Q2 2020 CSX Corp Earnings Call
In Q2 2020 earnings call as a reminder, today's call is being recorded.
During this call all participants will be in listen only mode. Following the presentation, we will be conducting a question and answer session.
Ask a question press star one for opening remarks, and introduction I would like to turn the call over to Mr., Bill Slater, Chief Investor Relations Officer for CSX Corporation.
Thank you and good afternoon, everyone. Joining me on todays call or Jim foot, President and Chief Executive Officer, Mark Wallace Executive Vice President of sales and marketing, Kevin <unk>, Chief Financial Officer, and Jamie aboard <unk> Executive Vice President of operations on Slide two is our forward looking disclosure followed by our.
Non-GAAP disclosure on slide three with that does my pleasure to introduce President and Chief Executive Officer, Jim for it.
Thanks, Bill and thank you to everyone for joining our call. This afternoon.
Wow, where do I started talking about this quarter.
The most disruptive quarter I have experienced in my career with both the fastest decline in volumes followed by one of the more rapid increase in volumes in the company's history.
Reacting to those extreme swings while dealing with the pandemic.
Has been and continues to be challenging.
She was six employees have been absolutely amazing in their response and I want to thank them for their hard work dedication to keep the wearable running well.
And I would be remiss, if I didn't extend spec special recognition to our employees and their families.
Who have fallen ill from the virus or thoughts are with them.
It's difficult times companies strong companies adapt and that's exactly what we have gone.
Despite all that has been accomplished to date in CSX is transformation, we're still finding opportunities to be better.
Faster and more reliable.
The actions taken over the past ones.
Not only make CSX more efficient, but more importantly, the wall allow us to be better delivering a service to our customers in the future.
Turning to the presentation on slide five is an overview of our financial results, which Kevin will discuss later.
Due to the economic impact of the Pandemics second quarter EPS declined 40%. The 65 cents wont be operating ratio increased to 63.3.
On slide six you could see that all business lines were negatively affected by the pin debit.
Second quarter revenue declined by 26% year over year on 20% more volumes.
So what's really the volume decline was the largest NCS exits history and almost twice as severe as any quarter during the 22009 recession.
Merchandise revenue and volume declined 22% would the largest headwinds headwind coming from your automotive plant shutdowns.
Automotive volumes declined 71% in the quarter, including six consecutive weeks, where volumes were down more than 90% each week.
Intermodal revenue declined 18% on 11% lower volumes as both the international and domestic businesses were impacted by lower consumer and industrial domain.
Coal revenue decreased 48% on 44% lower volumes.
Both the domestic and export markets were negatively impacted by weak demand.
From the combination of reduce power consumption low natural gas prices and export benchmark prices.
Other revenue declined 19% due to lower affiliate revenue and declines in demurrage charges and intermodal storage revenues.
Turning to slide seven.
Safety remains my top priority.
Even though we hit an all time low number of train accidents in the quarter the frequency rates for both train accident and personal injuries increased due to the lower level of volumes.
Well CSX continues to lead the industry year to date and safety, we must do better.
We will never be satisfied with our performance if any of our employees get injured while at work.
And we are undertaking a comprehensive safety engagement initiative this quarter focused on strengthening critical rules compliance.
And systemically identifying and eliminating on sales tax.
Moving to slide eight.
Lets review review, our operating performance for the quarter.
Despite the challenging operating environment. The railroad continued to run at a high level.
The operating team successfully implemented significant plan changes, while maintaining fluidity and driving efficiencies across the road.
In addition to be service design changes, we also drove increased yard productivity setting a new record for cars handled per hour worked.
Additionally, CSX continues to lead the U. S class one railroads in fuel efficiency setting a new quarterly operating record of 0.96 gallons of fuel per thousand gross ton miles.
Fuel efficiency, along with BSG more broadly our priorities for our team.
We are focused on leveraging inherent benefits railroads here as the most sustainable mode of land based transportation.
And are working hard to make sure CSX is building on these benefits to continue leading the industry in safety and sustainability.
The topics of BSG and driving positive social impact are critically important to see affects our customers and the communities. We serve and we look forward to providing additional detail on key initiatives.
In our sustainability report to be released later this month.
Slide nine clearly highlights the unique operating challenges faced during the quarter.
As volume dropped more than 25%.
And then bounced back nearly 20% since memorial day.
The team acted decisively to adjust the network for the changing volumes, reducing total train starts roughly in line with volume declines.
And realizing liner world efficiencies, even greater than the volume declines.
These results reflect the strength of our operating model and ingenuity of our team.
In addition to consolidating trains across the network they saw new opportunities to integrate auto and unit train business into the merchandise and intermodal networks.
Well all the unique service changes to be to more efficiently leverage yard and local operations.
Voids began to recover late in the quarter, we started recalling employees and edit train starts to meet demand.
But we are confident that many of the changes we made during this period are durable and make CSX a stronger company.
Slide 10 shows our hourly trip plant performance in the quarter Carload. Your plan performance at 80.5 was consistent with first quarter results and intermodal performance remained high at 94%.
Volume has been volatile, but we're working closely with our customers to ensure they are appropriately resourced and prepared to handle incremental volume when it comes.
I'll now turn over to Kevin for more detail on the core.
Thank you gentlemen, good afternoon, everyone.
The second quarter of 2020 represented the most significant revenue dropped and the company's history.
Pace with an 800 million dollar revenue decline our company clearly responded.
From a cost perspective.
Our focus through this period was to accelerate initiatives that will deliver sustainable.
Structural cost reductions.
Positioned us to leverage growth.
The economy recovers.
At the leadership team, we were deliberate and our strategy.
Focused on avoiding the pitfalls are making short term cost and citizens.
The detriment of growing the business profitably as the economy rebounds from the pandemic.
As you can see on slide 12, total expense was down 19%.
Piece of a 20% decline in volume.
This includes the impact of approximately 60 million.
Of unique headwinds we faced in the quarter.
Which included lower real estate gains.
Severance costs related to a management restructuring.
Specific covert 19 related cost.
Higher depreciation and property tax.
As well as equipment impairments in the quarter.
Excluding these items costs would have been down 22% year over year.
I frequently get asked the question, especially over the last three months how much of your cost base is fixed versus variable.
And that's really everyone wants to hear how variable it is when volumes are declining.
Fixed it is when volumes are on the rise.
The reality is very little of our expenses falls out.
With lower volume.
Action and a lot of hard work is required.
But the balance to ensure we variabilize the cost structure, while maintaining service levels.
In the second quarter.
We successfully identified creative solutions to help drive efficiency on a long term basis.
Some of these efforts will show up near term.
While others will benefit us in the quarters ahead.
As volumes improve off the bottom I am confident you will see very strong operating leverage driven in part.
By a lot of the hard work and effort. The team has put in over the last several months.
Walking down the expense line items.
Labor and fringe was 22% lower.
Reflecting the benefit of reduce crew starts lower operating support costs reduced labor at our terminals.
As well as dramatically lower overtime spending.
