CSX at Morgan Stanley’s Laguna Conference: Strategic Growth Insights

On Thursday, 11 September 2025, CSX Corporation (NASDAQ:CSX) presented at Morgan Stanley’s 13th Annual Laguna Conference, offering insights into its strategic initiatives and operational performance. CEO Joe Hinrichs highlighted both the company’s strong Q3 operational results and the challenges posed by external market factors. While CSX is optimistic about future growth driven by infrastructure projects, it faces hurdles in certain sectors.

Key Takeaways

• CSX demonstrated strong operational performance in Q3, with improvements in velocity and trip plan compliance.
• The Blue Ridge and Howard Street Tunnel projects are ahead of schedule, expected to enhance network resilience and growth.
• Mixed demand environment: Strength in international intermodal and domestic utility coal, but challenges in autos, metals, and chemicals.
• CSX is focusing on industry collaboration and strategic partnerships to drive growth and increase shareholder value.
• Incentives are aligned with margin growth rather than operating ratio, reflecting a shift towards profitable growth.

Financial Results

• CSX experienced a $1 billion decrease in trailing 12-month financials compared to 2022, due to factors like real estate transactions and lower met coal prices.
• Q3 2024 operations showed strength with improved velocity and trip plan compliance.
• A restructuring charge was recorded in Q2 due to management reductions, alongside a 4% labor cost increase for union employees.
• Rerouting costs of $10 million per month are expected to diminish in Q4 as projects conclude.

Operational Updates

• CSX’s railroad operations are at peak performance levels since May, with strong velocity and improving dwell times.
• The Blue Ridge project is set to open in early October, and the Howard Street Tunnel will be operational by the end of September, with full double-stack capabilities by Q2 next year.
• The company managed rerouting challenges due to closed north-south routes for construction.

Future Outlook

• CSX is pursuing truck conversion opportunities and efficient interchanges to increase volume.
• No major new projects are planned beyond leveraging Pan Am and enhancing the Quality Carriers business.
• The company anticipates growth in Q4 intermodal business and export coal as mines resume operations.

Q&A Highlights

• Industry collaboration is seen as key to more efficient interchanges and improved customer service.
• CSX incentives focus on margin growth, aligning with the goal of increasing operating profit dollars.
• Challenges remain in the industrial economy, with trucking vendor pricing pressures on Quality Carriers.

In conclusion, CSX Corporation is poised for growth through strategic initiatives and infrastructure improvements, despite facing a mixed demand environment. Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - Morgan Stanley’s 13th Annual Laguna Conference:

Ravi, Laguna: Great. Next up, we have a CSX real drone. I’m very happy to welcome back to Laguna CEO and President Joe Hinrichs. Joe, thanks so much for coming back to Laguna.

Joe Hinrichs, CEO and President, CSX: Thanks, Ravi. Thanks for having us.

Ravi, Laguna: Absolutely. We have a little surprise for you, which is a slide deck in front of you. Joe is now going to go through those.

Joe Hinrichs, CEO and President, CSX: Yeah, sorry. We didn’t have presentation capabilities today.

Ravi, Laguna: That’s on us, not them.

Joe Hinrichs, CEO and President, CSX: Yeah, it’s all right. I wanted to give you a little bit of data for those that are here. We’re going to just not spend a lot of time on it. The first slide of the deck, on slide four, just kind of shows you the operational metrics. It’s kind of an update for everybody, to all the investors and to everybody interested. We’re having a very strong third quarter operationally. Essentially, from the beginning of May on, our railroad is running about as well as it ever has, and you can see it in the metrics. I’m not going to go into it, but velocity is really strong right now. The dwell is getting back to where we were in 2023, and what we measure for customer service, trip plan compliance, is really strong. The cars online have come out really well.

This is really important because this is all happening before we open up the other projects, the big projects we’ve been working on. It shows you the capability of our network, even without those relief valves that are going to be pretty meaningful. Howard Street Tunnel and the Blue Ridge projects, they’re going to be completed here pretty soon. That’s good. The second slide is just a reminder of what’s been going on because we often get a conversation around what are the things we can control and what we don’t control. This is slide five, which shows you that over the last trailing 12 months, there’s over $1 billion of things compared to 2022, which is when the peak earnings cycle was for pretty much all the railroads that aren’t repeating.

