The Long Tail of Car Inventory Normalization: Last week we highlighted CSX’s battle to overcome significant flooding in Tennessee and Kentucky, due to storms from April 2-6. Last week’s data captured the first three days of that, and this week’s numbers show further deterioration in most of CSX’s operating metrics. System velocity fell another 0.3 mph to 21.9, a new post-2022 low. Intermodal velocity was sequentially flat, but average train speed for the manifest, coal and grain networks all softened. Terminal dwell similarly deteriorated in sequential weeks, from 24.4 to 24.7 hours, and we’re now within one hour of where it peaked during Hurricane Helene last year.
There’s two metrics we want to focus on. The first is the average dwell for CSX’s five hump yards, which jumped in the week ending April 11 to 35.6 hours from 32.9 hours the week prior. The chart below shows each yard’s current dwell compared to the weekly average across 2023 and 2024. It’s not a pretty picture. These yards typically process cars in one day (25 hours), but they’re now taking a day and a half (36 hours). It’s also no surprise the Nashville yard is currently the worst, as the recent flooding took out the line between Nashville and Louisville. Also, remember that Waycross is the most important, as it’s the southern hub with the highest throughput.
The second, bigger, problem CSX has is operating car inventory, which rose again in the week ending April 11:
We listened to the company’s Q1 earnings call last week and these comments from CSX COO Mike Cory stood out above all others:
“We’re working hard to address the increase in cars on line as having excess inventory has slowed the network … We’re working really close with our customers to identify … the excess cars in our serving yards and our active inventory. And then, we’re working with them where we can to provide extra service to work these cars off. And then providing enough service so they understand and can reduce their pipelines to help us create the fluidity we need.”
A decelerating railroad acts like a giant magnet, sucking in more train crews, locomotives and railcars to move the same amount of freight. The problem is that the railroad only truly controls the first two: crews and power. Most of the cars are owned or leased by the customers, and to ensure adequate deliveries of product, they throw more assets onto the system as it slows, which increases congestion and slows it even more. It takes a long time to reverse this process. The railroad first has to adhere to the First Law of Holes—stop digging, and once the system is stabilized, marketing and operations then need to work the phones to cajole frustrated and reluctant customers into pulling some of their cars off the system. It’s basically a “trust me” moment. Some customers will (due to good service in 2023 and 2024), and some won’t (2022 still too fresh in their minds).
Conclusion
We need to have a realistic timeframe for CSX’s operational recovery due to the operating inventory issue above. It always takes longer to get out of the ditch than it took to fall into it. The network has been deteriorating fairly consistently since the Howard Street Tunnel was closed on Feb. 1, and that was 11 weeks ago. What if it takes 15 weeks to recover? That puts us into August. If you’re a CSX stockholder, Labor Day is a more prudent assumption of when CSX likely gets back to some semblance of normal.
Also, remember the recovery ceiling is lower, given the Howard Street Tunnel reroutes. On the positive side (purely from an operational perspective), trade with China is about to crater, and any associated reduction in volume pressure on CSX’s network will speed its recovery. The volume-light Memorial Day and Fourth of July weeks will also help.