Crew starts were down 24%.
Exceeding volume declines in the quarter and saving over 70 million total to you need labor expense.
Additionally, the active locomotive count was down 25% year over year in the quarter.
The smaller fleet.
Combined with fewer cars online and freight car repair efficiencies.
Helped drive a 20% reduction and the mechanical workforce.
Well at the same time, reducing mechanical overtime expense.
By 56%.
We continue remain extremely focused on overtime.
Workforce efficiency and management execution, we reduced overtime across all operating departments by 50% versus the prior year.
Driving 20 million of over time savings in the second quarter alone.
We also achieved significant largely sustainable reductions in our engineering contract labor expense.
Our intermodal terminal workforce.
In addition to these efficiency improvements.
We had 39 million of lower incentive compensation expense in the quarter.
Primarily reflecting lower projected pale on existing plans.
Finally, the quarter included 10 million of severance costs, resulting from a management restructuring to align our resources and improve efficiency.
From these actions, we expect 25 million an ongoing annualized savings.
As I've described before and that's a no expense tends to be less volume variable than labor.
But we still reduce this line item by 9% in the second quarter.
Or 14% when you adjust for the impact of 26 million and lower real estate inline sale gains versus last year.
Continued improvement to the train planned combined with increased network fluidity.
And able to 37% reduction in crude travel and repositioning expenses versus the prior year.
On the mechanical side, the active locomotive count was down 25% year over year, we closed the quarter with over 1000 locomotives in storage.
In addition, fewer cars online and freight car repair deficiencies.
Driver, 20% reduction in car material expense in the quarter.
The safety of our employees remain CSX is number one priority.
In the quarter, we spent approximately 10 million covert related supplies.
To ensure our employees were safe and falling CDC guidelines why they kept the railroad running.
We leverage our purchasing power to procure large quantities of safety supplies has stayed around the network.
Going forward, we expect a run rate of one to 2 million per quarter for the balance of the pandemic.
I already mentioned the decline in the real estate gains in the second quarter.
For modeling purposes.
Our current assumption is for minimal sales activity across the balance of the year.
We continue to see sales opportunities longer term.
The team is also focused on accelerating strategies that will increase recurring income streams that are tied to our real estate portfolio.
Fuel expense improved 143 million or 61% year over year, driven by a 50 per cent decrease per gallon price.
Lower volume and significant efficiency improvements.
I, probably sound like a broken record, but we achieved another all time record quarterly fuel efficiency at 0.96 gallons per GTM.
Looking at other expenses.
Depreciation increased 7 million or 2% in the quarter.
Mainly driven by our 2019 equipment study.
Equipment rents expense decreased 14 million or 15%.
Lower volumes as well as improved cycle times.
Our intermodal market.
Was the most significant driver.
Turning below the line.
Interest expense increased primarily due to higher debt balances, partially offset by a lower weighted average coupon.
Tax expense decreased 123 million or 45%, primarily resulting from lower pretax income.
Absent unique items, we continue to expect an effective tax rate of approximately 24.5% for future quarters.
Closing out the piano CSX is operating income declined 37% year over year with a 63.3% operating ratio.
Turning to the cast sided equation on slide 13.
On a year to date basis capital investment is roughly flat.
We continue to invest in our core track bridge and signal infrastructure.
Prioritizing investments that provide safe and reliable train operations.
We are not cutting capital, especially investments in the safety of our core infrastructure and projects that produce attractive returns.
Through the second quarter free cash flow before dividends was 1.4 billion.
Down 15% versus prior year.
Free cash flow has continued to be a key focus for this team.
Even in a challenging environment, we saw free cash flow conversion on net income exceed 100%.
Our results this quarter really highlight the significant improvement in our operating model.
Our ability to generate positive through cycle cash flow.
Tells us to continue invest in our network and pursue incremental investments that will further strengthen our business.
Importantly, our cash and short term investment balance at the end of second quarter was 2.6 billion.
This industry, leading cash and liquidity position provides us ample flexibility going forward.
We remain committed to distributing excess cash to shareholders.
With that let me turn it back to jump for his closing remarks.
Thanks, a lot Kevin.
Concluding on slide 15.
Where we happy to see the volumes recover from the May trough as the economy strengthens.
However, while these trends are encouraging.
The ultimate path of the recovery remains too wide accurate.
Accurately predict at this point.
As for Capex, we're still expecting the full year to be at the low end of our initial 1.6 to 1.7 billion range.
We will never reduce or defer any spend that impact safety and we will continue investing to maintain the integrity of our network.
We are however, evaluating our capital spending programs to maximize efficiency and prioritize high return projects.
We're applying the same disciplined approach to our capital budget that we do two or operating expenses and making sure every dollar spent productively.
Thirdly, seeking out and eliminating wasteful spending.
It's this mentality that has generated CSX is industry, leading cash flow profile and strong liquidity position.
Not only does our transform cash flow profile provide additional operating flexibility. During these periods of uncertainty, but it allows us to continue investing for the health and growth of the business throughout the cycle.
See affects the better company today due to the actions taken over the past few months.
No matter what path to recovery takes from here.
We will remain laser focused on serving our customers and making this company stronger than it has ever been.
Proud to work with such an exceptional team of Railroaders and I'm more confident than.
Whenever that the best is yet to come for see yourself.
Thank you I'll kick it back to bill.
Thank you Jim in the interests of time I would ask everyone to please limit themselves to only one question with that we will now open the line for questions.
Thank you we will now be conducting a question answer session. Our first question comes from Tom Wadewitz from yes.
Yes, good afternoon.
Wanted to see if you could offer some more thought side the structural changes to cost.
And how we might think of does it get the simple framework I think of its just kind of the schedule and you know what would your trained schedule look like if the volumes came back.
To pre co bid levels I don't know if that's the right framework or if there are other things that I just wanted to see if you could give more of a framework of the structural cost take out and how that looks when volume comes back.
Thank you.
Sure Tom I think I think probably Jamie is probably the best that can give us a little bit of the color behind.
Everything he's been working on so hard for the last three months no absolutely. Thank you for the question Tom.
As Jim mentioned in both Kevin.
We've seen a bit of a rebound obviously on our volume levels here over the past six weeks, we have you know being up 25% from our low point during the cold period here.
And.
If you take a good look at at the numbers and slide nine you'll see that this business has come back with us only using 13% more locomotives and 14% more road starts. So we have like a we use this time.
Drew and coal that almost like our practice our to be prepared on how to run trains differently on how to readjust our network.
We're using more distributed power.
As Jim had mentioned in his opening we are doing more of a train mix, our auto network, which practically disappeared throughout the covert period has come back strong.
And we are moving it in a different way than we ever have we are we're mixing the auto network with our our manifest and in some areas with their intermodal.
That work and reducing those those train starts our road starts that we see out there.
Is there going to be a good lasting effect as we move forward. Our we're gonna have to continue to add some assets absolutely if and when volume continues to improve.
And go above the co would covert volume pre covert volume.