Some of that’s real estate transactions, big real estate transactions we had in 2021, 2022, like the Virginia real estate. Also, met coal prices have come down. We’ll talk about that probably. Supplemental revenue, which was really peaked during the post-COVID period, and then fuel surcharge. Those things will dissipate over time and will fade out. We should get back to stronger earnings when some of those things aren’t going against us on a kind of an annual basis. The last slide is just a reminder of at our investor day in November, which seemed like such a long time ago, a lot’s happened since. We talked extensively about how excited we were about the three-year period, and we even talked about 2025 being more of a transition year of 2026 and 2027.

This is just a reminder of in 2026, all the things that are not going to repeat that happened in 2025 or that are set up for success. Whether that’s the opening of the double stacking through the I-95 corridor when Howard Street Tunnel opens and fully opens in the second quarter of next year, but also the non-recurrence of costs we had this year due to the hurricanes and the projects. Also, a lot of the new businesses coming our way that I’m sure we’ll talk about with some of the new work we’re doing with some of the railroads. We think there’s a lot more supportive interest rates should be coming down, should be a more supportive environment. We feel really good about 2026. This is a reminder of all the things that are going to either not repeat or be in our favor for 2026.

That’s just a quick synopsis of kind of what we brought just to have a little data with you and give you an update on where we are on the operations side. Great to turn it back.

Ravi, Laguna: Awesome. Thanks, Joe. Maybe we’ll start with this, right? This improvement in service that you’ve seen is obviously really impressive. Can you just talk about a few steps you took to achieve that? Is it just a case of you getting used to the disruptions and getting past that? What drove that?

Joe Hinrichs, CEO and President, CSX: If you go back and look, I mean, the start of we’ve been running well for a couple of years, I think you can look at the data. What really disrupted us was first Milton and then Helene kind of backed our network up. In and of themselves, they weren’t that dramatically disruptive, but they backed our network up in key areas in the Southeast especially. When the Blue Ridge was taken out, that was one lane that we had to now move trains away from. What happened was, we moved more trains away from the Blue Ridge because we weren’t anticipating that to be down. When we moved a bunch more trains when we took the Howard Street Tunnel down in February, at that same time we moved a bunch of trains to our central part of our network because there’s only really four north-south.

Two of the north-south routes are closed, so everything’s going basically through the Midwest and then through either Nashville or Birmingham, Alabama, or up to the Midwest. We had these subsequent storms that kind of timed perfectly, so we were backed up. Everything gets pushed to a certain part of our network, and then that network kept having major storms, floods in Kentucky and Tennessee, some storms. We made some mistakes. I mean, we should have put more locomotives out in February, March. We did in March, but we should have put them out in February, so probably a month too late. We had some in storage, some things like that. We regrouped in late March and said, hey, let’s just go back to where everything needs to be. Within a few weeks, we had it all stabilized.

We put in additional steps on a daily basis to manage the network, and we’ve kept them in place. They’ve been working really well. What I’m really proud of the team is because there was a little bit of a belief that until the projects got completed, we couldn’t go back to where we were. We were able to break through that, and we were able to demonstrate you can actually get back to our leading industry performance without even these projects being completed. Once they get completed, we should be able to take another step. Pretty excited about it. I think it’s a testament to the work we’ve done with our workforce because they really rallied together. If you have a workforce that’s with you, you can get a lot done quickly. If they’re not with you, then it takes a lot longer.

I think you saw how quickly we were able to get things back up.

Ravi, Laguna: Got it. As you pointed out, the genesis for the starting point of all this was two big hurricanes last year. Obviously, going into hurricane season now, is the message that if something similar happens this year, you’d be in better shape because you have more locomotives?

Joe Hinrichs, CEO and President, CSX: We’re in a lot better shape now. It’s not just the locomotives. If you look at our data, we were letting the dwell in the third, fourth quarters of last year. We were testing some things by letting the dwell go up a little bit to build longer trains, to build faster and get faster velocity, if you go look at the data. That made us a little more vulnerable. The worst hurricane to hit us in 20 years happened. That’s a learning, but also that’s just a reality. Right now, our network’s in fabulous shape, knock on wood. It is hurricane season. Mother Nature can do what she wants to do. So far, it’s been a pretty quiet season. Hopefully, it will be that way for the rest of the year. Our network’s in far better shape. The cars online are lower. The dwells, it’s not our best level.

