UPDATE: CSX Says Double-Digit Volume Drop To Continue In 3Q
15 July 2009 - 2:59AM
Dow Jones News
CSX Corp. (CSX) signaled Tuesday that it's planning no let-up in
its push to raise core prices despite a continued steep slide in
freight volume, aiming for a 2010 core rate increase that exceeds
inflation.
Chief Executive Michael Ward acknowledged that the Jacksonville,
Fla.-based railroad has forgone some new business - although he
characterized the amount as relatively small - as it has raised
core prices an average 6.6% in the second quarter and 6.5% in the
first quarter. Core prices don't include fuel surcharges.
The transport sector overall has experienced a precipitous
decline in freight volume since late last year as the ongoing
recession has sapped demand for all manner of goods. CSX and other
top railroads have had success pushing through core rate increases
anyway, largely because of the perceived cost-effectiveness of rail
over other types of transport.
CSX said Tuesday that it expects its volume to drop by a
double-digit percentage rate again in the third quarter. But it
said volume in most markets appears to be "leveling," so the
overall decline likely won't be as steep as the second-quarter's
21% drop.
Regardless, the company predicted its 2009 core price increase
will come in ahead of a previously forecast full-year rise of 5% to
6%, based on the success of the first half. CSX declined to reveal
a precise target for 2010 but said the increase should exceed
inflation.
CSX still has "room to take those prices up" because of "the
value we are creating versus the other modes" of freight transport,
Ward said in an interview.
He said he expects the downturn in freight volume to be a key
point raised by shippers during the "give and take" of 2010
contract negotiations, the bulk of which won't begin until late in
the third quarter. But Ward said he's optimistic shippers will
continue to view rail transport as the most economical option.
CSX and other top railroads have contended that their rate
increases are justified because of the large investments needed to
maintain rail networks and because rail prices remain below 1980
levels when adjusted for inflation.
CSX shares climbed 6.4%, or $2.10, to $34.63 in recent
trading.
Late Monday, the railroad reported second-quarter earnings of
$308 million, or 78 cents a share, down from $385 million, or 93
cents a share, a year earlier. Excluding discontinued operations
related to the struggling Greenbrier Resort, earnings fell to 72
cents a share from 95 cents a share.
Revenue fell 25% to $2.2 billion amid the 21% drop in
volume.
On a separate topic, Ward said Tuesday that rail velocities
through Chicago appear to have climbed since Canadian National
Railway Co. (CNI) bought the Elgin Joliet & Eastern Railway
from U.S. Steel (X).
Still, Ward noted that rail congestion in Chicago, the busiest
rail hub in the world, has eased a bit because of lower industry
freight volume overall, and because of an ongoing public-private
Chicago mobility project known as CREATE.
-By Bob Sechler, Dow Jones Newswires; 512-394-0285;
bob.sechler@dowjones.com