Hope you remain safe & healthy – and cautious, during this gradual “re-opening.”
The rails have been on the virtual road again, and last week the Eastern carriers spoke at the Wolfe Transport Conference to give us their mid-Pandemic outlook and give us clues to what they are thinking longer term. First, as Gary Wolf pointed out to me, the “Progressive Railroading” (anyway) version of my piece linked (by typo) the (new) 117 tank cars unfairly with the (old, outdated) 111s…..good catch, thanks. Next up will be the Canadians – we note that CN has several more webcasts planned within this second quarter.
So CSX and Norfolk Southern’s webcast thoughts had two broad similarities – with my thoughts in italics:
1. Both thought these bad volume numbers were at or near bottom.
- I am not sure about this, without any scientific knowledge, of course – perhaps we are at the bottom, but I am not sure despite some slow re-openings we have any real “green shoots” yet.
- There remains a rather large difference in the volume performances in the east - -22% for CSX is the “good news” and on/about the overall average; NSC is running ~-30%. Why is that? Is there something “happening” there? If so, it is not exactly clear.
- CSX recovery? CSX’s head start in PSR (by some 18 months), its network simplification, the end of its “de-marketing” and rationalization, etc, all make CSX a (much) more valid service contender, if not leader, in the East ...
- NSC’s own, un-publicized “de-marketing”/rationalization programs? NSC has not said this to be so; but after the CSX “first-mover”/”PSR political hangover” issues, with shippers, politicians, regulators – it’s not unlikely that they wouldn’t publicize such efforts ((even if investors would want to hear it).
- Structural differences – yes, they exist – NSC’s 55% drop in coal is its own version of the secular decline exacerbated by demand destruction/C19/cheapest NG; their large share of eastern international IM and auto OEM business has its drawbacks today as well.
- “Yield Up” driving away business? Today I participated in a NEARS Zoom Call (details soon) which discussed the possibility of the rails ignoring long term business in favor of short term OR improvements; I don’t believe it is so but a vocal minority (shippers and short lines) does….NSC has posted the best yield improvements of recent times (CSX #2m by the way). CSX CMO Mark Wallace reminded investors, for the nth time but still valid, that yield and price are NOT the same, but the “prices up, volumes down, OR improves” sound-bite is an easy one ...
2. Both railroads have taken significant cost out – running train and crew starts at/below the volume declines, and both have invested in the turnaround by use of labor retention strategies.
- CSX has dropped crew starts ~30%, below the volume drop; NSC has said it’s “matched” their sharper drop.
- Both carriers cited the use of Extra (and Reserve) Boards as opposed to 100% furloughs – reduced the savings by ~half but much quicker call-backs for the turnaround; CSX noted that half of its reduced T&E workforce was on a “special reserve” with a 48-hour callback, for example ...
- Is this a change of heart for the new NSC CFO Mark (the Grim Reaper) George? Gosh, I hope so, but his answers on his role to resist pressures to build Capex back up in the recovery give me pause (again, if any system could do this, NSC’s is probably the best example given their historic Capex/MoW programs, their build-out of big projects (the “Corridors”, etc) – but I would like to know more...