Our network is a lot better shape. We’re only a few weeks away from opening up the rest of it. That should give us a lot of resiliency. I think we’re in a much better shape.

Ravi, Laguna: Got it. Maybe you don’t get time to talk about this as much on conference calls given the time constraint. Let’s talk about Blue Ridge and Howard Street Tunnel. Why did you guys decide—remind us again, why did you guys decide to go down that path? How long did it take to assess that? What that timeline is going forward?

Joe Hinrichs, CEO and President, CSX: Let’s start with Blue Ridge because that was a surprise, right? If you drove the map of our network out, we have a north-south route right down to I-95. Basically, Rocky Mount, North Carolina, up to D.C. and up through Baltimore, et cetera. Really important route. Then we have that Eastern Tennessee, Western North Carolina route, which is the old Clintonfield line, which is where the Blue Ridge is. The rest of our two north-south routes are really Nashville South and then through Birmingham. If you look at a map and you say, the Blue Ridge route is gone, you’re from I-95 all the way over to the middle of Tennessee. That’s a wide gap. If something ever were to happen, a major derailment, God forbid, or a hurricane or something, it makes our system incredibly vulnerable.

It didn’t take us very long to do the math around we need to have this. If you do the math just on how many trains go through there every day, you’d say, maybe it doesn’t make sense. If you’re talking about a 198-year-old company and we’re going to be around for 198 years more, we need that resiliency. We need that capability. It’s been more expensive than we anticipated, to be honest, when we first looked at it because it just took so much fill because it just wiped out everything. The team’s done a fabulous job. I was there last week. The team’s done a fabulous job. It’s, I’d say, ahead of schedule, opened up in the first week of October, which we haven’t said. We said early first quarter, fourth quarter. We’re in great shape. The team did a fabulous job. It was built in the 1910s.

Now it’s a lot more resilient. I mean, it was just dynamite and shovels. Now we’ve built it so it’s resilient. Howard Street Tunnel is different. We’ve been working on Howard Street Tunnel for over 10 years, the desire to double stack and also to do it because it was built in the 1890s. It needs to be redone. It has a lot of problems with drainage, et cetera. The original plan for Howard Street was developed for the last couple of years, was to do it over three years, shut it down every 12 hours every night. We just physically couldn’t get a plan to make that work. We came up with a different plan, which is just to shut it down for what we thought would be nine or 10 months. It’s going to end up being a little shorter than that.

Just do it and get it done. Now, there’s a couple of reasons for that. One, we want to get the intermodal capabilities sooner. Also, we’re on the hook. It’s a federal, public-private partnership. We were on the hook for any overages, and those dollars were years ago before all the inflation hit.

Ravi, Laguna: Oh, wow. OK.

Joe Hinrichs, CEO and President, CSX: If we’d have gone three years, it likely would have been significantly more expensive to go over. Third, we just didn’t physically know how to do that. The way you think about this is you go in, you dig it lower, you bring in a new piece, and you put it back together every night for three years and try to run trains through there. Impossible. Our engineers didn’t know how to do it. The good news is it’s going to get done. Actually, we’re going to run a train through there last week of September. That’s also new news. We’re going to beat the clock on that. We’re really excited about it. The team’s done a fabulous job. It happens to be coinciding with a time where a lot of Southern Utility coal likes to go that route. That’s why it was built.

There’s more domestic coal business right now in the Southern Utilities. The timing’s pretty good. We’re pretty excited about it on the Blue Ridge. Back to the Howard Street, sorry. The Howard Street will be running at the end of September. By the second quarter next year, the bridges will be cleared and we can double stack. With all the work we have going on with all the other railroads for a lot more intermodal business, that timing is going to work out great.

Ravi, Laguna: Got it. Blue Ridge seems like more of a network resilience investment. Howard Street looks like a growth investment. Have you gone out and sold that capacity on Howard Street already? What are customers telling you about the potential there?

