Team Project

CSX Railroad

Team 24:

Section 1: Company and Industry Background
CSX is a rail based transportation company that carries the nation’s commodities like coal, agricultural products, merchandise, and other materials. Headquartered in Jacksonville, FL, CSX serves 23 states across the eastern United States and parts of Canada. The 21,000 mile rail network reaches more than 70 water ports throughout the region and operates nearly 4200 locomotives that carry roughly 190,000 freight cars and containers daily. CSX employees over 31,000 people and realized just over $12 billion in revenue in 2013. (Ward, 2012)
The railroad industry in America is divided by the Mississippi river. Union Pacific and Burlington Northern & Santa Fe dominate the west with CXS and Norfolk Southern to the east. Union Pacific is the largest railway company in the country. It encompasses 23,000 miles of track in 23 western states. Union Pacific ended 2013 with almost $22 billion in revenue. Burlington Northern & Santa Fe is the second largest railway in the country and is owned by Berkshire Hathaway with $21 billion in revenue. CSX falls in at number three and Norfolk Southern makes the list at number four. Norfolk Southern is the only real rail competitor to CSX, sharing the eastern part of the country. Norfolk Southern’s annual revenue is similar to CSX at $11 billion with around 31,000 employees. (Henage, 2013)
Starting in 1827, CSX’s history dates back to the beginning of the American railroad industry with the first charter of Baltimore and Ohio Railroad Company and through a long list of railway mergers throughout the 20th century. CSX was incorporated in 1978 under Virginia law. In 1980, with the merger of the Chessie System and Seaboard Coast Line Industries, CSX was able to connect the northern population areas with the southeastern markets. CSX expanded into the northeast with the acquisition of many key pieces of Conrail Inc., to create what we now know as CSX, a rail that serves every major market in the eastern United States. (Ward, 2012)
Section 2 Market Strategy:
CSX’s market strategy is to be the most progressive and the safest railroad in America with the highest quality workplace for its employees and the best customer service for its customers. CSX has a very limited customer base and works hard to retain their existing customers. They do not use mass media to try and attract new customers; they use media to influence public opinion. In an effort to retain existing customers and attract new ones, they work to become the transportation experts. They use that expertise and knowledge about the products and transportation regulations to form teams with their customers and provide specialized shipping solutions for each product transported. CSX strives to make the shipping process as easy and reliable as possible for its customers and retention of existing customers is number one priority for CSX.
To provide the best service, they look for and hire the best and brightest in each field and they display a commitment to the future by investing billions to improve infrastructure and equipment. These improvements allow CSX to better serve their customers by allowing for more efficient transportation of goods and commodities. Improved infrastructure, expansion of existing facilities, and the addition of new intermodal terminals are ways CSX continues to improve their productivity and service to the customers.
CSX also seeks new business through education and problem solving. CSX develops plans for new customers by incorporating both rail and intermodal transport. They educate new customers about the efficiency of rail and the positive environmental impact of rail transport. CSX is leading the way in use of environmentally friendly fuels such as bio-diesel and ethanol to power trains in ways that reduce emissions and their carbon footprint.
CSX transportation services are considered by themselves and their customers to be a specialty service. The company believes that it provides the best service in the industry and stands behind that. The firm has a loyal customer base that goes back for years which indicates that the customers believe the same.
Section 3 Environmental Changes:
Stakeholder expectations of sustainability are the key environmental change which drives decision making within CSX. In fact, sustainability efforts touch every aspect of CSX’s core business values which requires them to dedicate an enormous amount of focus and resources into measuring and disclosing those efforts to their commercial and non-commercial stakeholders. To ensure the company is, and remains, focused on the expectations of their commercial stakeholders, CSX must remain focused on the needs of their non-commercial stakeholders. Non-commercial stakeholders primarily consist of their customer base, employee base, and the communities in which CSX operate.
CSX believes utilizing multiple channels of communication to engage their customers, allows for a greater level of understanding of the needs and priorities of their customers. Social media is just one of the channels CSX extends to conduct this collaborative approach. Specifically, CSX is actively engaged in the dominant social media sites such as Twitter and Facebook. These channels are utilized as a cost effective way to receive customer feedback by “listening” to the social media buzz about CSX and the communicating activities CSX is undertaking, to address the concerns and needs of their customer base and employee base alike. The use of social media sites such as Facebook has provided CSX with a tool that allows them to take immediate action when needed by providing real time feedback on situations that may otherwise only be revealed once business has been lost or public image has been tarnished. Specifically, CSX has assigned personnel that monitor, document and report feedback received from Facebook communications through the appropriate internal channels for preventative and/or corrective efforts to take place. However, in addition to the damage control function, CSX also utilizes their Facebook page as part of their community outreach program. Specifically, each year CSX host’s a National Partner Service Days initiative in which CSX employees and partners engage in volunteer service days to serve the needs of local communities in which CSX has significant train operations and community impact. These activities typically include tree planting, landscape remediation, playground remediation, and painting and building projects. Identifying the need for these types of activities were traditionally coordinated through localized efforts such as town hall meetings and surveys, however social media is now the primary source for identifying these areas of need.
As previously mentioned, the needs of the CSX non-commercial stakeholders are the underlying drivers of all sustainability efforts undertaken by CSX. One way that CSX captures and analyzes the viewpoints of their customer base is through the use of their “Voice of the Customer Survey”. This customer satisfaction assessment program was launched in 2002 and provides a quantifiable metric CSX uses to guide future strategies. The survey focus and 5 year results are shown below: * Planning: account management, rate inquiry and order management * Service: shipping instructions, local service, order fulfillment and equipment quality * Customer Assistance: damage prevention, tracking information, customer service and financial settlement