Definitely we'll be putting some assets back in and and and brings more people off furlough, but I've always said that every asset we bring back in I will learn its keep and we're we're running the network very well right now.
We're we're starting to get.
Get or Mojo back I guess with respect to.
To our mainline speeds are we hit 21 mile an hour here today, which is a number that we're happy with and we want to get that fluidity moving.
And also on our yards we.
Comeback.
We have made sure that we've reduced the proper shifting some of our diesel shops as well as moved to work some of our Q type work, which is some of her heavier semi yearly work to certain facilities. It's working really well, we'll continue to do that which will continue to help us drive.
Those savings.
And im, particularly on some of the Irrs of engineering. So if we take a look at.
Not just this being the costs on the transportation side on the engineering side, we have.
Very successful and making sure that we get good work blocks out there our engineering team, even though we're putting in still the Sam monetize and and rail as we did last year.
We're doing it was $17000 less per mile. How we're doing it over $3 less per tie installed.
So these are these are.
Items that were going to continue to move forward.
Even as the volume continues to get back to pre covert levels and we feel quite confident that.
We're going to be able to absorb some of the the costs or somebody of volumes as it continues to come back.
Great. Thank you.
Thanks, Jamie.
Your next question comes from Ken Hoexter from Bank of America Merrill Lynch.
Hey, great good afternoon.
Hey, Jim can you maybe talk about given the speed of the volume rebound that you're seeing and carloads now down only mid single digits thoughts on employees, maybe a little bit more details on what you did with the restructuring there did you eliminate layers, where where their shift in operations and maybe the pace of return of some of those employees and then I guess in a bigger picture you're just thoughts.
On returning to possible operating ratio improvement as we get to the back half that here.
Thanks.
Okay.
Okay. That's it.
Nice three question one question I like to style.
Yes.
You know again in terms of the structural changes that we made the.
During the during the last couple of months here.
You know I test test the team would.
Taking a look at everything that we do and seeing if there is a better way to do it.
Wasn't just exercise.
Mandatory.
Head count reductions.
But it was.
Opportunity to see if.
During this is more difficult period of time, we could assess almost everything we did in the organization and figure out how we could eliminate layers and get things done more effectively.
And as a result of that.
We basically aligned.
Ladies and responsibilities in the areas, where they are probably should have been.
A long time ago.
And the organizations stronger and better performing as a result of that.
Jamie can offer a jump in a little bit here more on you know calling Dick people.
More.
People in the field as we move forward.
You know our number one priority here.
Is to make sure we deliver an excellent product to our customers.
It would be you know.
When we saw that dramatic.
No effect of our volumes over that six week period, there where everything is.
Dropped off and then bounced back.
It's not an easy way to run a railroad.
And then you've got all kinds of work rules and sketchy.
Associated with all along that takes people to combat the work and so we're we're just now as James said getting the railroad that go up and running with great fluidity and velocity.
And now we will.
And now we'll focus on.
Getting back to what.
This team is now known for being an exceptional operators.
And as we move forward in terms of.
[music].
The third part of you had one part question.
You know, there's the operating ratio.
It's an equation.
And we need we need to get the revenue stream that to where we expected to be.
And we think based upon some coal and to increase week after week after week in Nevada, Carload volumes, which you see just like we do things are beginning to things are grinding their way forward.
And we hope that.
That continues and if that continues then we'll get back to where we think we should be.
Which is.
As shown everybody is that we can learn a railroad as efficiently as lean as anyone else in in North America.
Anyone or just.
Anything else that Mr., just look at it when it comes to the head count to make sure. We have enough people. The most important part of that recipe really is working with mark and his team ensuring that.
Any customers, who we get a head up heads up on who are starting to pick up on some of the traffic flow that we've got people, where we need them and we start positioning people ahead of time as much as we can how we've brought in hundreds of teeny employees back.
They're out there working for us on the front line.
Moving the freight making sure that are customers get the service that they expect a CSX.
But but of course.
It's it's it's not easy as Jim mentioned in six weeks to to go from from your your all time low during this covert period to a 25% volume increase and be able to pick. It up is is everything we said that we were going to be able to do at CSX and we've been able to to accomplish that so.
As a as more business at some point.
Comes along.
Again, we worked really really close with our marketing team and we have got a good number of employees still on furlough that we want to find work for them and they will continue to bring them back as we see as we see the business level start to come.
Great to part. Thank you. So thanks for your time it thoughts appreciate it.
Your next question comes from Brandon Oglenski from Barclays.
Hey, good afternoon, everyone and thanks for taking my question.
Jim or Mark can you give us some color on where you see the recovery coming right now I think you know from our outside perspective, it seems like a lot of consumer oriented freight markets or maybe rebounding to get faster could you talk about that maybe the dichotomy of what we're seeing on more core industrial trends or maybe that's not the right.
The right way to describe right now.
Sure. So it's mark so thanks for the question burned so.
No interesting over the course the last few months is.
Our employees have been working from home and.
Not spending time in airports and hotels and after meeting with their accounts.
We needed a key priority for our sales and marketing teams to.
You mean close to our customers in order to sort of understand.
What they're seeing in the marketplace.
We can continue to service their needs and I think the general consensus thrilled to quarter from customers was has been that the outlook remains.
Unclear.
Having said that I think as Jim said earlier.
You know, we and our customers are surely have been pleased im encouraged to see.
The volumes recover off the trough for me and I said, but I still think it's too early to say the the America. Your view on the trajectory of the volumes are the shape of the recovery in the second half now.
In two to your question I think in merchandise.
Obviously encouraged to see auto plants, reopen which has helped other markets like steel and plastics and auto parts for example.
Interestingly, even even American food business during the quarter, which are traditionally is a pretty stable.
Business in a recession was impacted given the declines in ethanol is nobody was driving into the office every day.
Beverage business was.
Impacted there given some of the shutdowns in Mexico and no supply chains were impacted.
And our feed grain shipments were low.
Given also some food processors, we're running below capacity levels.
These markets now or are starting to see some some good volumes across to merchandise portfolio and we'll obviously continue to watch them very very closely.
Oh, just also touched a little bit on on intermodal.
In April and May they were obviously.
Tough months worse, both for domestic and international but.
We started to see volumes rebounded nicely in June.
Especially on the domestic side as the economy began to reopen.
We saw inventories being replenished.
Some of the retailers and we also saw strong volume surgeons for ecommerce business.
Individuals or Steve Steve at home, but but shopped online. So there was encouraging.
We think that strength will continue and we're encouraged with the international businesses.
We recently announced some of the blinked sailings have been reverse split there are customers.
You know direct quote from them they remain cautiously optimistic.
For the back half of the here.
Then just rounding out the portfolio with coal.
Oh look.
Remains challenged both for domestic utility.
And for export So you know as Jim said earlier brand and they're virtually every one of our markets and customers were impacted by the pandemic.
There there remains a lot of uncertainty around the piece of the recovery and the continuing impact of covert 19 on on steeton businesses.
Couple that.
You know with what's going on with these upcoming election in November and other geopolitical issues that all shapes our view.