Joe Hinrichs, CEO and President, CSX: We haven’t sold it yet, but those discussions are happening. They know it’s coming. I guess we have sold it in the way that we give them the time frame. As we said on our investor day, we think it’s 75,000 to 125,000 extra units every year. That may even be some upside given all the work that’s going on with some of the other railroads right now. We just don’t compete through that corridor onto major corridors like Atlanta, New Jersey. We don’t even try. A lot of that will be truck conversion. Some share, but a lot of it will be truck conversion. We’re really excited about it. The Blue Ridge, what’s going on with domestic coal utilities, actually might be timed pretty well. We didn’t know that, but because there’s some utilities now staying open longer, we’re going to run more coal through there.

Both of them, I think, could add a little bit of growth, but obviously the Howard Street being a much more prominent one for sure.

Ravi, Laguna: Got it. Let’s shift gears and just talk about the demand environment right now. Kind of what are you seeing out there? Obviously, very, very choppy macro situation. We’ve had a couple of reels go already, and they sound a little bit squishy on volumes depending on end market in the third quarter here. Similar to this, if you want to give us a little bit of a run-through as to what your volumes are.

Joe Hinrichs, CEO and President, CSX: I’d say it’s a mixed bag. Intermodal’s been growth, been strong, more on the international side than domestic, which we have good, strong partners on international. International intermodal has been a growth story for us in the third quarter. Domestic’s kind of held in there, but international’s been strong. You’ll see more intermodal growth in the fourth quarter for us with some of the recent announcements. As I said, domestic utility coal is up. Export coal’s down a little bit. Some of that’s because of pricing and the environment. Some of that’s because we’ve had a couple of mines that were single-served by us that went down this year. One is coming back this month. That’s good, but it doesn’t really affect third quarter, but it should hopefully affect fourth quarter. Autos have been kind of mixed.

We’ve lost some share in autos this year, not because of contracts, but because of the mix of customers we serve versus Norfolk Southern. We think that’ll get better in the fourth quarter. Metals have been not as weak as they were in the first half of the year, but still weaker. What’s been strong? Aggregates, so concrete, minerals, that kind of thing. Obviously, our presence in the Southeast helps there. Ag business has been OK in the third quarter. It was stronger in the first half of the year. If you go and look about some of the other things, forest products, we’ve had some closures of pulp board and paper plants with some of the restructuring going on in that business, which has impacted our volumes. Plus, housing’s been soft. Merchandise has been a little lower than we expected. Intermodal’s been stronger than we expected.

I’d say domestic coal’s been stronger than we expected. On balance, we are seeing a little bit of growth in the quarter, but that’s more intermodal and a little less merchandise.

Ravi, Laguna: Got it. Any share shifts in particular to consider, or especially given the disruption that you’ve had?

Joe Hinrichs, CEO and President, CSX: I think you’ll see more intermodal business come our way in the fourth quarter. I think in the third quarter, I didn’t mention chemicals. That’s the other big one. Chemicals have been a little softer in the quarter than we certainly anticipated. It’s a big part of our business. We still have the largest market share there. Chemicals have been a little softer for us too. I think in the near term, hopefully with the mines coming back on, one this month, probably the other one at the end of the year, the export coal business, we should start to see a little more volume coming.

Ravi, Laguna: Got it. You said international is more or less strong for you. I think a couple of reels so far have highlighted strength there as well. I’ve also flagged that that may be some level of pre-ordering or pre-stocking. Are you seeing any signs of that? Do you have a sense of whether there’s significant?

Joe Hinrichs, CEO and President, CSX: Yeah, I mean, I’d say it’s been choppy, but we’re not seeing, we don’t anticipate a softening in the intermodal business. We’ve also announced a number of new lanes, which will be volume growth for us. We don’t see, our international business has been holding up pretty well, and we don’t see that changing. We also had some new inland ports, which has helped a little bit too. I would say it’s been a little choppy. It’s been harder to predict to be sure, but I’d say we feel pretty good about where we are on intermodal.

Ravi, Laguna: Given the improvement in the service metrics, given the new lanes you’ve launched, but also in a choppy environment, how do you think about some of the puts and takes on the OR side going into the second half of the year? Any particular moving parts?

