives and railcars. The results five months
later were dismal.
By August 2017, the average train spent three more hours
sitting in rail yards and traveled two miles per hour
slower, according to data reported to the Surface Transportation Board.
Only 55 percent of shipments arrived within two hours of their expected
delivery. Customers called CSX’s helpline with
complaints 563 times a day, more than twice their normal rate.
The rate of train accidents rose 68 percent in the third quarter to
the railroad’s highest level in 12 years, according to data
reported to the Federal Railroad Administration. On 20 occasions that
quarter, CSX train accidents caused more than $100,000 in damages, the
most since 2004.
Customers were devastated by CSX’s service implosion, they
told regulators in a 2017 hearing focused solely on CSX,
sharing a range of mishaps with the board.
A Tennessee Pringles factory with 1,300 employees narrowly avoided
several closures when CSX was late to deliver raw materials. Other
factories, including a North Carolina Kellogg Co. factory, suspended
production because of late deliveries. Florida dairy
cows would have run out of feed if six federal and state agencies
In testimony at the 2017 hearing, Harrison blamed his railroad’s poor
performance on employees who resisted change.
THE DECEPTION BEGINS…
In response to customers’ complaints, the regulators began weekly
monitoring calls with CSX executives. The same week monitoring
began, CSX announced it had reinvented how it measured performance.
In August 2017, CSX rolled out new ways of calculating standard
performance indicators. The changes — which the company touts on
its website and to investors —made the railroad’s 2017 meltdown appear
less severe and its improvements more dramatic than the measures used
by the rest of the industry.
In August 2017, industry standard measurements ranked CSX No. 6
out of seven railroads in how long its in-service cars sit
in railyards, a measure known as dwell time. Its
cars dwelled for 29.3 hours on average, by the
standard calculation, which excludes cars that arrive and leave on the
same train. CSX’s new formula includes those cars. Because cars
that don't switch trains often stay in yards for a shorter period,
CSX’s average dwell time dropped dramatically. In the month the new
methodology was introduced, trains dwelled 13.1 hours, ranking
CSX No. 1.
Velocity undertook a similar transformation. In August 2017, the
standard measure showed CSX’s trains going 1.9 miles per hour slower
than they did before Harrison arrived. CSX’s formula
indicates velocity dropped only 0.8 mph. This, too, was
accomplished by including data formerly excluded, creating a larger
denominator for the average.
The spread between the velocity metrics defined by CSX and the STB has
narrowed, going from a 30 percent difference when introduced to about a
16 percent difference today. By coming more in line with the STB’s math,
CSX has been able to show investors a 53 percent improvement in velocity
since August 2017, while regulators have seen only a 33 percent
The metric for cars online was also redefined in August 2017, with the
company removing from the number cars that it counts as inactive for a
variety of reasons, including if they're being repaired, were sold or
are at a customer's location for more than a day.
Using CSX’s formula, the number of cars online came in 33 percent less
than the industry-standard equivalent, helping the railroad make the
claim that it was doing more with fewer assets.
The railroad presented its custom metrics in 30 presentations to the
Surface Transportation Board from August 2017 through March 2018, and
these are the only metrics it provides in quarterly earnings materials
and investor conference calls. It also separately submits
regulator-defined metrics in mandatory filings to federal
The difference remains between the metrics defined by the Surface
Transportation Board and those defined by CSX. CSX’s dwell, velocity
and cars online are about 52 percent, 16 percent
and 37 percent apart from
their industry-standard equivalents.
The railroad has also stopped reporting some of its long-standing
measures – metrics it is not required to disclose – such as train
lengths, local service measurement (the percentage of cars placed at a
customer location based upon daily customer request) and right-car,
right-train (percentage of cars that leave railyards according to
In addition to offering investors a different sense of CSX performance,
the metrics make it harder for shippers to contest CSX fines for
delays, plan capital investments, seek regulatory intervention and
more, according to the American Chemistry Council, a trade
association representing most of the $526
billion U.S. chemical industry.  "Railroads’
ability to change the methodology they use to calculate their
performance data threatens the usefulness of that
data,” Chemistry Council attorney Jason Tutrone wrote
in a filing submitted to regulators.
Other CSX statistics have improved, shippers say, because of policy
changes and data omissions.
In Harrison’s first five months, for example, the number of customers
who received the full number of cars they ordered plummeted, which
led the Surface Transportation Board to monitor the
percentage of orders CSX fulfilled.
During that monitoring period, CSX’s metrics show the fulfillment
percentage improving, a sign that its network became more efficient —
but customers say that was a mirage.
In 2017, a Packaging Corp. of America executive told regulators
CSX had capped how many cars his company could order at a fraction of
the number it usually requested. That means order fulfillment
improved because customers could only order fewer cars, not
because CSX was fulfilling more orders, the executive
Two years later, the monitoring is no longer being done and the
situation is reversed; customers told regulators in May they often are
sent more cars then they need. Providing a surfeit of cars enables the
railroad to charge the customers fines for keeping cars too long
— fines that now generate hundreds of millions of dollars for
CSX and other railroads have also changed the number of
days their customers receive cars, the number of cars in each
delivery and the time of day cars are delivered.
