The Class I is seeking many more truck diversions to seize a larger chunk of North America’s $980 billion freight transportation market.Photo – CSX
By Jeff Stagl, Managing Editor
When Mark Wallace joined CSX in spring 2017 as executive vice president of corporate affairs and chief of staff, the Class I was preparing to embark on a massive operational overhaul through precision scheduled railroading (PSR). An effort he once characterized as “scheduled railroading on steroids,” PSR has vastly improved CSX’s fluidity and service performance.
But after Wallace became the Class I’s EVP of sales and marketing in July 2018, he discovered another aspect of the company that needed a makeover: the commercial organization. A longtime Class I senior management executive who spent 20 years at CN and Canadian Pacific prior to joining CSX, Wallace determined the sales and marketing department needed retooling to spur more growth.
“It was apparent to me that we had a good team, but there was a lack of data and analytics, and a business marketing focus. Marketing was essentially a pricing department,” he says.
“We listen to their concerns and gain their feedback. We want stickier relationships with customers”
— Mark Wallace
Since PSR changed the course of CSX’s performance to a much more consistent and reliable service offering — perhaps the best among the Class Is instead of what had been the worst — the department should be better positioned to exploit that advantage, Wallace concluded.
As measured by trip plan compliance (TPC) — or the success in meeting end-to-end customer commitments based on estimated times of arrival — service performance is registering percentages in the mid-70s for carload movements and mid-80s for intermodal traffic. Several years ago, those percentages likely would have been in the 50s and 60s if measured the same way (CSX created TPC while implementing PSR).
Wallace‘s changes included staffing the sales and marketing department management team with professionals who had advertising, finance, Wall Street or other backgrounds instead of strictly rail industry experience to broaden the organization’s institutional knowledge and alter its approach.
For example, in March 2019 Kevin Boone — a senior equity research analyst at Janus Capital who covered the transportation sectors — was appointed VP of marketing and strategy to lead a newly created marketing team. And in October 2019, Farrukh Bezar became senior VP of marketing. He previously was a managing partner at Lynwood Partners, a transportation and logistics advisory firm he founded in 2017, and a financial analyst at Chase Manhattan Bank.
Wallace also aimed to refocus the department’s team by changing account managers’ title to sales managers to better motivate and engage that boots-on-the-ground staff, and pulling the customer service team from the operations department and renaming it the customer engagement team. The new name better suits the customer representatives since they are the company’s communicative link to shippers and receivers, says Wallace.
“They are more proactive now and don’t wait for the phone to ring,” he says.
To prompt bigger results in a proactive vein, Wallace sought to generate more useful data, analytics and business intelligence in the department. The commercial organization didn’t always have detailed information on where freight traffic flowed and why it was moved by certain modes, but such vital data is collected now, he says.
“Railroads had all this business 50 years ago, but trucks have taken it over since. Where is this freight? That’s the big opportunity for us,” Wallace says. “Now, we have good information on flows and if freight is going 200 or 500 miles, and why it moves by rail or truck. We were blind to that in the past.”
The data and analytics effort, which began in spring 2019 with an accelerated push, helps differentiate CSX from other railroads, says Bezar.
“There is no other railroad as focused on data and analytics on the commercial side as us. It’s ingrained in our DNA,” he says. “We can make better decisions faster.”
Trucks a moving target
Since CSX has only a sliver of North America’s $980 billion freight transportation market — a scant 1 percent — the railroad can seize a larger chunk by taking advantage of its footprint and fast transit times to divert more freight from highways, Wallace says.
The iron is hot for traffic diversions since truck rates are skyrocketing during the COVID-19 pandemic to as much as 15 percent higher than rail.
Extremely tight capacity and an alarming driver shortage are negatively impacting the trucking industry.
CSX now is afforded an opportunity to pursue freight in lanes it hasn’t traditionally registered much or any traffic in, says Wallace.
To seize it, sales managers are charged with sitting down with shippers — including those CSX lost the past few years or have never used rail — and reviewing their transportation usage. They discuss what the shipper spends on transportation per year, which lanes they use, and why they rely on certain modes, including trucks, or don’t use rail.
It’s all about convincing more shippers to try CSX or expand their business with the railroad, Wallace says. Since the Class I’s poor service performance of the past might still be an issue, sales managers can talk about the “new CSX” and what the railroad can do for them, he says.
“We realize customers are trying to save dollars now because of COVID. We can explain how we’re a different railroad than we were before we put in PSR in, and we can turn conversations around,” Wallace says.
It’s all about trying to better understand customers compared with efforts of the past and adjusting approaches based on how markets are changing, says Bezar.
“The behavior of the rail industry has historically been: ‘What can you do for me?’ That’s evolved now, and the focus is on adding value for a customer and doing things differently,” he says.
The challenges customers face in their supply chains previously had been underestimated by the sales force, says Arthur Adams, CSX’s VP of merchandise sales.
“Now, we have an appetite to provide solutions that solve their pain points,” he says.
Relating to customer relations
Another way the sales and marketing team tries to better learn and solve shippers’ needs is through customer engagement forums. Once or twice a year, representatives from 30 to 40 customers are invited to CSX headquarters in Jacksonville, Florida, for several days to conduct talks with commercial executives in causal settings, such as dinners and chats in small groups. One such forum was conducted last month.
“We talk about how we’ve changed, listen to their concerns and gain their feedback,” says Wallace. “We want stickier relationships with customers.”