Joe Hinrichs, CEO and President, CSX: We did announce in the second quarter earnings that we have a restructuring charge from the management reductions. That’ll hit us in the third quarter. Obviously, we had the labor increase of 4%, the first of the five, for the union employees. We have all our contracts done but one, and we hope to have that one done shortly. That’s the kind of the added cost side. The efficiency of the network’s running really well, and we’ve had a lot of discipline that you saw in the second quarter around our costs, whether it’s PS&O, whether it’s overtime, some of the variable discretionary things. I think we feel pretty good about the run rate we’re on as far as the operating network goes and that. We will have some of those couple of things hit us in the third quarter. I feel pretty good about where we are.

We keep our network running. We get the other—we still have the $10 million a month of rerouting costs. Certainly, we should see most of that go away in the fourth quarter.

Ravi, Laguna: Understood. Let’s shift gears and talk about everyone’s favorite topic this year, which is the potential rail merger that’s been announced. I’ll just open-ended ask you kind of thoughts so far.

Joe Hinrichs, CEO and President, CSX: Yeah. We haven’t said a lot publicly about it because I think it’s premature to say too much because we haven’t even seen the application to the STB, which I saw the transcripts from yesterday. We’ll see when those get published. I’m sure there’ll be a proxy disclosure, and then there’ll be the application. We’ll have a lot more information. My view since I started in this industry, and I think if you look at anything I’ve said publicly for the last three years, I’ve been imploring this industry to work better together to grow the pie for all of us and to serve customers better. If you go look at all my public remarks and even my private remarks, in the first six months I was on the job, I flew to Omaha to meet with Union Pacific. I flew to Dallas to meet with BNSF.

I had meetings with both CN and CPKC CEOs. Can we work together? I’m new. I don’t have any old biases. I don’t have any—it didn’t work before. Let’s just go do things. The only one we really got to do something with was CPKC out of that. Of course, they had just formed their entity, and they were motivated. We did the new interchange, and we did the hydrogen joint venture on the JV on the locomotives. Now we have an exciting time where there is motivation, and there is activity amongst all the rails to work together to grow the pie. We can debate on how we got here. What’s exciting for us is that our operating metrics are the strongest in the east. Our customer relationships are the strongest in the east. Our union relations are the strongest in the east.

We’re the preferred partner now on the east of three railroads. I don’t want to speak for them, but as far as the activity level goes right now, that’s pretty exciting. The opportunity here is to grow the pie for all of us. How can we finally go work on these issues that have been around for a long time, the inefficiencies of the interchanges, the cost, timing, handling the interchanges, and the openness to talk about everything, whether it’s assets? Why do we have so many yards at all the interchanges? We have to have our own, but why does it have to be that way? We’re now at a point where the industry is willing to talk about things it hasn’t been willing to talk about before. A lot of that was largely driven by what’s in it for me view of the world.

Like when we were dealing with railroads, if the other railroad wasn’t getting the majority of the benefit, even if they got benefit, they weren’t interested, which is why you get into this long haul, short haul, who gets the longer service, all that kind of stuff. Right now, we have an opportunity where people are saying, you know what? Let’s just work together to go work on these issues. You’ve already seen a number of announcements. There’ll be more about, all right, let’s just go after all this business that is theoretically out there. I think a lot of that’s overstated because there’s reasons why people use truck. For various reasons, having run a business for years that moved a lot of material forward, there’s still a lot of opportunity out there.

The exciting thing for me and for us, I think, right now in this industry is let’s go grow the pie and get more efficient at doing it, serve customers better, and go after some of this truck conversion that should be out there for us.

Ravi, Laguna: In order to work better, do you need to get married? Or can you do it while dating?

Joe Hinrichs, CEO and President, CSX: That’s a great question. I get that asked a lot. If you stay focused on the interchanges, that’s where a lot of the attention is. There’s nothing physically stopping us from making the interchanges efficient and fluid. Right now, we do things like goes into yard A for other railroad, then it gets trucked over on intermodal, and then it gets in our yard, and then it’s so inefficient. That’s because we accept it. It’s not because it’s physically required. Physics don’t say you have to do that. There’s nothing physically stopping us from making the interchanges or even going around the interchanges. There’s nothing technically stopping us. It’s more desire and will and partnerships. You have to work through, OK, who shares what costs and who gets what benefits. You have to be able to do that.