Well, we're encouraged with increases that we're seeing today.
We remain cautiously optimistic about the baca.
Appreciate thorough response.
Yes.
Your next question comes from Allison Landry from Credit Suisse.
Thanks. Good afternoon, so just given that the wild swings volumes are you guys seeing any child or choke points as the traffic back but are you.
Your own network or with any of the interchange partners. It just seems like the of the service metrics have deteriorated across industries that lays out just curious what you're seeing from from fluidity standpoint, and if you think some of its clients. We've seen recently are just temporary blip.
Hi, Alex and yes, Jim.
I think you know I can't speak for the other industries, what I can you know our experience is like somewhat alluded to in my in my earlier answer.
You know when we have that kind of really quick drop.
And had to respond.
Appropriately.
By reducing our workforce.
Normally.
In a more traditional economic downturns turned scenario.
Don't expect your employees they have to come back to work or don't expect them to come back to work so quickly.
And.
In the normal scenario, you're always worried.
Well jeez, if those guys are off for 689 12 months are they going to be available for me to come back to work and the economy rebounds, and I need to start recalling employees. So that was all principal concern.
Working our way through this kind of Mays and difficult period of time as to what is going to what is really going on here.
And so that was our concern was at all where are these guys going to be 12 months from oil and I need to get them back to come back to work well as we've now seen.
We had the short period of time.
And and in that circumstance when we called people back they have quite a lengthy time to actually returned to work.
When we call them and say, okay businesses deck surprise surprise, given you come back to work Tomorrow and the Guy goes you know you know I got to I got a couple of weeks here before really got to Mark up and and return and then there's a process through this year, Oregon system way.
Well displacements occur so it's just a work in progress for us to ramp up.
And get the Twain's fully staffed so we can get our velocity back to where it needs to be or our on time.
Originations and arrivals, where they need to be and that's taken us a little while and yes. It shows in the metrics, but we think that we are.
Pretty good place right now.
And and I again, I can't speak for the other railroads.
But I would imagine they have the same.
Actively identical labor agreements that we do they kind of probably struggle the through this as well and I just think now that everything is calling of smoothing out.
We didn't see any coin.
Major congestion points throughout North America, like we sometimes do.
So I think everybody's working very closely and effectively.
[music].
There is a certain like mindedness now in the operating structure of the North American railroads, where everybody kind of thinks the same way in acts the same way and as we sit in the past you know the the scheduled railroading model.
As it is implicated across North America is a good thing for the industry because we all know how to move trains now more effectively and efficiently when we put in the past.
Okay. Thanks, so much I mean, it basically it sounds like the takeaway is that that that you think this is no think transitory.
Is that fair to say.
Yes, I think we're like I said I think we're in good shape right now.
Thank you.
Your next question comes from at me Retro from Deutsche Bank.
Hi, Thanks.
I had a very quick follow up first Kevin you've been helpful.
In the past more recently in helping US think about Oh are in terms of six handle et cetera, I Wonder if you could do the same for the third quarter is another six handle kind of in the cards because of the volume declines or or can we get back to the five handles given the revenue growth is is much more but no decline as much more benign and then Jim you also talked about.
I was hoping you could talk about the underlying growth initiatives that you guys had been working on pre co bid how they're tracking in terms of truck back to rail conversions, you, obviously have a little bit more of a track record in terms of good tripling compliance and truckload rates are ticking up so I was hoping and give an update there as well. Thank you.
Yes on at this is Kevin I'm, not going to get out and he handles today.
I thought it was appropriate last quarter, but.
No given where we are today and we're not guiding.
Ali differ on that one.
I will say you know as the volume comes off the bottom you're going to see a lot operating leverage in the model I'm very very confident across all the expense line items.
If you look at it on of expense for GTM say, we're gonna see improvement across every area there.
And look at the volumes come if they come back stronger than what we anticipate that'll continue to improve the hot though our so we see a you know we just did 58 seven in the first quarter.
If anything our cost structure, we've improved the this last quarter. So.
We pretty feel very confident wants the volumes return that we'll be back.
To where we were.
Yes.
As.
In reference to your your growth initiatives is that Kevin just talked about as the volume there the business comes back and I talked about the equation here being you know.
The operating ratio being a you know revenues and expenses, it's only appropriate though we let mark answered the question of how he plans to grow the business here in the in the next couple of weeks.
Jim Thanks.
A woman.
No I think the journey continues on all our marketing efforts that we started.
She is little less than a year ago now it seems like a long time, but we haven't done at that long, but are you know clearly first priority at CSX was to fix the service product.
You know by and large mission accomplished there I think we got the best service product.
You know going into this.
Pandemic the industry and we're very pleased with that and so it allows us to really focus on growing this company and really looking at all the marketing initiatives that we just haven't done in the past and the team has been hit hard at work looking all those things peeling back.
Yeah, and with our customers books of businesses looking as opportunities looking at business that you know maybe once was on key aspects that has lost the gone away over the years, you know business that traditionally never moved by rail and.
By other modes of transportation, reaching out to those customers and explaining to them the value.
CSX I think part of the big benefit too as we've been going through this pandemic.
As we talk to different shippers, we offer a very competitive truck like.
Solution and we are cheaper than the truck by and large so.
In a time when companies are looking to to save money during this pandemic.
We become with our service very interesting.
Interesting service option for them so.
Continue that journey, we're only.
Hi months or 10 months into this.
We're very very pleased with a lot of the progress that has been made across the portfolio.
No everything from metals and forest products and aggregates in a whole bunch of commodities, where we've seen a lot of truck conversions.
Happening and that they said that journey continues and the work continues but so far our merchant team has done an outstanding job identifying a lot of those are.
Opportunities and we've got a great sales team that are actually going out and converting.
Okay. Thanks, very much mark.
Your next question comes from Scott Group from Wolfe Research.
Hey, Thanks afternoon, guys. So I don't know if this is for Kevin or Mark on on the yield so Rev per car was down 7% I think yields ex fuel were down about 5% can you give us a sense of the price first mix component in the quarter and then.
I know mixes as a tough one to forecast, but directionally does mix seem more or less negative in third quarter out the second and any thoughts mark on the coal ARPU would split the benchmark rates if that goes down any further and any sort of help on on the yield side. Thank you.
My questions and one of your today.
Just getting started I'd be happy to answer those.
So you know I'm doing some libbey attack the pricing side.
Comes to the heart of of your question I think and.
Obviously this was a tough economic environment.
This past quarter, but.
You know our pricing philosophy.
Has not changed.
In terms of continuing to place to the value of the surface product, which we think is really good.
I was extremely happy in the quarter. Despite the tough environment that we were able to secure several.
Significant longer term deals with great pricing in the quarters. So the team is doing despite the environment. The team is continuing to grow them and get the price increases that were looking for in them very very pleased.
With the work they're doing on the merchandise side.
We saw.
Positive pricing year on year.
Please inflationary plus.
Pricing really good pricing their intermodal again increases year on year.
