CSX has a new CEO.
The Jacksonville, Fla.-based railroad in a release said it has agreed to a deal with hedge fund Mantle Ridge LP to name E. Hunter Harrison as chief executive, effective imediately, and to nominate people for five seats on its board.
The agreement comes after a report March 3 that the sides were nearing a deal but still negotiating terms.
Harrison, 72, a past Railway Age Railroader of the Year who presided over a radical revamping of Canadian Pacific, will get a four-year contract. Harrison, Mantle Ridge founder Paul Hilal, and three others were appointed to the CSX board. The hedge fund had earlier sought six seats.
Investors flocked to CSX shares when news of Harrison’s interest first broke, adding $10 billion in equity to CSX in a matter of weeks.
But some industry observers questioned whether CSX, while far from a basket case, was really in need of an intensive makeover.
On Feb. 21, CSX announced that Chairman and Chief Executive Officer Michael Ward and President Clarence Gooden will retire, effective May 31. The company at the same time announced that its was eliminating 1,000 management positions. In addition, 800 CSX employees have accepted voluntary buyout/retirement packages. Wityh the hiring of Harrison, Ward will become a consultant to the railroad, also effective immediately.
CSX initially balked at the Mantle Ridge proposal, which called for a total compensation package for Harrison of more than $300 million, including $84 million to reimburse Mantle Ridge for buying out Harrison's severance with Canadian Pacific, and a stock option equal to 1% of CSX common stock, at the time valued at $159.5 million.
In addition to Harrison and Hilal, CSX said that Dennis Reilley, Linda Reifler and John Zillmer were named to the board of directors.It added three incumbent CSX directors intend to complete their service at or before the conclusion of the 2017 annual meeting, bringing the board to 13 members. CSX’s current Presiding Director, Edward J. Kelly III, will become Chairman of the Board and Hilal will become Vice Chairman.
Most Class Is Cut Capital Spending for 2017
By Jeff Stagl, Managing Editor, Progressive Railroading
The seven Class Is have announced their capital spending programs for 2017 and the year-over-year scorecard shows five plan to spend less, one has budgeted more and one has allocated the same amount.
Canadian Pacific is allocating 1.25 billion Canadian dollars for its capital expenditures (capex), up 6 percent compared with its 2016 budget. About 70 percent of the spending targets basic replacement and maintenance work, with the balance budgeted for initiatives designed to boost productivity and service reliability.
Because the Class I has more than 400 locomotives stored, it won’t need to acquire new units for the next several years, CP officials believe. But some 2017 capex funds are earmarked to modernize the locomotive fleet and improve its reliability.
At Norfolk Southern Corp., the 2017 capital spending plan of $1.9 billion matches last year’s capex. The funds will help the Class I maintain the safety of its network, enhance service, improve operational efficiency and support growth opportunities, NS officials said in a press release.
The 2017 budget includes $930 million for roadway maintenance, $290 million for locomotives, $240 million for ongoing positive train control (PTC) work, $170 million for facilities and terminals, $110 million for technology and similar initiatives, $80 million for infrastructure, and $50 million for freight cars.
Among the five other Class Is that are budgeting less for capex this year, Union Pacific Railroad's $3.1 billion program is down 11 percent compared with 2016 capex of $3.5 billion. More than half of the 2017 budget targets work to harden infrastructure, replace older assets, and improve the network’s safety and resiliency. In addition, $300 million is allocated for ongoing PTC implementation.
UP previously had planned to acquire 100 locomotives in 2017 as part of a prior purchase commitment, but this year's capital plan now includes about 60 locomotives, with delivery of the remainder delayed until 2018.
BNSF Railway Co.'s 2017 capex of $3.4 billion has dropped nearly 13 percent from 2016's $3.9 billion, in part because the Class I has invested a lot of capital in network improvements and growth during the past several years. This year’s budget includes $2.4 billion to replace and maintain the core network and related assets; $400 million for expansion projects; $400 million for locomotives, freight cars and other equipment; and $100 million for PTC.
At CSX, capex has declined to $2.2 billion from 2016's $2.7 billion, which included $307 million in payments for locomotives that were purchased under seller financing and delivered in 2015. More than half of the funds will be used to maintain infrastructure to help ensure a safe and reliable network. Equipment investments are down significantly from the prior year due to the completion of the locomotive purchase commitment.
The 2017 budget also includes about $270 million for ongoing PTC work. The Class I has spent about $1.8 billion on PTC through 2016 and now pegs the total cost of implementation at about $2.4 billion.