You need partners who are willing to step back and say, you know what? We just want to make the whole pie bigger, and let’s all of us get our fair share of that. You can do that. Some will say is it easier if you control the whole thing? If not, perhaps. There’s nothing physically stopping us. What I’m excited about right now is the conversations that we’re having are very open to, OK, what’s it take and what’s in the art of the possible? Why do we have three yards in Chicago and Railroad X has six yards in Chicago? Why can’t we just share those assets? Why can’t we just get more efficient? Why can’t we just steel wheel everything? What’s it take? The conversation has moved from what’s in it for me to what would you have to believe to make it work.

That’s an exciting opportunity for all of us.

Ravi, Laguna: Just to follow up on that, what is stopping it from happening now? There just needs to be a contract or the piece of paper that people need to sign and say, you do this, I’ll do this. Is it a technology problem?

Joe Hinrichs, CEO and President, CSX: No, it’s not a technology problem. I mean, technology can enhance it, especially from the customer view. I didn’t talk about the customer side. Ideally, from a customer standpoint, they would like to see it as one entity. There’s nothing stopping us from doing that. There are some Rule 11 things for pricing. As far as the experience, it’s just, again, it’s a will. Are you willing to do that? Are you interested in doing that? Can you do that? I think that’s another step that hopefully over time the industry will be able to do. Some of it’s contractual. Some of it’s just, let’s just do it. You need, in some cases, you may need a haulage agreement. You may need some kind of agreement on what you can do with locomotives. The teams know how to do that. We’ve been doing it for a long time.

I’ll give you an example. We don’t talk about it a lot. For years, we have a haulage agreement with BNSF where their train comes into Birmingham. It’s an intermodal train. It comes into Birmingham, Alabama. Their locomotives stay on it. Our crew jumps on it and takes it to Atlanta. Their locomotives take it back from Atlanta with our crew back to Birmingham. We just change crews, and then it goes. We’ve been doing that for years. It’s on our tracks. It’s our engineering conductor, but it’s their locomotives, and it works really well. There are lots of things that can be done. You have to want to do it, and you have to be willing to recognize that if we grow the whole pie, we’re all going to benefit. Let’s not argue over 51 versus 49 or 49 versus 51. Let’s just make it better for everybody.

Ravi, Laguna: Got it. Speaking of the just do it, you tell us you just did it with BNSF and CN. Can you just talk about both of those partnerships you just announced and what that brings to the table?

Joe Hinrichs, CEO and President, CSX: Yeah. I’d even go before that. Obviously, the CPKC interchange in Myrtlewood as well. That’s the spirit of which we’ve been trying. This predates a lot of the UPNS conversations. This is the spirit by which we’ve been trying to go to work, including we have a great current interchange business with Union Pacific. It’s a very healthy business. I want to acknowledge that. Our spirit of partnership has been there with everybody. Now we have more motivated partners. Of course, we’re motivated too. We’re finding new solutions. The one with CN this week, a little misinterpreted yesterday from the transcripts that I read. Right now, a lot of traffic goes from Prince Rupert down to Memphis, and then it gets trucked from Memphis to Nashville. Now we’re having these conversations. You start having real conversations with each railroad saying, hey, where’s this volume? Where does it go?

Look at lane by lane. There’s a lot of volume being trucked from Memphis to Nashville. We have a train running from Memphis to Nashville that has capacity on it. Why wouldn’t we just put it on our train? That’s the extent of it. Smart business, no incremental cost, create value for customers, take trucks off the road. Everybody wins. You’re starting to see a lot of those things. I’m not minimizing it. I’m excited about it. On the BNSF side, there’s a lot more potential because obviously they have the largest intermodal business in the West with their partnership with J.B. Hunt. They’re the fastest in the West. We’re the fastest in the East. We can see lots of scenarios where we can create really competitive offerings for customers and move across the network, especially when we get the Howard Street Tunnel opened up access to the East.

