CSX is not ruling out a merger

Dive Brief:

  • CSX CEO Jim Foote said he would not rule out a merger with another Class I railroad.
  • The comments, made at Credit Suisse’s 6th Annual Industrials Conference, followed a question by analyst Allison Landry on whether the company would consider joining up with Union Pacific or Norfolk Southern to help the two railroads implement precision scheduled railroading (PSR).
  • “I am of the camp we’d have to weigh the two and see if there was true value that came out at the end of the day,” Foote said. “To do that you need two willing partners to dance.”

 

Dive Insight:

When Union Pacific and Norfolk Southern announced they would implement “principles” of the PSR model, one question loomed large: Who would lead the charge?

In the past, every railroad that implemented PSR did so under the leadership of the late Hunter Harrison, who brought the model to Illinois Central, Canadian National, Canadian Pacific and most recently CSX. But it was a merger that first brought PSR to the big leagues: Canadian National bought Illinois Central, and Hunter Harrison, to help replicate the small railroad’s success at Class I railroading scale.

A new merger is not inconceivable as the remaining Class I railroads look to adopt the model.

“I have been in the business a long time and I think there were 50 Class I’s when I started,” Foote said. He added the wave of mergers that led the industry to have just seven Class I’s have improved service, freight networks and efficiency. “And one could make the argument that another consolidation would prove beneficial from a pragmatic standpoint.”

One of the biggest benefits to a merger, Landry suggested before asking CSX the merger question, would be securing talent from competitors.

Landry noted there are a limited number of individuals in the industry with significant experience with PSR. Union Pacific and Norfolk Southern may need to find a way to acquire these to succeed, which a merger could provide.

But in its most recent earnings call, Union Pacific suggested it was not concerned about the talent question.

“When you think about the expertise that we have in-house on PSR, we do have employees, some at high levels like a Cindy Sanborn who is now going to be running the entire northern region of the network, along with others, particularly in the operating team and also in the network planning and optimization team who have experience and in some cases deep experience in PSR,” said Union Pacific CEO Lance Fritz.

Cindy Sanborn, now a regional vice president at Union Pacific, was the COO of CSX when Harrison first joined the railroad. In October 2017, she was replaced as COO by Foote, who would later rise to the role of CEO at CSX.

Union Pacific has stated it expects to achieve $500 million in productivity from its transition to PSR. Norfolk Southern said it would roll out its transition plan on Feb. 11, 2019.

Article by Edwin Lopez for supplychaindive.com

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