Jim Filter has seen the major changes at CSX (NASDAQ: CSX) as a customer. And so far, he's OK with them.
Filter is the senior vice president and general manager for intermodal services at Schneider National (NYSE: SNDR) . In an interview with Freightwaves at the annual exposition of the Intermodal Association of North America in Long Beach, California, Filter said most of the company's intermodal operations move on either CSX or BNSF. And he declared: "CSX service has improved in both velocity and consistency."
CSX continues to implement precision railroading, the system created by its former CEO Hunter Harrison, who died suddenly last December. But precision railroading had first been put into place at a class 1 railroad by Harrison at Canadian National. The results so far at CSX have included a sub-60 operating ratio and a headache for its eastern seaboard competitor, Norfolk Southern, whose OR compares unfavorably. It’s also raised a mostly online critique that the company is rapidly undercutting its system in a push for short-term financial gains.
Filter said what CSX has done is eliminate lanes where what it needed to do to meet service expectations was "too great," impacting "their ability to have consistency." The elimination of them allowed CSX to then focus on "lanes where they can provide competitive value, similar to what you do in trucking."
"We don't provide alternatives to go on every single route out there," Filter said, speaking of both Schneider's intermodal division and its truckload segment. "We focus on areas of differentiation and that is what CSX is doing." According to Filter, CSX is essentially saying "this is what I'm really good at" and they will let others do the lanes where they can't make that claim.
"So that is why they are the exception in terms of improving velocity and on-time performance," Filter said.
Since the end of March, according to Surface Transportation Safety Board data, the average velocity on intermodal CSX trains has risen to 29.4 mph from 28.7 mph. During that same period, Norfolk Southern declined to 25.2 from 25.4. BNSF has a higher average speed, not surprising for a railroad that traverses many miles of open western territory. But it too saw its intermodal speed decline during that period, to 31.8 mph from 33.5 mph.
The increase on CSX is "a big deal." If the speed is up 2%, "it's as if you suddenly have 2 percent more equipment," Filter said.
Those kind of changes can complicate--in a good way--decisions on capital investments. Filter said if a railroad makes changes in its velocity and dwell time and that effectively produces new capacity, "we could have 5%to 10% more capacity without any more containers," Filter said. He added that conferences like IANA are being used to try to "draw it out of people what they think capacity will look like," but "it's not like we're walking away with an answer."
A company like Schneider is not powerless to react to shifts made by companies such as CSX," Filter said. "You can get your containers out of their facilities," he said. And to do that, an intermodal trucking company needs to ensure that it is growing where the rail carrier is operating efficiently, "and not contribute to the backlog."
"CSX has identified corridors where they had areas of strength," Filter said. "We want to make sure they is where we are growing and not forcing their hand to do things that aren't natural."
The other side of the consideration for an intermodal company in looking at its options, Filter said, is on-time performance. Such data is not published, he said, but it is significant for intermodal shippers. If a railroad is reliable only 50% of the time, Filter said, an intermodal trucking company will build in a "buffer" of additional time necessary to make a shipment, which is effectively a reduction in capacity. And it is at terminals, Filter said, where the problems occur, not on the open tracks.
It all adds up to a focus on who a company like Schneider wants to partner with. Filter conceded that in a market with such tight capacity, it's tough to steal business away from other OTR carriers or intermodal companies. The focus then becomes "on which customers treat our drivers the best, get our drivers in and out and have the fastest turns with the equipment," Filter said. Those are the ones who are going to get the drivers and the containers.
Technology is aiding that effort. A "rate my locations" app is allowing the Schneider drivers--OTR and intermodal--to submit a report card on the type of conditions a driver found at a particular customer.
That has given the company visibility into one aspect of the driver's working conditions, and Filter said those conditions are one of three things that push a driver out the door. The other two are treatment by their employer, with pay and benefits last. "We've always been focused on how our people treat our drivers, but the drivers spend more time in front of a customer or shipper than connecting with our own business," Filter said. The "vast majority" of customers treat the drivers well, Filter said, and he echoed the comments of Phil Shook of C.H. Robinson (NASDAQ: CHRW) , who earlier in the day had said a lot of issues at customers were caused not by the customer themselves but by their vendors or other counterparties.
Filter took a recent trip to drivers to Ohio, and he said it was "really great" to see positive results from what he said was a change in the freight quality, aided by "which loads we're selecting." In some cases, because of poor relations, "there are some locations we just don't go to anymore."