July 28, 2017 / 4:44 PM / 2 months ago

Regulator letter to railroad CSX highlights customer complaints

DETROIT (Reuters) - A letter from the top U.S. rail regulator to CSX Corp (CSX.O) this week highlights growing customer dissatisfaction with the No. 3 U.S. railroad’s service problems since its new chief executive officer Hunter Harrison was appointed to the spot amid investor and analyst fanfare in March.

The Surface Transportation Board’s (STB) July 27 letter to Harrison, a septuagenarian railroad legend famed for turning around two Canadian railroads - Canadian Pacific Railway Ltd (CP.TO) and Canadian National Railway Co (CNR.TO), lists a litany of complaints about CSX’s service.

Those include unpredictable or lengthier transit times, and circuitous and inefficient rail car routing times.

“We understand that these disruptions have forced a number of rail shippers and their customers to curtail production,” the letter states.

The STB requested a weekly service call with the regulator to see what the Jacksonville, Florida-based railroad is doing to address problems.

CSX did not respond to a request for comment.

There have been mounting signs of problems at CSX this month after Harrison instituted a slew of changes to cut costs.

Harrison became CEO after activist investor Mantle Ridge LP pressured CSX to appoint him. Investors sent the company’s share price up 35 percent in anticipation of his appointment.

Just after taking the job, Harrison promised to close yards and cut costs aggressively.

But a shipper survey by Cowen & Co released this month found 24 percent of respondents describing CSX’s service as “poor.” No other railroad received the same rating from more than 6 percent of respondents.

“Although investors in CSX should not be in full-blown panic mode over this, it does bear watching,” Cowen & Co analyst Jason Seidl wrote on Friday. “If service does not improve the diversions could become more meaningful in our opinion.”

This week Arch Coal Inc (ARCH.N) executives complained in a conference call with analysts that CSX’s service problems have begun to affect coal cars bound for U.S. ports for export.

Last week private coal company Murray Energy Corp asked the STB to resolve service issues at CSX that have “caused or contributed to countless delays and cancellations of trains.”

When asked about customer reactions during CSX’s quarterly earnings call this month, Harrison said “there’s going to be a little pain and suffering.”

“I don’t know, frankly, how to get there without some bumps in the road,” he said.

Reporting by Nick Carey; Editing by James Dalgleish

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