Then cool well, we can talk shows.
Another try but clearly you know a bit of a challenge, especially on the export side and then on the domestic side as well.
With respect to ARPU you Scott you know I think the big story on your ARPU in the quarter was fuel surcharge just given what's happened with fuel in the quarter. If you look at our intermodal ARPU was down 8% if you exclude the impact of fuel surcharge.
[music].
That was about a five to six point.
Six percentage impact there, so we'd be down to 3% on intermodal to ARPU and merchandise, excluding the impact of fuel surcharge merchandise or to use would actually be up so.
You know water mix issues as we've talked about you and I and the rest of the you know everybody else always Mitch please.
Gone going impact.
Any given quarter, just with the different ORP using a different screens in the various commodity groups that we move.
So we're always going to see that but clearly the big story. This the headline story. This this quarter was the impact of fuel surcharge, so not going to give much guidance going forward, but.
Hopefully things.
You know.
Monitoring here with fuel hopefully that will see a little bit less volatility on that side of the business going forward.
Okay. Thank you guys.
Your next question comes from Chris Wetherbee from Citi.
Hey, Thanks, good afternoon.
Kevin you ran through I think a couple of costs that were sounded a bit transitory from a second quarter perspective, I think severance.
Cost run management restructuring, which may actually go from I guess, a a negative into Q to potentially a positive as we move forward and I think.
All of it steps down a little bit number one do you mind, just kind of running through those against we understand what sort of some of the discrete moving parts are between Twoq and Threeq you maybe back half and then when your previous comment about sort of costs on a purchase GTM basis kind of improving sequentially things.
Volume comes off the bottom.
Be incremental to that just want to get a sense of maybe some of the magnitude there I'm not sure. It's a lot, but I just want to make sure we understood. It.
Yeah, I'll go through a little bit of it so I called out the 60 million in total on a year over year basis.
Part of that was the covance supplies, which I called out of Brown 10 million this quarter.
Quite frankly, we did everything costs, we prioritized speed over cost to get these.
Supplies out to the field and protect the employees so.
We.
During some pretty high cost on that that will be coming down we.
I think it's about 2 million going forward on a run rate basis, which I said in my opening comments.
On the on the severance side, we we said that was about 10 million with about 25 million annualized savings related to that.
We've had some equipment impairments within the quarter call it mid single digit.
On the equipment impairments and then obviously real estate gains on a year over year comparison basis was.
Down significantly about 26 million so.
And then I also called out.
Depreciation was up this year following up.
Yes, they 2019 equipment study.
We went through.
Essentially making it depreciation up year over year, which obviously has a lot of different components within it.
Doesn't necessarily reflect the lower capital day, so we have today.
In terms of going forward, there's a lot of things that we've done.
And I spoke to its a little bit a lot of other initiatives that we're working on currently that will have.
You'll probably start to see show up in the third and fourth quarters and quite frankly in the 2021 tick up at a time when I think about leases buying those out getting out of leases that we.
We worked with Jamie very closely to identify that we don't need anymore, those take a bit of time to get out of and see the savings.
But procurement team has done an amazing job.
Working on with our suppliers.
We are fortunate enough to be in a position today, where we have we're strong balance sheet suppliers want to work with us.
That provides leverage we're working on.
Cost saving that have a longer tail that can hopefully have multi year savings behind them. So those things will start to show up which I'm very excited about but there is we have a probably over a list of 30 different areas, which we're going through that are non labor related that we think there great opportunities vehicle spend.
Utilities.
We've done a great job on the fuel sourcing side, we think there's big opportunities there over the longer term gotten really really efficient for doing a great. There, but we can source our fuel a lot better to you and jamey and his team are really helping us there think creatively on that side.
And then I also mentioned that management labor that we'll obviously have.
And then Todd and then the following quarters and then the next year so.
We're pretty excited about those and now that we can get through the quarter. We have we're all going to meet again next week and go through the list and hopefully it into a girl.
Great. Thanks, very much for the call appreciate that.
Your next question comes from Brian Ossenbeck from JP Morgan.
Yes.
Hey, good afternoon, Thanks for taking my question.
Maybe one for Jamie just wanted to ask about train size and weight as it applies to CSX, maybe the eastern network and generally we're hearing a lot of that from the western Canadian peers. I mean can provide some context as to how much. They grew sequentially as volumes fell if that was one of the levers.
Could pool.
Are there any upper limits to wait what the network might be able to handle either from an investment perspective, or perhaps a physical with great crossings.
If you think that's really a difference or perhaps a constraint mainly because some of the peers operating with a lot bigger train size and weight during this pandemic.
Oh, Yes, we did see some good games with most of our tonnage and length here in the past quarter hitting some records for ourselves pushing push yourself what were seven 7%.
Hi, or on our tonnage and.
Well, 4% on our length.
We've only given a small piece of that back.
Through the to the 25% of volume that we've seen so we expect to see that continue forward and that is a.
It is a.
Big.
A big item that we talk about when we continued design. This network and we continue to look for those structural changes is that we'd like to continue to see.
Our our train length, CRO, and depending on which corridor, where you're at there's lots of opportunity on that and so we're not going to give it all back I can tell you that right now and and we'll continue to as we.
As I mentioned earlier with the auto network and how we were putting that together with their intermodal network in a merchandise network that gives us opportunities to continue to grow.
Our footage in her tonnage on or network can we have got a great network out there that.
That has long sightings that has doubled track that is not an issue at all.
With respect to our network, we do have some grades in areas that.
Maybe more of a challenge in some areas, but that's for distributed power comes in and in an order in some areas. If we use a third and locomotive instead of adding a train start.
I'm pushing a little more footage your tonnage will continue to do that.
Some other things I guess your second question somewhat.
We have found some more opportunities that would on the network with respect to awesome quarter or is that we can do some small investments on which we are.
As an example of a trip that that I was on.
A couple of weeks ago, and Kevin join me on that trip around the railroad.
We found an area, where we were backhauling.
Cars.
Millions of miles really.
Backhauling automobiles never coming off of St. Louis that would have to go all the way up to Toledo to come down to Cincinnati, because we had a.
Subdivision, Indiana said, which was not cleared for autos.
This past month, our engineering team has done a fantastic job or I guess the past two weeks.
In clearing away.
For undercutting bridges, and allowing the auto network to go direct now.
From Saint Louis by Indianapolis down to Cincinnati again, saving millions about a route miles. So we continue to find those kind of opportunities out there.
The more and more and we get out on the network.
The more and more we work with the local people who are out there too to ensure that we don't Miss somebody's opportunities.
Those those are lasting.
Structural changes that we will continue to see across our network.
Okay, great. Thanks, Jamie.
Your next question comes from David Ross from Stifel.
Yes, good afternoon gentlemen.
I wanted to ask about the service levels and on slide 10, both the trip plant performance in intermodal ticked down a little bit little bit more on the intermodal side.
Was there also a difference between that quarter average Sam that 94% for intermodal versus how it was the beginning of the quarter versus the ended the quarter.
Yes.
