Rail Outlook 2015: CSX's Michael Ward

Michael Ward, Chairman/President/CEO, CSX Corp.

What's your take on near-term business potential heading into 2015? What's your best-guess business forecast for next year and how can it come to fruition?

Before looking ahead, I think it's important to note the remarkable business increase we have seen in 2014. As the winter weather abated, volume increased far beyond forecasts — up to 20 percent in the Chicago region, for example. Some was pent-up demand, but most was associated with steady economic expansion, transition in the energy market characterized by rail movements to support hydraulic fracturing for natural gas and crude-oil deliveries to eastern refineries, and continued progress of our "Highway-to-Rail" intermodal initiative.

These factors, along with a record harvest, have contributed to strong financial performance that has benefited our shareholders. As we restore service levels to previous highs, we can unlock additional growth and set the stage for a strong 2015.

We see a stable-to-favorable outlook for most of our markets in fourth quarter:

• Strong oil and gas markets are likely to continue to spur growth in chemicals, including crude oil, frac sand and LPG.

• Metals shipments are growing as steel production has increased.

• Coal has been trending downward in recent years, but this year brought growth in domestic coal shipments, as utilities replenished their inventory ahead of another winter heating season, and that should continue into next year, as well.

• Intermodal will continue to be a major growth driver as we convert more freight from highway to rail, supported by new intermodal terminals, terminal expansions and double-stack line clearances.

In addition, economic indicators such as housing starts, auto production, the Purchasing Manager's Index and Customer Inventory Index all point to continued expansion in both the near-term and throughout 2015.

To capitalize on these opportunities, we will continue to invest in capacity projects, hire more crews, and increase our locomotive and rail car fleets. To grow our business further, we must consistently deliver a safe, reliable service product that supports our customers' business strategies.

What will be an important issue for your railroad in 2015 and what are the potential obstacles to growth?

Our foremost objective for 2015 will be returning to and moving beyond the record levels of service performance that we achieved in 2013. We have been working closely with customers throughout the year to keep them informed of progress in our network performance and develop solutions. As we head into 2015, service has stabilized and we are beginning to see areas of progress.

The improvement is a direct result of the dedication of our employees and a service recovery plan focused on capacity investments, and the expansion of our workforce and equipment fleets. We placed more than 300 new crew members in service this year and have another 1,300 crew members in training as we head into 2015.

We also added 500 refurbished and leased locomotives to our fleet and ordered 300 new locomotives for delivery in 2015 and 2016. On the infrastructure side, we committed $2.4 billion in capital in 2014 to replace or install about 380 miles of rail, upgrade facilities, rebuild bridges and complete other capacity-enhancement projects. We will continue our targeted capital investments throughout 2015, particularly across the Northern Tier and in the vital Chicago gateway.

At the same time, CSX's ability to continue investing in our railroad and creating jobs depends on a balanced regulatory environment. We will continue to work with the railroad industry, federal agencies and Congress to ensure that the tremendous economic and environmental benefits of freight rail, supported by partial deregulation, can be sustained.