(The following story by Timothy J. Gibbons appeared on The Florida Times-Union website on January 24.)
JACKSONVILLE, Fla. — Betting that the trucking industry will continue to face a tight labor market and rising equipment costs, CSX Corp. thinks it will retain its position of strength when it comes to increasing the rates its charges its customers, company officials said Tuesday during a discussion of its 2006 financial results.
“We’re not going to go out there and start chasing business” by lowering prices, Chief Executive Officer Michael Ward said. “We don’t think we need to do that.”
For the past two years, the Jacksonville-based railroad has seen its rates grow between 5 percent and 6 percent, and rates should creep up by the same amount in 2007, Ward said.
Those higher rates enabled CSX to ring up $9.56 billion in revenue from its Surface Transportation business in 2006, up 11 percent from the year before, despite an essentially flat volume of freight moved, as a whole.
Individual sectors that dropped included the automotive-related shipments, such as metal and chemicals, and housing-related supplies, such as lumber and plastic piping, drops that reflect a weakening in those sectors of the economy as U.S. automakers continued to struggle and the housing market deflated, according to company executives and its quarterly filing with the U.S. Securities and Exchange Commission. This was offset by growth – in both volume and revenue – in the coal and agricultural products lines.
As well as growing revenue, the company also managed to use it more efficiently, getting its operating ratio – a key metric used by the industry – down to 77.8 percent for the year, down from 82 percent in 2005. Such an improvement has long been a goal for the company, which has lagged several of its competitors in how efficiently it operates.
The goal now, Ward said, is to get the ratio to the mid-70s by the end of the decade.
The first quarter of 2007, said Executive Vice President of Sales and Marketing Clarence Gooden, will see growth in shipments of six types of goods, including coal and agricultural products, while automotive-related shipments will continue to sag.
As the company’s financials continued to improve through 2006, its operations measurements also got better.
By the end of 2006, said Chief Operating Officer Tony Ingram, the railroad had fewer accidents, its trains were arriving and leaving on time more often, and the amount of time trains were sitting in rail yards was down.
Despite those figures, the company’s public safety image took a blow last week after two trains in Kentucky derailed, accidents that happened shortly after a derailment in New York state.
Those incidents don’t show that there’s a company-wide problem, the executives said during the conference call to discuss the earnings report, with Ward saying later that the company has put billions of dollars into track maintenance, a capital expenditure program it will continue throughout 2007.
“It’s in quite good condition at this point in time,” the CEO said about the company’s system.
The federal government is continuing to investigate the larger incident in Kentucky, Ward said, although it has been determined that the train crew was not at fault, meaning there was a problem either with the track or with the train itself.
Following Monday’s nights release of the company’s fourth-quarter earnings, CSX’s stock closed at $36.66 Tuesday, up $1.56 from the day before.