Is that 94, consistent or did it go from kind of a 96 to 92 as you move through the quarter and volume came back and how does.
That.
Relate to.
Taking share back from truckload, especially as rates are improving and the truckload set.
I'll take on the first part then I'll pass it over to Mark to talk a little bit of what the customer side, but.
On our trip a trip plan side, but it's exactly what would happen is.
For example were towards the growth when we started to see this large pick up.
On our business when we went to this 25% increase volume is six weeks.
We definitely saw a little bit of our.
Detailed deterioration I guess really in some of our trip plans across the board.
A much better situation now, but it is a enormous task to turn this big ship and six weeks to absorb that kind of volume operating team I would say has done an amazing job.
Marcello strata, who runs our intermodal business is done a great job, making sure that trains that did arrive.
Late to some of our ramps, we're offloaded faster by utilizing some of the assets we had at that it.
But to your point.
Some of those percentages have dropped.
And.
Starting to see that rebound come back but definitely.
Very very large volume swing, yes, I'd say just on sort of truck conversions I just couldn't is burdens, yes to Jim's point he saw some of the tripling performance.
Numbers fall below where I think.
No.
We'd like to see them for intermodal when you were sort of 90, 99%.
Again.
Full visibility to our customers we provided last year in October so so they see exactly what were how we're performing to these true plants.
You know the depth of this crisis as sort of in May.
You know volumes were down.
Pretty substantially and so wasn't too much of an issue.
We're doing okay. There, so but as certainly as volumes have picked up since the trough in mid may.
You know the to service levels have improved quite substantially and continue to Blue every day. So as these volumes come back.
We're a tripling performances is continuing to improve really nicely and so you know I think.
You talked to our channel partners.
Lets say that we were therefore them.
Even during the trough and we continue to be for them be there for them, especially.
Domestic volumes.
Rebounding in coming back.
Thank you.
Your next question comes from Justin long from Stephens.
Thanks, and good afternoon.
So I was wondering if you could talk about your active locomotive count I'm sure that's something that fluctuated throughout the quarter, just given that volatility that you mentioned in volumes. So can you just give us a sense on how that progressed over the course of to Q and how you're thinking about the active.
Locomotive count and that in the back half of the year and then also along those lines would love to get your latest thoughts on locomotive overhauls that you plan to do this year in longer term.
Yeah, absolutely look at our our locomotive fleet a year over year Q2 was down over 650 locomotives.
We have obviously brought back some of those locomotives. We were we did hit some all time lows down an 18 hundreds.
1800 locomotives when we.
When we had a business decline that was pushing down towards 20%.
Coming back to where we are now we're we're just into the above into the two thousands.
And we will continue to monitor that we monitor really daily when they look at locomotive fleet.
We have as Kevin mentioned in over 1000 locomotive sitting in storage.
And we do have some locomotives that are ready to go in different areas, we positioned properly now when we.
We're very selective of what locomotives we put in storage. We made sure that we put down those that weren't that were higher fuel burn that didn't give us the best performance.
And we talked goes really towards the back of the storage area.
As we continue to rebound and bring back someone locomotives.
But that's where it's important that we continue to do it rebuild program, we believe and rebuild program.
We're finishing up what we committed to this year it and next year as well.
30 plus locomotives.
Going to continue rebuild into next year.
I mean, the fuel efficiency you get from those locomotives as well as reliability.
CSX, we we found a early on and we had a tired fleet and we needed to do something about it.
No we had well over 4000 locomotives three years ago.
Where you see earned where our numbers are.
Today and at CSX.
In the past they just continue to buy locomotives and just Adam to the fleet and never retired anything so we've taken the opportunities last three years to make sure we got the most efficient how reliable.
Locomotives out there and and that's what we're pushing across the network now and particularly on the distributed power and that technology wasn't really utilized.
At CSX when we first got here and this team has.
On an unbelievable job wrapping our arms around that and understanding the importance of of that fleets and one last point with her locomotive fleet as we're very lucky that the majority of our fleet.
His AC locomotives, which is more reliable we've put down the majority of our DC locomotives, we did that a while ago and where we finished off changing out some of those.
So the AC fleet, we had Stuart.
Which allows us to pull more horsepower.
Per locomotive and again that reliability.
Great very helpful. I appreciate the time.
Your next question comes from John ship out from Evercore ISI.
Thank you good afternoon, everyone.
Kevin you mentioned, the elevated cash balance and you've been able to add to that forward without really adding significant stat. So you are still there in that.
So what are we gonna get position there started buybacks in June it looks like which was probably earlier than you had anticipated in the last time you spoke to us in April and you just give us some cadence around how we should think about capital return and the second half of the years as the third quarter going to maybe looks like a measured pace late late June or could we see a return to the type of.
Back pace of a prior.
Yes, I don't think Elm, we're sitting here thinking where all the woods, yet so I think.
The approach is going to continue to be very very prudent.
Jim and I talk about that a lot.
Every week, but also opportunistic at same time, I mean, clearly on a long term medium term basis, we don't need 2.6 billion of cash on our balance he didn't know when you something well north south of 1 billion.
It really run our business. So we have a lot of excess liquidity right now.
Certainly makes me feel good at night to go to bed and how that cash balance just given all the uncertainty in the world today, but.
We'll use that effectively over the next few quarters and.
You know tough closely with our board as well on a strategy around that.
Okay. Thanks, Kevin.
Yes.
Your next question comes from Jordan Alger from Goldman Sachs.
Yes, Hi, guys, Hey, one thing I'm curious about on the wage inflation or said another way your cost per employee.
Which I believe is down pretty sharply in the second quarter I know, there's moving parts of employees furloughed employees coming back, but any sense you could give how we should think about that part of the equation going forward.
Yes look there was a few moving parts to that and the second quarter. One when you look at our head count number. It included 300 on the reserve boards on average through the quarter.
Obviously, the cost related to those employees.
Lower than what you would see on average than.
We no longer have those reserve boards.
When you look into the third quarter so.
You'll see some normalization there also I highlighted the incentive comp and that will also have an impact in the quarter as well and would expect that to normalize a bit here you know sequentially. When you look at the head count probably something more flattish into the third quarter.
You know on average same average that you saw in the second quarter, but I would expect the the overall per employee cost to go up slightly here.
Particularly with the mid year Union wage increase as well.
Thanks very much.
The next question comes from Bascome majors from.
Scanner.
And Mark a much earlier in the call you spoke about your efforts to reconvert. Some freight that the Carlo business had lost over the years imagine freight that that has always need on trucking hasn't made on the railroad.
[music].
As the trucking market seems to be moving to an inflationary pricing backdrop pretty quickly here.
Can you take a step back and let us think about where you are the sales.
Well these efforts.
Disrupted by by Cove, It and its impact on on your business from your customers business and it just really do you do you saw this up as a needle moving opportunity for CSX and investors over say a two year timeframe. Thank you.
Yes, Thanks Bascome.
Certainly hope so I think.
You know they said.
Yes.
And.