(CSX 2012 Corporate Social Responsibility Report)
As you can see, CY2012 represents the highest score CSX has ever received from customers, which CSX relates to an increased customer centric focus. Specifically, in 2012 CSX sales, marketing, and operations personnel visited nearly 5,000 customer sites with the goal of obtaining an enhanced understanding of the customer’s environment and underlying needs. The data gathered from these, as with all customer visits, were compiled into the CSX Customer Relationship Management (CRM) database. In doing so, the information lead CSX to expand their marketing efforts by developing role specific marketing strategies aimed at addressing the industry specific and even product specific needs of its customer base. However, the gathering and analyzing of data such as the CRM system is just one example of many big data tactics utilized by CSX.
Big data tactics have become an integral part of the sustainability focus of CSX. One of the most comprehensive and critically aligned uses of big data is the focus of greenhouse gas (GHG) emission reductions. This program tracks every aspect of CSX’s carbon footprint and allows them to implement reduction practices and measure the effectiveness of their actions. Specifically, CSX uses this data to drive purchasing policies, fuel efficiency requirements and reduction incentives, use of new technologies, and employee training programs. An example of a purchasing policy that resulted from this program was the requirement for all newly purchased locomotives to be powered by current EPA emission tier level engines. This action resulted in the reduction of GHG by 25% and a reduction of noxious gases by more than 80%. A change driven by fuel efficiency and technological advancement measures resulted in the use of dynamic power demand modules for switchyard locomotives, which utilize multiple lower horsepower engine drives that come on-line individually based on the power demands of the locomotive. In all, the use of big data analytics by CSX has reduced their GHG emission over 1% YOY 2011 to 2012, as outlined below:

(CSX 2013 Environmental Leadership Report)

Section 4: Firm changes in Strategies, Capabilities, and Nature of Work
One of the core business areas for CSX is the coal industry. As the coal market weakened, due to the abundance of natural gas, CSX made adjustments to operations to reduce the impact. These changes included expanding the Ohio terminal and constructing a new terminal in Louisville, Ky. to support merchandise and intermodal business. Intermodal is a highway-to-rail conversion which allows customers to access the low shipping costs of rail coupled with the flexibility of trucking the last mile. The lower costs also provide the customer with a greener CO2 footprint achieved by lower fuel consumption and freight density through the double stacking of containers. The success of this adjustment can be seen in the annual sales report and in the 2012 intermodal revenue which shows an 11 percent increase revenue to $1.6 billion:

(CSX 2012 Corporate Social Responsibility Report)
In addition to building CSX infrastructure, they have engaged in an $850M public-private partnership to expand the capacity of US rail networks. (Ward, 2012) These expanded facilities are creating access into key population areas. Using cutting-edge technology to increase operational efficiencies allows CSX to compete within the lower density, second and third tier markets. Results of these partnerships also include job creation, increased port activity, reduced highway congestion, and lower emissions. The next phase of the National Gateway includes a new intermodal terminal in Winter Haven Fla. and terminal expansions at Worcester, Mass., Charlotte, N.C., and Columbus, Ohio.
CSX’s agricultural market also faced a decline in revenue; it produced more than $1 billion in 2012 – that was a 4 percent decrease from 2011. (Ward, 2012) The decline was a result of the drought conditions in the Midwest. The drought increased the price of corn and grain and the higher prices reduced shipments of corn and ethanol. To help offset the losses, CSX focused on gaining efficiencies in the grain markets. These efforts included creating the most efficient trains (90 car train) and emphasizing the Express Load and Unload program, which offers savings to customers that load and unload within 15 hours. As with the intermodal market, CSX is making infrastructure improvements to help cut costs and streamline deliveries. These improvements include developing new and more efficient facilities at feed mills, ethanol unloading stations and grain terminals.
In addition to impacting the agricultural market, the drought also impacted the phosphates and fertilizers market. In this case, the drought actually increased rail shipments since low river levels shifted shipments from barge to rail. CSX achieved revenues of $512M – a 4 percent increase over 2011. (Ward, 2012)
In the food and consumer market CSX had a 4 percent increase over 2011 - $273M. (Ward, 2012) This was not a result of an increase in volume of the traditional big consumer items like appliances but a result of CSX’s push into the intermodal markets. Specifically, CSX developed a new rail car that supported refrigerated products and adjusted the rail schedules to support express trains. These trains provided a state of the art transport with a 2.5 day service from California and Washington through the Chicago area to Central Florida. The non-stop, temperature controlled service with GPS monitoring, has rapidly grown to one-third of the food and consumer business.
While CSX has been able to use technology and efficiencies to influence certain markets, there are a few traditional markets that CSX has not been able to influence. While CSX is critical to the auto, metals, forestry and coal markets, there is little innovation or margin left that can facilitate major adjustments or overcome the lack of consumer demand. That is not the case in the emerging markets area, which includes minerals and waste. In these areas, CSX is working to create a demand for rail transport by working with customers. The collaboration allows CSX to identify positive matches between products like aggregate and consumer demands like roads and major construction. For example, CSX has a number or quarries and distribution yards that generate and store aggregate. By actively searching for building roadways or large concrete structures, CSX can ship the materials to the customer sites. Shipping demand is created by matching the customer needs to the local CSX supplies. In another example, CSX is working with large metropolitan areas to move waste from the cities and expensive local landfills. By working with the city planning office, CSX can help identify competitively priced landfills that can be accessed by rail that will reduce the government costs, lower the carbon footprint, reduce highway congestion, and provide new shipping markets/revenues for CSX.
As reflected in the annual earnings report, CSX has been very successful in managing the shipping markets. They have used their market power, their political connections, and the environmental green movement to help increase shipping and influence public sentiment. They have been very successful at identifying customer needs (and potential future customers) and using technology and innovation to expand existing markets and generate new ones. It is hard to identify areas upon which they can improve; they set the company record in safety, leading all U.S. freight railroads. The customer satisfaction surveys are at all-time highs with “excellent” rating in every service measurement. They achieved inflation-plus pricing and continue to invest in infrastructure at record levels. The use of technology and efficiencies in train car size generated $200M in productivity savings and they have grown a market in intermodal and merchandise. In short, while a few of their major markets were being reduced (coal, forestry, metals), CSX increased net earnings by $1.9B during the economic downturn. (Ward, 2012)
Section 5: Exemplar and Benchmarking
CSX Transportation’s primary competitor, Norfolk Southern Corporation (NS), is a leading freight carrier who exemplifies commitment to corporate environmental, economic and social responsibility. With over 200 years in the industry, NS is one of the oldest transportation companies in the country. Throughout this span, NS has preserved communities while “operating the most extensive intermodal network in the East”. (Norfolk, 2014)
Norfolk Southern manages sustainability for its non-commercial stakeholders through many community initiatives. Several of the corporate projects help to protect the environment, such as the Carbon Mitigation Project which is reforesting 10,000 acres in the Mississippi Delta and Norfolk Southern’s 5 year initiative to reduce greenhouse gas emission by 10%. This initiative achieved 69% of the emission reduction goal in 3 years. (NS, pg. 3) Other sustainability projects directly benefit the local communities such as the $6.98 million dollar donations to human services, education for children, arts and culture, and environmental conservation. (Norfolk, 2013, pg. 10) Also, Norfolk Southern was honored for its commitment to hiring veterans by being named in CivilianJobs.com 2012 list of Most Valuable Employer’s for Military. (Norfolk, 2013 pg. 11)
CSX recognizes that it must change the “not in my backyard” mentality of communities the way that Norfolk Southern has. In order to change this mindset, CSX Transportation patterns Norfolk Southern’s sustainability and commitment to its non-commercial stakeholders. The company gives back to the community in order for the community to see value in their service and want the rail road transportation system in their city. CSX has made significant strides to be seen as a good community citizen by partnering with local and national organizations to be socially responsible. “I think it’s really important for CSX to be out there in the community. For many years, we were just kind of in the background. Today we have a whole new approach. We’re proactive, we’re in the communities. We’re being good corporate citizens.” — Jason Bradt, CSX Terminal Supervisor. (Ward, 2012) A few examples of the give back accomplishments of CSX are: $630,000 in employee and corporate donations to Hurricane Sandy victims, hiring 630 military veterans in 2012, and sponsoring the National Future Farmers of America Foundation (FFA) to develop leadership skills for members in grades 7 – 12 as well as ten $1,000 renewable college scholarships. “CSX emphasizes education and leadership in its community programs and its daily business. FFA is dedicated to developing students’ potential for premier leadership, personal growth and career success. CSX is committed to the future of agriculture and its support of FFA is vital to the organization’s ability to make a meaningful difference in the lives of its members.” — Robert K. Cooper, Executive Director, National FFA Foundation. (Ward, 2012)
Both Norfolk Southern Corporation and CSX Transportation are dedicated to investment in their non-commercial stakeholders. The contributions of both of these companies to the sustainability of the environment and the communities in which they operate is a significant marketing strategy and major driver and influence in their business operations.

