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In case my readers haven’t noticed, I like headlining my blog posts with questions, so, this one is should be expected.
On December 16, 2017, E. Hunter Harrison, railroading’s “golden” CEO, and a man who has accomplished no less than three financial turnarounds for three different railroads in his lifetime, passed away. He had only been at the helm of CSX since March 2017. In those months, he gave no reason to believe that he wouldn’t make CSX a fourth, and, in so doing, pissed off many of the usual suspects.
Railroad pundits and stock analysts fell all over themselves asking my headline question; in plain English, what’s going to happen to CSX now that Mr. Harrison has breathed his last?
The usual suspects in this mystery are multifold: Shippers and logistics companies, railroad employees and executives, stockholders, the board of directors, and, of course, Paul HIlal and his hedge fund, Mantle Ridge, the activist investment group that forced itself and Mr. Harrison on CSX. Let me take each (or at least each group) and try to predict the answers for them.
First, shippers and logistics companies are mainly concerned with quickly, reliably and cheaply moving freight. Other than some minor concerns about which of the major railroads would pick up the slack should CSX fail, they couldn’t care less if it did. They can relax, and, if they want to hold onto something, hold onto their rage at the changes that Harrison had already made before his death.
As far as I can see, the railroad will continue on its current path and, eventually, if the tenets of Harrisons PSR (Precision Scheduled Railroading) initiatives hold, start to provide better service, albeit for marginally higher rates. Some shippers and logistics companies won’t be able to wait and will move to trucks, but that won’t hurt CSX, and eventually the truck rates will climb with the higher volumes and many will go back to rail.
Railroad executives should keep looking for new jobs. The paring of executive positions started by Harrison is likely to continue. However, regular employees can probably look forward to a less abrupt transition, if their jobs are to change, and the major layoffs leading up to full implementation of PSR have already happened.
Stockholders have also already seen the worst, on the few days after Harrison’s passing. CSX stock is unlikely to take any more of a hit, unless the new CEO, on December 27 confirmed to be Jim Foote, steps in some major shit along the way to finishing what EHH started. Not that he can’t. I just think he won’t.
Right now, the board is probably beholden to Paul Hilal, and will do much of what he wants with the company. That appears to be complete implementation of PSR. I think Hilal and the board are very confident that any shit on Foote’s sidewalk won’t be stepped in.
Without Harrison, I don’t think Hilal can count on making quite as much money. Harrison had a way of pushing things that would squeeze money out of a dry walnut. I don’t know that any other living railroad executive can do that, and that includes Foote. There’s always the danger that Hilal will get bored with a slower turn-around at CSX, find another golden boy, and go after another business. Whether than will be a railroad or something else is hard to predict. Whether than means that either BNSF or Union Pacific will absorb CSX is doubtful. Both have made it clear that they’re not interested in mergers. Kansas City Southern is another animal, always seemingly ready to pounce, but neither as aggressive nor as eager to make fast cash as Hilal.
One thing is sure: 2018 is going to be an interesting year at CSX, and, by the end of it, new questions about its direction will likely be at the head of railroad blogs and commentary.
©2017 – C. A. Turek – mistertrains@gmail.com
(Charles A. Turek is a writer and novelist based in Albuquerque, NM. After four decades working in areas of the insurance industry related to transportation, he now writes on all aspects of American railroading. Charles is a political conservative but believes in public funding of passenger rail as a part of the federal government’s constitutionally conservative obligation to provide for defense and public infrastructure so that private enterprise may flourish.)