For CN, CA$400 million is allocated for PTC work in 2017 as part of capex totaling CA$2.5 billion. In 2016, the Class I's capital spending was set at CA$2.9 billion. The 2017 budget includes CA$1.6 billion for basic track infrastructure work.
The remaining Class I — Kansas City Southern — has reduced capex by about $30 million year over year and expects to spend $550 million to $560 million in 2017. General and maintenance spending is down because of infrastructure improvements made over the past several years, including the completion of the Monterrey-to-Nuevo Laredo track upgrade in Mexico last year.
Although no money is set aside for locomotive purchases — KCS has no plans to acquire any in 2017 — there are dollars allocated for PTC work. But PTC spending is expected to drop substantially starting in 2018.
KCS plans to keep enhancing capacity across its network in 2017, led by a continued investment in Sanchez yard in Nuevo Laredo, Mexico, and additional mainline siding capacity projects. The yard expansion is expected to provide additional capacity and improved mechanical facilities in 2017. In addition, work at the Sasol support yard facility in Mossville, La., will continue and is scheduled for completion in late 2017.
Congressman Bill Shuster of Pennsylvania, the Chairman of the House Transportation and Infrastructure Committee, once said, "Transportation is the lifeblood of the American economy and our way of life."
I couldn't agree more.
Privately owned freight railroads, which invested $30 billion in 2015 alone, are an essential part of an integrated transportation network that together moves 54 tons of freight per year for every American.
In fact, the freight-rail industry serves nearly every industrial sector. From the steel products used to construct everything from automobiles to skyscrapers to the 8,000 plus parts used to assemble wind turbines, our industrial nation would not be possible without the support of a rail network built to safely and efficiently carry the load.
"Forces are undermining freight rail's ability to generate revenues and continue record private investments," Hamberger says.
Freight railroads provide firm footing for businesses large and small. And that is made possible because smart and sensible regulations in play today allow the rail industry to earn the revenues needed to invest in infrastructure and equipment.
Yet just as a new administration and Congress arrive in Washington, forces are undermining freight rail's ability to generate revenues and continue record private investments.
The U.S. economy has and continues to undergo big market shifts, and this has triggered massive changes to the industry. The rail industry's single most important commodity, coal, is at its lowest level since 1980. Not only will the lost revenues be extremely difficult to replace, but the loss of this once-stable, once-profitable traffic means our rail network has become inherently less stable. Rail traffic levels for a number of other commodities and intermodal are down because of weakness in the broader industrial economy, as well.
At the same time, a set of proposed rules being considered by the Surface Transportation Board (STB) would undercut an efficient freight-rail system while blindly ignoring the dramatic consequences of these substantial market changes. One particular rule would force carriers to turn their traffic over to competitor railroads, which would significantly compromise network efficiency, and in turn reduce investments.
Railroads have long proved to be nimble, but the success of the industry cannot continue unless all government agencies strive for transparent, empirically driven rules that consider the cumulative effects of regulation. We are heartened that, like the freight-rail industry, many want the STB to resist any further rulemaking until a full five-member Board is seated.
In addition to ensuring regulatory reform that unleashes freight rail's full potential, the industry welcomes the opportunity to work with the new administration on five areas to help advance sound policies that extend well beyond railroads:
1) Tax Reform
We need a simpler and fairer tax code, reducing the corporate rate to a globally-competitive level to broaden the tax base, enhance U.S. economic development, promote growth and reduce debt.
2) Regulatory Improvement
Regulations should be supported by cost-benefit analysis and geared toward today's innovation economy. Too often government makes rules in a vacuum and without an eye toward the future. Policies can become quickly outdated when reacting to the issue of the day, which can sometimes compel overreaction. We must make the process more transparent and collaborative.
3) Infrastructure Investment
Elected officials must halt the practice of transferring money from the general fund to the Highway Trust Fund. Policies should require highway users to pay for their fair use of infrastructure and put in place sustainable and realistic plans that will improve transportation and create jobs. The gas tax can no longer sustain the Trust Fund and we should transition to a truly equitable system such as a weight distance fee.
4) Comprehensive Energy Plan
America needs a comprehensive federal energy plan that enables local solutions that keep costs down and job gains up. We must embrace traditional resources such as coal, ethanol, crude and natural gas, as well as alternative sources like wind and solar.
5) Fair and Open Trade
Trade today supports 40 million quality jobs and railroading spans the North American continent. We must ensure that current and future agreements are fair and put American workers first, but we must not turn our backs on the free trade agreements that have brought prosperity to American workers.
