Is the CSX Announcement to Impose Hefty Fees on some Rail Customers in 2018 Justifiable?

Editor Newsletter

Reuters reported that CSX Corp will charge new fees for freight shipments to Mexico and hike charges for customers that fail to load or discharge railcars by agreed deadlines or ship unsafely loaded or overweight railcars as of Jan. 1, the company said. Is this justifiable? Is this just another carrier imposing rate hikes? CSX wants to change shipper behavior to be timely, not overstuff trailers beyond capacity and add new fees for processing paperwork in Mexico and additional handling charges. CSX says the charges were "in line with efforts to optimize the use of assets," including railcars. "These changes are intended to improve the efficiency of our operations," The move was initiated by CSX Chief Executive Hunter Harrison, who took the job in March, has been streamlining operations with his "precision scheduled railroading" strategy, which relies on running freight trains based on strict schedules instead of individual shippers' needs. "Shipper-caused delays are a part of the whole story along with CSX-caused delays," Hatch said. "Hunter Harrison is trying to reset the whole relationship." Hatch said similar charges were part of Harrison's strategy when he led a turnaround at Canadian National Railway Co through 2009. The carrier also said several customers, including U.S. packaged food maker Conagra Brands Inc, would no longer be able to use other railroads to move freight in certain locations if CSX's system can not handle their cars, a process called "reciprocal switching." The change may force these customers to ship freight by truck, which is costlier than rail.

Summary of proposed fees:

  • Demurrage fees for cars carrying flammable materials will rise to $250 per day from $175, and to $150 a day from $105 for non-hazmat cars.
  • Refrigerated cars will be charged $250 per day, up from $200.
  • Charges for overloaded railcars will rise to $1,000 each from $750, and $1,000 per unsafely loaded railcar, up from $750.
  • For railcars crossing the U.S.-Mexico border, CSX said it may charge a new fee of $200 per railcar for incomplete or erroneous customs documentation or data, and $25 per railcar for paperwork and processing.

Our opinion is that effective Change Management starts with a holistic plan that aligns all members of a transportation mode to be in sync with changes. For example, if the trains now arrive on-time, are the drayage haulers available to pull freight and move it out of the yard to maintain the timely flows? Are there incentives for the consignee to return trailers so that they can be used in the system? Are there enough chassis at the railheads to move the containers? What if the customers change modes to OTR trucking? This will cause revenue dilution issues with CSX, if there are fewer customers. CSX should make sure the industry is ready for Precision Scheduled Railroading before punishing their customers.

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