Although the fourth quarter is showing some signs of market optimism, it’s too soon to tell how 2020 will play out, CSX’s (NASDAQ: CSX) head said during his company’s third-quarter earnings call on October 16.
“We see this kind of slow growth environment throughout the quarter, and as we get nearer to the end of the year, hopefully we can have a little more light shown on the pathway beyond the end of this year, and we’ll be better [able] to opine on it,” said CSX chief executive officer Jim Foote in describing CSX’s guidance and expectations for 2020.
CSX meanwhile expects the fourth quarter of this year to have a “somewhat muted” peak season as opposed to a traditional fall peak, according to Mark Wallace, CSX executive vice president for sales and marketing. The fall peak season is characterized by higher freight demand, increased freight volumes and higher freight rates.
While the consumer economy is still doing relatively well, intermodal volumes also carry a lot of goods that go into the industrial economy, and that has contributed to lower intermodal volumes so far, Wallace said.
“Hopefully, people order a lot of stuff online and we have the pleasure and honor of moving a lot of that stuff” in the fourth quarter, Wallace said.
The uncertainty about 2020 comes as CSX said yesterday that despite lower revenues in the third quarter of 2019, it lowered its operating ratio to a company record of 56.8 percent, compared with 58.7 percent in the third quarter of 2018.
CSX also said it expects its fourth-quarter operating ratio to also be sub-60 percent.
Operating ratio can be a measure of a railroad’s profitability. The lower the percentage, the higher the profitability.
CSX eyes options for 2020, including truck conversions
Should rail volumes rebound in 2020, CSX has growth opportunities on the capital side because the company has freed up a tremendous amount of capacity, Foote said. If CSX needs to cut operational costs further, it has opportunities to do so beyond reducing headcount, leaders also said.
But as U.S. coal production faces a systemic decline, CSX is eyeing opportunities in its merchandise segment, especially for volumes that could be transported via truck. CSX has been reorganizing its marketing department in 2019 to bolster its position in the merchandise segment, leaders said.
“There’s a lot of truck volume out there, and we believe by renewing our focus on the merchandise segment and looking for truck conversion opportunities, that we’re going to capture that market share,” Wallace said.
One tool that CSX says will help the company make more truck conversions is trip plan compliance. CSX says trip plan compliance measures CSX’s ability to meet end-to-end customer commitments based on a specific time of arrival. The purpose of the tool is so that customers will be able to see every railcar they ship in every lane.
CSX rolled out the tool on October 1 for its intermodal customers. Merchandise customers will have access on December 1.
This tool is a “huge game changer” and will open up conversion opportunities, Wallace said.
CSX’s third-quarter net profit was $856 million, or $1.08/share, compared with $894 million, or $1.05/share in the third quarter of 2018.
Revenue fell by 5 percent in the third quarter to $2.98 billion amid declining revenues for CSX’s coal and intermodal segments and a slightly higher merchandise segment.
Third-quarter expenses were down 8 percent to $1.69 billion, while operating income was “roughly flat” at $1.29 billion, CSX said.
As with its other Class I railroad counterparts, rail volumes were down for CSX in the third quarter, except for higher volumes for minerals and for agricultural and food products. Fertilizers volumes were flat.
Operating metrics were mixed in the third quarter. CSX reported average train velocity improving by 13 percent to 20.3 miles per hour. But terminal dwell time rose by 3 percent to 9.2 hours. Terminal dwell represents the time a train spends at a terminal.