Section 6: Recommended Actions
CSX has a limited customer base with very high infrastructure costs, which makes it very hard for them to target main street business and expand into new territories. The majority of their current marketing is focused on retaining their existing customer base. As a result, the actual tonnage hauled has decreased while margins have increased. A large portion of this revenue growth is a result of CSX’s focus on cost reduction efforts and the increased use of technology; that includes building state of the art terminals, optimizing train cars to meet customer needs, and adjusting routes to expedite the delivery of agricultural goods. We agree with the current strategy and believe that there are two areas in which CSX should increase their efforts to position themselves for additional growth. Those areas are expanding their social media presence and increased presence at deep harbor ports along the east coast and the Gulf of Mexico.
Expanding CSX’s Social Media plan will make the biggest impact on the growth of CSX for the upcoming years. We recommend CSX expand using several methods to achieve success including; using targeted social media campaigns and the use of big data to help influence the shift from trucking to their intermodal business area. According to Mr. Clearance Gooden, CSX Vice President of Marketing, CSX currently has a “small social media program”, called “beyond the rails program” www.beyondourrails.org. This is a community based program that was started to reach out to the community. Outreach occurs in several forms ranging from charitable donations to volunteering during relief programs after major storms. This program can serve as the foundation to build a platform to manage the flow of social media communications to the general public. During the interviews, we were told by several executives that the general public does not know about the rail service. The executives said most people could not give a good or bad statement about the rail system. We recommend the use of more tailored ads, targeting the non-commercial stakeholders, explaining the benefits of rail service and showcasing how environmentally friendly and cost effective the rail service is vs. other types of transportation.
One very valuable tool to demonstrate the efficiencies is the “carbon calculator”. This program, developed by CSX, is designed to show the carbon footprint used between transportation trucks and transportation rail. This tool could be used to educate the public and new customers about the efficiency of rail and the positive environmental impact of rail transport. For example, you could present the carbon footprint resulting from the most efficient 90 car train compared to the hundreds of tractor trailers required to move produce from the groves in Washington State to the eastern US consumers, from New England to Florida. CSX could build an entire marketing campaign focused on moving the freight from trucks to rail along with highlighting that CSX is leading the way in use of environmentally friendly fuels such as bio-diesel and ethanol to power trains in ways that reduce emissions and their carbon footprint.
One way to accomplish this would be to sponsor events or parties to show the community that CSX cares. By hosting these events, CSX would be able to get ahead of the marketing curve and be able to tell the CSX story vs. someone else’s version. This would also allow CSX to make friends with the right non-commercial stakeholders before they are needed. These events would be more targeted to specific population for maximum effectiveness. CSX would also do more surveys using a more targeted approach, which would help keep expenses lower. CSX Corporate Communications department would work with social media and Advertising agencies to help target sales forecasting by listening to what industries want. The searching of Facebook, Twitter and sites like this will help with brand image at a low cost. These types of sites could help measure customer service initiatives, narrow the field, find the shippers and over time CSX will be known as the best cost option for commercial transportation.
CSX could also leverage the big data that social media generates to analyze trends and areas to focus on. CSX could put together a team to analyze the social media feedback and recognize streaming business trends and high growth areas. Every new company and industry has a supply chain with its own characteristics and needs. Understanding them thoroughly and quickly would position CSX for the expansion opportunities they are looking for. An example the executives used was rocks are needed in Florida and there are three ways to get them there; highway trucking, rail or ship. CSX analyzed this data and showed their customers the most cost effective way would be to move rocks from GA to FL by rail. Using this data will create demand for rail service. Since sales cycles can take up to 2 years, it would give them a two pronged approach. First, CSX could look for short term sales as well as long term sales. Second, the data will show CSX how to help their potential business customers determine where to locate and buy real estate or areas close to rail. This added expertise will help to create lines of business/revenue. Big Data analysis would create new opportunities for CSX to team up and help other companies with their challenges, resulting in new business. For example, Amazon is building large warehouses to preposition goods for delivery. If these warehouses were located near a CSX rail terminal, the long haul shipping costs could be reduced.
The second area to focus on is the deep water ports. Once the expansion of the Panama Canal is complete there will be a shift in transportation modes from rail to ships. This is a result of the larger ships gaining access through the canal and not having to stop on the west coast to unload. To prevent CSX from being impacted when this shift occurs, CSX must ensure access for its trains to the ports capable of unloading these supersized cargo vessels. This may require significant infrastructure improvements. Failing to gain access to the canal in the future, coupled with the slowed demand for west-to-east rail shipping would significantly impact CSX’s revenue.
In summary, the goal would be for CSX to use social media and big data to help people understand the environmental and reduced traffic congestion that would result from shifting product transportation away from trucks to rail. Educating citizens, customers and politicians on the benefits of rail transportation will push public sentiment and lead to excitement about using rail service. Rail is not only a better solution for cost but also the environment.