The pause I would say has been sort of a refreshing time period for people from working at home to sort of stepped back and re evaluate things and where we earn were to priorities earn where we're focusing and looked at opportunities you know opportunistically going forward.
And.
I think we are seeing you know the opportunity to to look at a lot of those conversion opportunities and we know there's a there's a huge.
You know market out there for us too.
Two proved to be able to glowed and tap and.
And address that may be.
Just because you know for various reasons over the years CSX has ignored or or just didn't want to move it or wasn't.
Focused on those opportunities and and I think as we.
Or you know looking to grow when looking for opportunities with a better.
Better service product, a lower cost basis, which opens up the opportunities for us to play in some markets that traditionally we couldn't before into place them.
No I think.
Maybe this is a sort of a defining moment here and.
You know, we'll see we're we're we're extremely excited.
By the opportunities going forward now we've got to understand the environment with him.
No. We're one of the very tough situation given the current.
Genomic environment with.
Over 19 in the economy, where it is but but certainly regardless you know, we're still seeing great opportunities and I.
I think those opportunities will continue and when the economy does recover and.
Industrial production does resumed back at full strength in the consumer economy is back at full strength in businesses is wrong and again I think.
You will see you will see those efforts pay off a big time.
Thank you.
Your next question comes from Ravi Shanker from Morgan Stanley.
Hi, Thanks to the new one maybe shifting gears and actually looking out a little bit.
You guys have paid much attention given everything going on but.
Do you kind of investment America infrastructure build that's kind of go into the house right now.
Has a few kind of rail provisions in there.
Some of which kind of anything good things like mandating two person crews then.
But in launching congressional investigations into kind of yes, sorry, and then back to be a saw or something.
Just wanted to get kind of your thoughts on that to get to spend any time that the <unk> folks in D.C., and then maybe LIBOR or just.
Your next conversations on Oh going to one person cruises and maybe going to sizing the risk that didn't know if you do have some kind of critical change in DC.
It could potentially going up on do something begins you've seen on PSR over the course.
Well.
So it's.
Washington question, I think it's appropriate that I sell have to answer the question in a politically correct manner.
Because I don't want to tell you what I really think of it.
[music].
You know.
You know everything comes you everything comes out with a wish list that's put forward by a well known the well known that people would with agendas.
And.
I don't know that.
I didn't know that politically.
Billions and billions of dollars of capital investment over years and years and years on out along the road appropriately and safely.
As it can is going to be on bond.
By some.
With some political mandate.
But we're certainly not.
Certainly not focused on that.
And but again you know.
I've been around a long time.
And there's you know I'm sure somewhere in some state house somebody's drifting up a bill right now to put the firemen back on the diesel locomotives. So.
You know, we're well aware the situation we follow all these developments.
In Washington and elsewhere.
But it's just part of doing business.
But it's not something that distracts us.
Makes sense, Jim Thanks for the color.
Your next question comes from Cherilyn Radbourne from TD Securities.
Thanks, very much good afternoon I just wanted to ask a question on overtime you reference the substantial reductions there this quarter I do you have in prior quarter, so well see effect pre PSR organized in such a way that it wasn't more reliant on overtime and what do you.
Thank the remaining opportunity is there and where do you expect that to have a knock on benefit on safety.
Thanks.
Overtime, we've mentioned I think over the past couple of quarters, how important it was for us to to get it in control.
Which we have and we cannot some great numbers across the board.
And it's also an area, where we were able to used to to flex as well, so even though I don't Kevin throw some numbers, which were some some very good.
Percentages that we were able to drop.
There are some areas as the business started to come back as fast as it did we're able to flex ourselves and utilize a little bit of that been pent up overtime. If you want to say by bringing it down so.
Is there more opportunity yes, absolutely there is on our engineering and I know a Ricky Johnson is working really hard.
With his engineering team to continue to bring down.
The costs, particularly with the amount of time.
That they're getting out on the railroad to ensure that.
That we're bringing those those numbers down.
On the mechanical side, we've done an unbelievable job, which Kevin had mentioned.
With respect to were overtime is that.
And yet we'll continue to drive down those numbers, but ultimately.
We'd like to get those those overtime numbers down.
So then winners as the time, where where we need it for small surge we're able to utilize those employees on on overtime, if we get into an area, where we need to do some hiring.
We are able to use that as a bit of a bridge for us to get to that point.
Overtime and safety I don't really there's really a lot of correlation for me.
On overtime and safety safety is.
As Jim had started out the opening is.
For forefront for us.
The number one most important piece of railroading and how we start all of our discussions around the railroad and we'll continue to be.
Thank you for the time.
Your next question comes from Walter Spracklin from RBC capital.
Hi, Thanks, very much good afternoon, everyone I I wanted to focus on a little bit of the structural change that.
Thats been precipitated here by Copel 19, and really focus on two elements and love to hear your commentary on both.
First of all is whether your capital intensity is something you're really looking at air Your reexamining, Mark you talked about getting into new areas you havent been in before but are you looking as well to getting out of the areas, where you have been in and that had been in significant and structural decline.
Particularly in coal could we see some line divestitures.
That would come about as a result in significant decline in coal and the second part of this structural change is how well you in the railroads have done both in the global financial crisis and now this one whether you re examine youre caught your your capital structure and whether additional.
Leverage.
It's something that you could contemplate going forward given the consistency that you've been able to provide from a financial perspective.
Through some of these very difficult times.
Well, let me let me start maybe some of you guys want to jump in there with some brief comment.
We're not we're not in that we don't have a railroad that's up for sale.
We're in we're very comfortable with our network.
Weve the.
We're we're in the business right now of.
Looking for business. We're open for business. We're chasing every piece of business that we can get after our strategy is to grow this company.
Maybe that wasn't the case when the cost structure was what it was before.
But.
Based upon our levels of efficiency.
What we think we can do in the marketplace.
We're not we're not interested in divesting.
The in store or network is our network is rock solid.
In terms of.
In terms of financial reengineering, so to speak based upon.
What we've been through.
I think for him up for a company like CSX that is dramatically.
Changed its financial profile.
And dramatically changed its its cash flow I think what was important to the rating agencies and others was to watch us work our way through various deferred in the economic scenarios.
And I don't think you could probably draw up.
Better.
Stress test.
For a railroad to see how you're going to perform a difficult circumstances than what we are going through not only associated with the pin debit.
But what we've gone through before that.
Is basically in industrial recession. So you take the industrial recession, you throw in there.
The pandemic on top of that you start figure out what's going to transpire in the fall with the elections and all we do is kicking out cash day. After day after day, our after hour I think yes, we have proven to the world that we transform this company into.
Very very strong.
Stable financial a company that.
In right now we have no obviously no reason to do there Kevin just totally that you've given a hard time client placed the store the cash.
That.
If we decided that we wanted to lever up further.
We've already Weve proven to the world that we are up we have the capability in the wherewithal to do that so.
So I think its a.
I think were again.
Proof is in the putting people ask us what were you know what you're going to do two and a half years ago. When we started on this adventure.
