Sufficient train and engine employees is the “one thing” CSX needs to bring service back to 2019 levels, and recent hiring initiatives will bring the company closer to that goal, executives said during the railroad’s first-quarter 2022 earnings call Wednesday.
“We need more people in the engineer and conductor ranks. That’s it,” President and CEO Jim Foote told investors on the call.
CSX (NASDAQ: CSX) is short on neither locomotives nor physical infrastructure, and the railroad has the capacity to take on additional volumes, Foote added.
Jamie Boychuk, CSX executive vice president of operations, echoed Foote’s emphasis on filling train and engine crew ranks.
The freight rail industry typically views train and engine crew staffing levels as being the most sensitive to market demand.
“It purely comes down to hiring numbers, and getting more [train and engine] folks where we need them … . The common theme that we know will get our railroad back to where we need to is just continuing to train conductors,” Boychuk said.
There are about 500 trainees now, and up to 400 of them have been qualified by CSX since the start of this year, he said.
Foote said the bulk traffic of the industrial sector has been experiencing service issues. Having more train and engine employees will ensure there are enough employees to run the trains. This in turn will improve network velocity and dwell times, which will inevitably lead to greater network fluidity.
As more adequate levels of staffing come into the network, CSX expects to be capable of handling anticipated stronger levels of domestic industrial activity, which had weakened starting in 2018 amid U.S.-imposed tariffs against China but is starting to reach a level commensurate with domestic consumer demand.
Other measures to improve network fluidity have been working with customers to turn railcars more quickly and keeping additional locomotives active in the near term to help with network balance.
“We’re seeing encouraging signs that these metrics are starting to move in the right direction,” Boychuk said. “It’s clearly too quick to call the bottom with certainty, but with the success of our hiring initiatives and a continued drive for discipline and consistency in the field, we see reasons to be optimistic.”
CSX is targeting full-year double-digit revenue and operating income growth, as well as a 2022 capital expenditure target of around $2 billion, which is largely unchanged from 2021.
The company is confident its hiring trajectory will lead to improved service, while a strong export coal market, higher fuel surcharges and “strong demand from all of our markets” will support CSX’s revenue target, according to Kevin Boone, executive vice president of sales and marketing.
There are moving parts, such as the assumption that chassis will be available and drayage capacity will come back to the market, but CSX is hopeful that higher levels of automotive production and domestic intermodal activity will support company volumes and revenue, Boone said.
Other opportunities CSX may explore are efforts by companies to nearshore manufacturing operations and opportunities to export bulk commodities, such as grain and steel, to Europe via the East Coast ports amid the uncertainties related to the Ukraine-Russia conflict.
“We’re looking at everything that’s going on at the [East Coast] ports today and how that could change” over the next six to 12 months, Boone said.
CSX’s Q1 2022 financial results
The eastern U.S. railroad reported net profit of $859 million, or 39 cents per diluted share, in the first quarter of 2022, a nearly 22% increase from $706 billion, or 31 cents per diluted share, in the first quarter of 2021.
Revenue rose 21% year-over-year to $3.41 billion despite a 2% decline in volume, although expenses rose 24% to $2.1 billion on higher purchased services expenses.
Operating income grew 16% to $1.28 billion and included expenses of $17 million related to increases in environmental reserves and a $20 million gain from 2021 CSX property sales to the state of Virginia.
Operating ratio (OR) rose to 62.4% from 60.9% on higher fuel prices and the acquisition of Quality Carriers in 2021. Investors sometimes use OR to gauge the financial health of a company, with a lower OR implying improved financial health.
“We are pleased with our results this quarter, though we’re not yet satisfied with our service performance,” Foote said. “The effects of COVID and severe weather across much of our network clearly led to a tough start to the year. But as we moved into March, operating conditions began to gradually improve, and we do see indications that this momentum is continuing.”