Of course, we have the strongest access to the Southeast, which is where a lot of the growth volume is, Atlanta, Charlotte. We’re the only Class I with tracks in Florida. We can see a lot of that attractiveness. We’re pretty excited about it with everybody and excited about working with everybody, including the work we do at Union Pacific.

Ravi, Laguna: Yep. Sounds good. Any questions from the audience? You have one in the back.

Unidentified speaker: Morning. I would love to hear from you from a broader perspective. If you look back at the industry the last 15 years, very little volume growth. We understand the coal situation, but even other than that, what do you attribute that relatively bad performance compared to the GDP or anything? What needs to be different going forward other than the BNSF partnerships?

Joe Hinrichs, CEO and President, CSX: Yeah, sure. Maybe it’s a little easier for me to opine on it because I wasn’t here for most of that time period. Looking back and talking to everybody and learning, let’s be honest, the last 10, 15 years, the main focus of the industry has been restructuring the business to get a lot more efficient and to create better margins, which in and of itself isn’t a bad thing. That was the number one focus. You can see all the activist activity and all the things that went on to drive that obsession with OR improvement, which again, in and of itself is not bad. There wasn’t at the same time a same drive to grow volume. It was about making—a lot of the volume growth that happened during that time period was truck competitive. That margin difference compared to the carload business is different.

I’ve said this many times. It really depends on what are people incentivized and motivated to do. This industry has been incentivized and motivated to optimize OR for the last 10-plus years. I’m not criticizing it because look at the efficiencies and the operating margins that we have that we didn’t have 10, 15 years ago. If your only pursuit is every quarter trying to show a little better OR, then intermodal business is not going to be your priority or other truck competitive carload business, let’s say, because the pricing dynamics are different. We’ve got to find this right balance where the business that the carload business, the merchandise business, the business that has the strongest margins doesn’t deteriorate. We capture that. We keep making it more efficient.

We go after the incremental volume, which has good incremental margins, by the way, but might not be quite as good as coal or chemicals or some of those other things. That’s where the industry has struggled. By the way, you need industry collaboration to make a lot of that happen because it’s not just—whereas 70% to 75% of our revenue on any quarter is within our region, so within our control, there’s still 25% to 30% every quarter that is interchanging with one of the other railroads. A lot of that watershed opportunity people talk about or that truck competitive look at our market share within our region is higher than market share across the regions. People assume that’s for either the interchange inefficiencies or because of this fight over who gets what benefit from West to East.

If we can get rid of those things, we can go after that. The intermodal opportunities or that watershed opportunity is not going to be the same margin as the traditional carload business. What we have to demonstrate and investors have to believe is that we can do both, not deteriorate the performance of the traditional carload business, which has very healthy margins, and add incremental growth with good incremental margins, but maybe not quite as good as 40%, maybe 30-some %, but still really healthy compared to your cost of capital and still create value and get EPS growth and cash flow growth, which then can be returned to shareholders or reinvested for more growth. That is what has happened from my view of the world. If you look at what happens in this industry, we talk about margins.

If your OR or margins deteriorate for any period of time, people are going to swarm in and get those margins way back up right away, which again, that accountability isn’t an awful thing. If we don’t get outside of that, we’re going to get the same thing over and over again. We’re going to talk for 10 years more about it’d be nice if we could grow, but this quarter, you better have 40+% margins. What we got to show to you is we can do both. I believe we can. I believe we have an opportunity right now in this industry to demonstrate that. We have motivated players to grow the pie. Part of the thesis in the past was in order to grow that other lower margin business, still very healthy margins, it would deteriorate the margins of the other business.

We got to demonstrate to you that that doesn’t happen. Does that make sense?

Unidentified speaker: Does it come a point where you take the operating ratio out of your executive team compensation, out of the investor guidelines so that you can really focus on growth?

Joe Hinrichs, CEO and President, CSX: I think we’re the only Class I that does that, actually. Our incentives are based on margin growth, not on operating ratio. Again, it’s one minus. I mean, so the numbers, you can do the math. It’s what’s your mindset. As I showed you, at the same time, we’ve been growing volume. We were the only railroad, Class I railroad, that grew volume last year versus 2019. We’re the only U.S. Class I that grew merchandise volume the last two years. We have been demonstrating you can do that. We’ve had all this other noise going on of coming off of peak earnings for things we didn’t control. It’s gotten lost. I’m not here to debate OR versus—they’re just numbers. What’s really important is what are you incentivized to do and what are you motivated to do. I believe the industry now is motivated to profitably grow.