Bibliography:
1. CSX. (2014). Company Overview - csx. Retrieved from http://csx.com/index.cfm/about-csx/company-overview/
2. CSX. (2013). Environmental Leadership - csx. Retrieved from http://csx.com/index.cfm/responsibility/environmental-leadership/
3. Henage, C. (2013, OCT 13). Is CSX Gaining Momentum or About to Derail?. Retrieved from http://www.dailyfinance.com/2013/10/14/gaining-momentum-or-about-to-derail/
4. Norfolk, S. (2013). Norfolk Southern 2013 Sustainability Report. Retrieved from http://nssustainability.com/2013_sustainability_report/PDFS/NS_2013_Sustainability_Report
5. Norfolk, S. (2014, 02 24). Norfolk Southern Corporation. Retrieved from http://www.nscorp.com/content/nscorp/en/get-to-know-norfolk-southern/about-ns.html
6. Ward, M. Chairman, President and CEO, (2012). 2012 CSX Corporate Social Responsibility Report. Retrieved from CSX Corporation website: http://corporate-social-responsibility.csx.com/share/wwwcsxcsr/assets/File/CSX_2012_Corporate_Social_Responsibility_Report

Appendix One:
CSX Executives Interviewed:
Clarence W. Gooden
Executive Vice President of Sales and Marketing and Chief Commercial Officer. Phone (904) 359-1000 

W. Kyle Hancock, Vice President of Sales and Marketing Industrial and Agricultural products. Phone (904) 359-3232
Bill Clement, Vice President Intermodal. Phone (904) 633-1010
Dean M. Piacente, Vice President of Chemicals and Fertilizer Sales and Marketing. Phone (904) 359-3235
Derrick W. Smith, Vice President, Sales and Marketing. Phone (904) 366-4212
Edward Jenkins, AVP Market Strategy E-Business, Phone (904) 366-4653

Appendix Two: CRX Annual Corporate Reports
CSX 2012 Corporate Responsibility Report.pdf
CSX Annual Material Archive 2007-2013
Appendix Three: Interview Audio
CSX Corporate Executive Interviews