Building and retaining customers’ business means continuing to position CSX as a solutions architect, says Adams. That might mean creating a reload, resolving a first- or last-mile issue, or developing a warehousing or transloading solution.
“If we can add value, it bolsters a customer’s stickiness,” says Adams.
Partnering more with customers tends to add a lot of value for both parties. To that end, CSX last year partnered with A&R Logistics Inc. to build a warehouse in Charleston, South Carolina, for plastic resin exports. The 500,000-square foot, CSX Select Site warehouse — which eventually could expand to 1 million square feet — is slated to open in the fourth quarter.
The railroad will transport resins to the warehouse, where they will be bagged and then moved to the Port of Charleston for export.
“We will do more of these partnerships if they make sense and we have the capacity,” says Wallace.
In transload mode
Another partnering effort occurred in fall 2019, when the railroad worked with several metal customers to transform an idle CSX facility in East Chicago, Indiana, into a metal transload facility. The facility handles a variety of metals — with coils and ingots being the primary ones — and serves a variety of steel shippers.
The metal customers had planned on establishing such a facility in Illinois, but certain state taxation laws prevented that, says Adams. CSX also is in the early stages of creating a similar metals transload facility in the Ohio Valley.
Transloading is a key arrow in the railroad’s transportation-solutions quiver. The Class I’s TRANSFLO subsidiary can move bulk commodities from rail to truck or truck to rail, and currently manages more than 40 transload facilities and handles more than 300 bulk products.
In the fourth quarter, the Class I expects to open a CSX-operated transloading facility in Savannah, Georgia, for containerized food grade and agricultural products, including DDGs and oils. The intent is to target a broad swath of customers for the facility, which also will handle some freight headed to or from the Port of Savannah, says Adams.
Another business-building target: inland ports. CSX serves seven inland ports in Alabama, Georgia, Massachusetts, Ohio, New York and South Carolina.
Five of them have generated less than 80,000 units in 2020 through September, and the two in Ohio — which are privately owned and operated — currently aren’t moving any freight due to low demand.
“It’s boomtown USA with the amount of freight coming to eastern ports. Some customers like inland ports,” says
Wallace. “We have them in areas that are seeing rapid growth locally. It’s another way to take traffic from trucks.”
A good growth engine
Intermodal traffic as a whole offers a lot of promise for CSX. The Class I is registering volume strength across its intermodal business, which appears to be both a short- and long-term growth engine, says Wallace.
The railroad moves intermodal traffic in more than 900 individual lanes after a recent rationalization eliminated unnecessary lanes.
“We believe in that business,” he says. “It’s an e-commerce economy now with Amazon and all the online shopping because of COVID. We see strength because of replenishing inventories.”
Wallace also is confident the typical volume peaks will continue in the fall from retail sales generated by Halloween, Thanksgiving, Christmas and other drivers.
CSX serves 46 intermodal facilities in 17 states and two Canadian provinces, and operates 29 of them. The railroad moves intermodal traffic in more than 900 individual lanes after a recent rationalization trimmed unnecessary lanes, where freight traveled short distances but needed to be handled many times.
The Class I’s intermodal franchise will gain a boost next year when the Carolina Connector (CCX) intermodal facility opens near Rocky Mount, North Carolina.
The facility is being built in cooperation with the state of North Carolina and will serve the Raleigh/Durham/Greensboro metropolitan area, as well as other portions of the state and parts of Virginia.
The mixed-use domestic and international CCX facility will include an inland port connecting with the state’s Port of Wilmington and one yet-to-be-determined major East Coast port.
In the merchandise sector, CSX is registering volume growth with forest products and pulp board.
The pandemic has driven demand for Amazon boxes, diapers and toilet paper, which are produced from the pulp board, says Wallace. Other consumer goods — such as paint and plywood — are booming because of COVID-19, too, and driving merchandise carloads.
In addition, a good grain crop is on the way this fall, and petrochemical and chemical shipments are promising, says Wallace.
As traffic ticks up, CSX strives to continue measuring and tracking its service performance via the TPC tool, which provides shippers real-time access to a car in transit. The railroad is using its third iteration of the tool, which has been improved based on customer feedback.
The first-phase tool tracked intermodal traffic, the second incorporated merchandise carloads and the third expanded details on each car.
Shippers have reacted positively to TPC, particularly the transparency it provides on service reliability, CSX execs say. The railroad is the only Class I that publishes its schedule performance, they add.
Shippers also appreciate recent efforts to overhaul all customer-facing tools to make them more efficient, an outgrowth of CSX’s ongoing digital transformation, says Bezar.
One other major transformation in the sales and marketing department involves the cultural kind. Wallace & Company have been trying to empower employees to better understand the organization’s priorities and to give them the autonomy to make decisions, be creative and take some risks if need be.
“We’re trying to be an agent of change,” says Bezar. “We encourage people to use their minds because continuing to get better is the goal, to strive to be the best in the industry. We seek tighter integration with customers.”
A simple thing such as the account managers’ title change helps reinvigorate the entrepreneurial spirit among employees, says Adams. The sales force then is better engaged to challenge a customer to think differently about their supply chain needs, he believes.
If CSX is going to reach its business-growth goals — especially during and after the pandemic — the sales and marketing revisions need to carry on. Although more needs to be done, there are signs that the railroad is making the right adjustments, says Adams.
“We are not declaring victory, but there is energy and excitement around what we are doing. It’s the art of the possible,” he says. “We will continue to look for new opportunities, provide the reliable service customers expect and continue out technological investments.”
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