With a new administration in place, lawmakers have an opportunity to ensure that policies are rooted in data and recognize the market realities of today, not the past.
Hamberger is President and CEO of the Association of American Railroads in Washington, D.C.
Chao served as Secretary of Labor under President George W. Bush from 2001 through 2009, the longest tenure in the position since World War II and the only Bush Cabinet member to serve all eight years of his Presidency. She was also the first Asian-American woman to serve in a Cabinet position. According to The New York Times, “While enjoying the praise and admiration of her colleagues, she also invited scorn from organized labor, whose leaders accused her of being too cozy with business interests.”
Chao also served as Deputy Secretary of Transportation under President George H.W. Bush from 1989 to 1991. In 1986, she became Deputy Administrator of the Maritime Administration. From 1988 to 1989, she served as chairwoman of the Federal Maritime Commission.
After she left the Bush Administration in 2009, Chao “remained quietly active in politics,” said The Times. “She has always been a close and, by many accounts, savvy adviser to her husband, immersing herself in even the most minute details of his campaigns, like who had donated and who had not.” Chao is a Distinguished Fellow at the conservative Heritage Foundation, whose retired economist Ron Utt is a member of Trump’s transition team, advising him on transportation. Railway Age Capitol Hill Contributing Editor Frank N. Wilner describes Utt as a person “among whose favorite piñatas was Amtrak public subsidies.”
At DOT, Chao would have a principal role in helping Trump get an infrastructure spending bill passed through Congress and start government-backed projects, “a role likely to be complicated by her relationship with McConnell, who will also be a critical player in any infrastructure bill negotiations,” according to a CNN report. She wouldn’t be the first Transportation Secretary with such a conflict. Elizabeth Dole served as DOT Secretary in the Reagan Administration from 1983 to 1987 while married to Sen. Bob Dole, Majority Leader from 1985-1987.
“The nation’s rail industry welcomes the President-elect’s selection and looks forward to working with Ms. Chao on the many critical surface transportation issues key to U.S. economic growth and prosperity,” said Association of American Railroads President and CEO Ed Hamberger. “We know based on her prior tenure at the Department of Transportation that she has a full appreciation of the vital role freight and passenger rail play in America. On behalf of the AAR and member railroads, we congratulate Ms. Chao.”
Chao was born in Taiwan, and moved to the U.S. as a child. She is the eldest of six daughters. Her parents are Ruth Mulan Chu Chao, a historian, and Dr. James S.C. Chao, who began his career as a merchant mariner and later founded Foremost Shipping, a successful shipping company in New York.
In January 2015, Chao resigned from the board of Bloomberg Philanthropies, which she had joined in 2015, reportedly because of its plans to significantly increase support for the Sierra Club’s “Beyond Coal” initiative, a campaign to promote renewable energy. Beyond Coal has received at least $80 million from Bloomberg Philanthropies. According to the Capitol Hill newsletter Politico, early in the George W. Bush Administration, an energy task force convened by Vice President Dick Cheney advocated the construction of 200 new U.S. coal plants. The Beyond Coal campaign prevented 170 of the 200 plants from being built.
NTSB Chairman Christopher Hart explained the two-year cycle will help the board focus its "advocacy efforts on sustained progress."
"We will take stock at the one-year mark, note what progress has been made and decide what additional improvements are needed," said Chairman Hart.
Chairman Hart noted that 2017 will mark NTSB's 50th anniversary and while much progress has been made in transportation safety, he cited increased highway fatalities as one statistic that served as a reminder that "safety is not a destination, but a continuing journey, and our efforts to improve safety must never stop."
This installment of the Most Wanted List includes 10 action items NTSB will focus on in 2017 and 2018:
With the exception of "Prevent Loss of Control in Flight in General Aviation," the rail industry is concerned in all other NTSB action items. The list includes a call to implement Positive Train Control, ensure the safe movement of hazardous materials via rail, increase monitoring and oversight of rail transit safety, eliminate operator distractions, expand the use of data recorders and strengthen occupant protection.
Additionally, a trio of action items focuses on worker health including an item that calls for policies to ensure personnel are medically fit for duty, making sure personnel receive adequate rest to reduce fatigue-related accidents and an end to alcohol and other drug impairments in transportation.
The new list is substantially similar to the 2016 list, but where NTSB had separated collision avoidance technology implementation in highway and rail applications as two items in 2015, they are combined into a single item in the new list. "Ensure the Safe Shipment of Hazardous Materials," was added to the list this year.
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