CSX CEO Expects Slow Recovery For U.S. Economy
MELISSA BLOCK, Host:
One barometer of how the U.S. economy is faring is the volume of goods being shipped across the country. That's the business of CSX, a freight rail company. They are predicting record earnings this year. They're also planning to hire at a time when a lot of businesses aren't. So we asked the CEO of CSX, Michael Ward, for his read of what's going on in the economy.
MICHAEL WARD: Volumes are up slightly, and most markets are showing some signs of recovery. So we're encouraged it's going to be a continued growth, but we think it's going to be a gradual recovery of the economy.
BLOCK: And as a freight rail company, I wonder if you can give us some examples of how recent downturns in certain sectors of the economy have affected your business.
WARD: Well, we touch pretty much almost all parts of the economy. We move a lot of automobiles, a lot of coal, lumber, steel, chemicals, consumer products. So when the economy goes down, some segments aren't that impacted. For instance, we move a lot of product to farmers who grow chickens and pigs. And, of course, during a recession, people still eat. So probably, about 35 to 40 percent of our business is very sensitive to the economy.
BLOCK: So during the downturn in that sector that is sensitive to the downturn, where did you see business drop off?
WARD: Well, we saw a very dramatic reduction in shipments of automobiles as well as products that will support that - metals, chemicals, plastics - as well as the intermodal business, which is where we take a truck off the highway and put it onto a rail car. Obviously, with the consumer demand down, that business as well was impacted.
BLOCK: The CSX just posted a really strong second quarter. Revenue was up 13 percent, to $3 billion. Earnings were up 28 percent. How much of those gains can you trace to exports, to demand coming from overseas?
WARD: Well, we participate in the export market two ways. One is exporting products. There's a great demand by China and Brazil for coal. That business for us two years ago was 22 million. It was 30 million tons last year. And we expect it to be over 40 million tons this year. So there's a great demand for that coal overseas. When the intermodal business, which is containers of consumer products coming into the United States, we saw that grow about 10 to 11 percent last year, and it's up about 6 or 7 percent this year.
BLOCK: Mr. Ward, you're also running a company that has a workforce that's grown smaller over the last few years. You had about 30,000 workers in 2010. Back in 2006, you had 36,000. So about 17 percent fewer workers now. Why is that?
WARD: Well, two things. One, obviously, when the business is down, then we need less people to handle the trains. In addition, we're always, as every business must do, getting more productive and finding ways to do things more smartly. But as we look at this year, we're going to be hiring about 4,000. About 3,000 of those are to cover our expected attrition, but 1,000 are there for projected future growth and for some technology deployments we will be doing.
BLOCK: So a net gain of 1,000 still won't put you back to where you were, say, in 2007?
WARD: No. I don't think we will get to those levels for quite a few years.
BLOCK: What do you think that says for the overall employment picture in the country if a company that's doing as well as yours is financially isn't getting back to previous levels?
WARD: Well, Melissa, I guess I view that a little bit differently. I think there's going to be 4,000 people that at the end of this year are going to be feeling pretty good about what their life is. You know, our jobs - we're 90 percent unionized company. And a high school graduate can come to our company and make 75 to $100,000 a year in an industry that the jobs are not very exportable overseas. So I think those 4,000 people are going to feel very, very good about our company and where the economy is heading.
BLOCK: You mentioned earlier, Mr. Ward, that you've seen that workers have been able to be more productive even though you have fewer of them. I wonder if the lesson here for a lot of companies is we've been able to make more money with fewer workers. We've seen productivity go up. It hasn't hurt our bottom line, and the fact it's helped and maybe we don't see a need to change. Maybe hiring won't bounce back.
WARD: Well, again, I think we're going to continue hiring at our company. It will be some time before we get back to the 36,000 you've referenced. But I think if you look over the next three to four years, we will be hiring more people than we're seeing in our attrition.
BLOCK: Michael Ward, thanks very much for talking with us.
WARD: My pleasure, Melissa.
BLOCK: Michael Ward is the CEO of the freight rail company CSX. And full disclosure here: CSX is an NPR underwriter.
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