We’ve got to demonstrate we can do that by working together.

Unidentified speaker: Why not take the operating ratio or margins out and just focus on operating profit dollars growth rather than margins?

Joe Hinrichs, CEO and President, CSX: You can debate that with your other partners, other investors. We have operating income growth as one of our incentives at CSX. I’m not making that up. You can go look. I think our incentives are in line with what you’re talking about. We’ve got to collectively go do it. It would be nice if the industrial economy would help us out a little bit because the ISM PMI has been below 50 for 32 out of 34 months, and we haven’t had a lot of tailwinds. We’re aligned with that thinking. We’ve got to be able to demonstrate you can continue to run a very efficient railroad, optimize your margins, pricing, everything on the carload business, and grow and go after that truck competitive business, whether it’s carload or intermodal, and do both and grow EPS and return more capital to shareholders.

Ultimately, if we can show profitable growth, the multiples should expand as well. That’s the thesis. Now we have industry partners that also are now motivated to do the same. Hopefully, we can demonstrate we can do that. That’s our plan.

Ravi, Laguna: Joe, maybe I’ll just wrap up here. I know you guys are obviously full steam ahead trying to get Howard Street, Blue Ridge done. It’s completely understandable. Huge projects for you guys. Forgive me for asking this, but what’s next? Are there more projects like that to come? Do those projects potentially get on pause until you see if the North American railroad industry is going to be completely transformed?

Joe Hinrichs, CEO and President, CSX: We don’t have any major projects for that. Also, the CREATE project in Chicago opens up in November. I haven’t even talked about that one. That one’s been on for years. We are really at a moment where we’re actually going to have all our major projects done.

Ravi, Laguna: You’re reading.

Joe Hinrichs, CEO and President, CSX: In the not-too-distant future, we don’t have any major projects planned, unless Mother Nature decides that she wants to do something else. I think we’re in good shape there. We got to keep working on the Quality Carriers business. The trucking business has been under a lot of pressure for the last few years. Keep taking advantage of Pan Am that we now have running on our network, and that’s growing. We feel good about that. It’s just about taking advantage of all these opportunities to grow the business with a network that’s running really well and that is free to run very well.

Ravi, Laguna: Got it. Just to point very quickly, you mentioned Quality Carriers. Obviously, it was a very strategic acquisition for you. As you said, it has been having some challenges. What are those challenges? What are the solutions? Is one of the solutions potentially kind of strategic options or something else?

Joe Hinrichs, CEO and President, CSX: I mean, like we always say, we’re always open to what creates value for our shareholders. The timing of the Quality Carriers acquisition was timed at the peak of the cycle. In the last three years, the trucking business has you on those vendor pressure. It’s a well-run business. It’s a leading market share in the special chemical business, but it’s not a majority of market share. Pricing’s been difficult. The intermodal business has been growing every month, and we feel good about that. We bought more affiliates to help expand there. With the market being depressed, we’ve been able to buy more affiliates to bring more in-house. We think the business is structured well for recovery, but it’s been a lot longer than we expected. We’re going to keep working on taking costs out, keep working on growing the business.

Obviously, look for the truck business rates to come back. That will help. It will also help the railroad business too. We’ve been waiting on that for a couple of years now. I don’t have any crystal ball to be able to tell you when that’s going to happen. Again, good business, poorly timed acquisition probably. You don’t know that, but we’ll keep working it.

Ravi, Laguna: Got it. The wait continues for the cycle, and we’ll also be waiting for some regulatory filings too.

Joe Hinrichs, CEO and President, CSX: Yes, there’ll be no shortage of activity in the railroad industry for the next couple of months.

Ravi, Laguna: Awesome. Joe, thanks so much.

Joe Hinrichs, CEO and President, CSX: Thank you. Appreciate it, Ravi. Thanks.

Ravi, Laguna: Thank you.

Joe Hinrichs, CEO and President, CSX: Thank you, everybody.

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