“They are delivering 33 [percent] to 50 percent more cars to a yard,”
Steve DeHaan, president of the International Warehouse
Logistics Association, said of all large railroads. “How do
you handle 50 percent more cars to your yard?”
Customers are frequently rebuffed when they ask railroads for
supplemental data, especially data customers could use to dispute
fines, they told the Surface Transportation Board.
FINANCIAL METRIC DECEPTION, TOO…
The operational metrics aren’t the only ones that have changed. Some of
the financial ones have, too. The true sign that precision scheduled
railroading works, Harrison told investors at every railroad he ran, is
a drop in operating ratio. Operating ratio, an industry-accepted
barometer of efficiency, measures how much it costs to generate a
dollar of revenue. The lower the number, the higher the
profit. Jim Foote continues to hold
up operating ratio as the single most important metric CSX
reports. “It tells you by looking at one number whether or not
you are running the company effectively and efficiently,” Foote said at
an investor conference in May.
CSX posted North America’s lowest annual operating ratio last year at
60.3 percent, a U.S. record. It also
boasted a record 57.4 percent operating ratio
last quarter. Its quarterly operating ratio stood at 75.2
percent in the first quarter of 2017, the quarter before Harrison
These figures suggest that CSX has an operating profit margin of about
40 percent, and that it has improved its profit margin by 9 percentage
points in just two years.
But for CSX, this figure includes different datapoints than it did
before CSX adopted the new model.
In 2017, CSX reclassified all real estate sales as
operating income. In doing so, it eliminated a distinction between real
estate with an operating impact and real estate with no operating impact
– a distinction its competitors still make.
All profits from real estate sales now impact operating
ratio, with the profits – $236 million in the last 2.5 years –
subtracted from the railroad’s expenses. For example, CSX’s sale
of the Westin Savannah Harbor Golf & Spa helped lower its operating
Without the $154 million in real estate gains last year, CSX’s
operating ratio would have been 61.5, not 60.3.
CSX considers the difference inconsequential. “Most Class I rails
account for property sales in their operating income, including our
direct peer, Norfolk Southern,” spokesperson Cindy Schild said by
email. “Our reporting is very transparent, and it is easy for anyone to
back out the real estate gains and get an adjusted [operating ratio].”
While Norfolk Southern does include real estate gains against expenses,
it only includes income from operating properties – the
delineation CSX removed in 2017.
Blaze, the economic consultant, sees the accounting as
unique. “It may make them look good to Wall Street, but it’s not
what other railroads do,” he said.
The methodology is also disconcerting to Chris Rooney, a former deputy
administrator of the Federal Railroad Administration, since it includes
unrepeatable sales of assets with no operating impact.
“While CSX is not unique in including operating real estate gains in
operating earnings, it seems aggressive to remove the distinction
between operating and non-operating assets,” said Rooney.
That means CSX’s operating ratio is improving while
CSX has assets to sell, but it is likely to rise once CSX
becomes asset light. The railroad has sold or solicited for sale more
than 1,500 miles of track.
CSX set a target in 2018 of selling $300 million in real estate and
$500 million in rail lines by the end of 2020. It has sold $562
million-worth of property over the past 2.5 years, according to its
filings with the SEC.
OTHER RAILROADS JOIN IN ON THE ACT…
That market power has allowed CSX and other railroads to increase the
fees it assesses. These fees are major money makers for CSX and
railroads across the country, all of which changed their rules last
year in ways that charge customers more when cars are held too long and
give customers less time to return cars.
Across the industry, fines per car per day have risen as high as $200,
four times the size of the typical fine six years ago, while customers
now often get half the time — just 24 hours — to unload cars, testified
the International Warehouse Logistics Association's DeHaan.
Railroads collected $1.2 billion from these fees last
year – led by CSX with $371 million billed, a 94
percent increase from 2017. CSX led again in the first quarter of
2019 with more than $100 million billed. It collected another $78
million in the second quarter, the second highest behind Norfolk
Southern. At about 3 percent of its revenue, CSX has called such
Fees have become unavoidable because of rule changes
and unpredictable railcar deliveries, customers
told the STB.
“They created their own issues of yard congestion, and now they’ve
developed a fee for it,” DeHaan said. “It’s amazing.”
Customers told the regulators in May that they were charged fees even
when railcars weren’t ready, were sent in higher numbers than
requested, were improperly switched, were the wrong railcars, were
late, were not delivered, were not picked up on time and were delayed
because of service failures.
Another money maker: raising rates.  Foote has described higher
prices as a virtue of the new model, since it allows railroads to
compete as a premium service instead of a commodity, making them more
like FedEx than the postal service. The railroad increased revenue per
unit by 6 percent last year, resulting in $693 million in new revenue.
CSX collected 11 percent more per unit in 2019 than it did in 2016.
WARNING - BNSF MAY BE NEXT…
“We are not above copying anything that is successful, and I
think there’s been a good deal that’s been learned by watching these
four railroads,” Buffett said.
Ackman’s Pershing Capital, meanwhile, bought a $688 million stake in
BNSF last month.