Ask The Experts: June 12, 2019

Tony Hatch
Independent Transportation Analyst and Consultant

Q: What are your thoughts about recent personnel changes at CSX? Do you think this is hinting towards a merger?
Just when we thought the freight rail personnel surprises were past us and the news from Canadian National (picking a new COO from….BNSF) and CSX (hiring a Strategist) – see note attached, just in case - the latter strikes again by announcing the “departure” of CFO Frank Lonegro, the last of the CSX “Old Guard” and a man well-respected by the Street.  Signs of haste include the fact that Kevin Boone, only recently elevated from IR to Marketing Strategy, now slots in to replace Frank – on an interim basis.  That move may at least clear up the issue of having two recently appointed strategists after last week’s surprise hiring of Farrukh Bezar.  However, it still leads one to wonder what’s going on behind the highly-charged dynamic outward posture at CSX (as chaos in personnel late last year did the same for UNP); CSX has remained tight-lipped, of course.  Many had tabbed Lonegro as a possible successor to CEO Jim Foote….Several have posited that this is a step toward a merger but….well, no.  just….no.

Q: What is the latest in rail traffic reporting, and how has the weather been an issue?
Bad news in traffic – well, there is still weather, but maybe more behind the latest week (#21) results – an almost 7% (-6.7%) decline in volumes (carloads -5%, intermodal down fully 8%); Canada was up and Mexico down, although less.  In light of recent rail volumes and truck pricing reports, I find the ATA’s +8% YOY April tonnage growth number to be….as suspicious as the reported Q1/19 GDP growth.  In fact, DAT’s volumes (units and just dry van) were up ~2%, and the Cass April Freight Index numbers showed a 3% decline.  So what’s right?  Even the ATA suggested that the April tonnage numbers might be “misleading”….Some have said that the rail service improvements owe more to the lower volume rather than the vaunted PSR changes, but the resiliency shown in the face of weather issues is a pretty good refutation of that premise, in my humble opinion.

Q: What were some of your takeaways from the Wolf Transportation Conference last month?
: The Wolfe Transportation Conference offered a terrific late spring/mid quarter update – few revelations, no Canadians and many reiterations….however the latter (of FY19 guidance, itself reiterated after the weather impacted Q1/19 results) is actually saying something given the still below expectations volumes; one thing it implies is better-than-projected service (and related, productivity) levels in the rail group.  A coal and energy panel was interesting with Vistra calling for applause for the way the rails handled and recovered from the extreme weather,  That’s not something one hears every day.  Vistra and Southern Companies highlighted their continuing, irresistible move away from coal (and the rapid growth of renewables within their portfolios).  Old friend Joe Adams of Fortress’ Transportation & Infrastructure Fund highlighted their CBR/refined products ventures in Texas centered on exports into Mexico with CBR and blending on ongoing (even with pipeline development) part of their strategy (good news for Canadian rail, Watco and KSU in a tough week for the latter).  He also allowed that, yes, their Maine short line operation is for sale.

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Alison Babcock