[music].
This is what we told everybody when we're going to do and now and again, we've proven it.
Appreciate the color Jim.
Your next question comes from David Byrne from Bernstein.
Hey, Jim or Kevin I, just wanted to help on this issue of kind of caught got in relation to volume that looks like and from the commentary earlier. It sounded like it was just fallen below a watermark, where it's too difficult to Paul Coster, it's it happened to quickly.
I'm trying to get a sense for what level of RPM do you think you need in the network to where you know profitability would be kind of stable on a year over year basis or is that not the right way to think about it.
Profitability stable from an alarm perspective on a year over year, but that's just in terms of like Mike on like like an EBIT level right too so volume was down 21% or so operating profit rose 5% ourselves.
And clearly it sounds like there was some deleveraging from volume what I'm trying to get at it how much point I mean, do you need to get back and does it matter. If it comes back as coal or intermodal and merchandise is just rtms spike.
If I.
And our kids like what's the what's the magic number where you feel like that de leveraging doesn't happen.
Yes, I feel a lot better today, where volumes are down.
Mid single digits versus.
The 20 that we're looking at that certainly helpful. So I think we're in a much better place right now and as I mentioned, I think you're going to see some.
See across the board improvement on a calls for GTM level.
As we move in the third quarter, assuming these volumes continue.
To recover from what we saw in second quarter, So I'm very confident there and no.
Remind everyone knows just a quarter ago or whatever.
Traditionally what we would be seasonally the worst quarter for us posted a 58 seven.
And I would I think we'd all agree here around the table today that all the things that we've done.
Three four months that made us a better company.
And probably provide a more leverage as the volume comes back so I'm I'm more confident sitting here than I was known when we reported in April.
I think the southern that.
We can we can really leverage it.
You know waiting on the economy to approve and.
And going after it so we've got a lot initiatives that will continue to work on.
Hopefully in the to improve the.
And just see answer your other question and art DM is not an argument is that our deal.
I mean as basic railroading yeah.
We had a lot more coal in the first quarter them in the second quarter, we'll probably it then we'll have in the third quarter. So.
They're not Olson.
I guess I guess that does that is that going to create a little bit of an attitude to hear costs. These weaker than or how should we be thinking about the mix impact of that we're kind of volume fell out of the network.
I've been going on at CSX for the last 10 15 years, though I mean.
It would be a revolution that is going to have an impact in third quarter.
Your next question comes from Jason Seidl from Cowen.
Thank you operator, hey, good afternoon gentlemen.
Wanted to talk a little bit about peak season, and how we should start thinking about what types of conversations you've had with some of your partners out there.
And also taking into account in July seems like it's going to be a stronger month in June which is seasonally.
A little bit different than historical averages so would love to hear some commentary around that.
Sure Jason so.
You know typically we have really to peak seasons CSX we have.
The sort of.
You know labor day lead since early September late August peak season is.
You know kids are going back to school and we're seeing the you know goods coming in from Asian around the world getting ready for all the fall activities Halloween.
Thanksgiving and all that kind of stuff and as people are going out and.
By a new goods for.
At the back to school and all that kind of stuff so I.
I think.
Clearly we've seen some good domestic intermodal volumes year over the last.
A couple of weeks.
The inventories.
I have been replenished at some of the retailers.
I think it's really.
Wait and see if we see that sort of that bump up here and call it around.
Labor day.
We'll see what happens with no back to school, we'll see what the did the if the stage we open.
How the reopening process is Harvey covert cases are.
I'm sorry, it's really in my view and our discussions with our customers are.
We're cautious we're watching it and it's a you know I think you heard you heard some of that from one of the channel partners who.
Reported last week.
It's a wait and see game so were there and we will be there and.
The crews and within the locomotives and everything to be able to move that freight when.
If it does come in.
See so.
The key the other sort of traditional peak that we see is is really around Thanksgiving more the ecommerce speak as people prepare for Christmas and order goods online.
Again, I think we'll probably see a peak.
I think the peak me.
Again, depending on whether people are back a work whether people are the status of nor the shopping malls opener people comfortable going to the shopping mall.
No. If the key covert cases are still sort of concerning and people are cautious about venturing out.
Then I think you may see that E commerce type of peak, a little bit sooner as people are steelman sort order stuff on the web.
So we'll see what happens, but again as we said many times.
You know all this is really a wait and see.
Period here for us as we as we move into the back half of the year.
I think that that ecommerce peak has been happening since almost April at least in the Seidl household for sure you have seen some good volumes are on E. Commerce business. I mean, clearly people are not people are not venturing odom, there at home and they're ordering a toilet paper and other things.
No.
On the web so our ecommerce peak is.
ER volumes have been pretty strong in that area.
And well keep our fingers crossed for for the outlook for right. After Labor day gentlemen, appreciate the time absolutely.
Your next question comes from Ben Hartford from Baird.
Ben Hartford Your line is open.
Sorry about that thanks for getting man here, Jamie just wanted to get your quick take or clarify some comments made earlier about.
Safety performance I think do think Jim It said that it was largely a function of lower volumes, which which makes sense in terms of the uptick in kind of the.
The index, whether it's a personal injury rate or train accident rate, but.
Obviously undertaking some some safety engagement initiatives as well so.
What should we look at that is almost exclusively function of lower volumes and so we're seeing incidences pop up on a per unit basis. As a result of that or do you think that there was some slippage and safety performance on an absolute basis, whether it was from service or some other factors that that's leading to some of these initiatives that we're seeing in the third call.
Yes.
Really I think what.
Jim was mentioning more than anything was these are ratios right. So if I take a look at the incident that occurred there.
Decreased okay, there's less injuries, there's less accidents, but it's based off of a per mile.
And or per hour work so.
As we had you know thousand plus employees really almost 13 1400 employees at one point.
Furloughed those hours disappear so.
So it creates a bit of a headwind when you take a look at how we do our effort and ratios and and on the injury side.
We were 0.86, which is still top line in the industry versus a 0.1 in 2019 and on the actions side. We were a 2.19. This this year versus a 2.47. So we did see an improvement on the accident side is the injury hours that are different.
But I mean look at that that said.
Heading into the future.
Well I think every railroad has got a little bit of a headwind with respect to.
Engineers, who went on the groundwork has conductors because they have seen already flow back rights.
So they're doing jobs that they werent used to doing.
Retraining was something that we weren't able to do and in most circumstances because of social distancing.
So we were doing the best we could to provide distance training and or working with the employees to ensure.
That you know there obviously were qualified they were just doing jobs that they hadn't done for a number of years. So.
I think thats, a headwind that we'll probably see across the entire industry.
For.
The man hours that were removed from the furloughs.
What would have affected our ratio.
That makes sense. Thank you.
There are no further questions at this time I will turn the call back over to the presenters.
All right well great. Thank you so much for spending area. Some time with US. This afternoon, and we look forward to seeing all in the near future and be safe.
This concludes todays teleconference. Thank you for your participation in today's call you may now disconnect your lines.
Okay.
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