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- 2010 - September - 16th -

CSX’s Michael Ward: ‘Moving in the right direction’

Michael Ward is chairman, president and CEO of CSX Corp., the largest Fortune 500 company based in Jacksonville. The railroad’s transportation network stretches 21,000 miles to 23 Eastern states, connects to more than 70 ocean, river and lake ports and operates an average of 1,200 trains a day. The company employs 30,000 people, including 3,500 in Jacksonville. With annual revenues of $9 billion, CSX ranked No. 259 on the 2010 list of Fortune magazine’s 500 largest companies.

Ward, 59, has an MBA from Harvard Business School. He met Tuesday with the Daily Record editorial staff at his Downtown office in the CSX headquarters building.

How did you get started in the railroad business?

When I was growing up (in Baltimore), my dad owned a pool hall, and I was the oldest of eight kids. He drilled it into my head, ‘you have to get a college education and you have to figure out how to pay for it.’ I went to the University of Maryland, and I worked at an asphalt factory in the summers and earned enough to do that.

I liked school. I thought it was kind of easy and interesting. I thought I might as well get my master’s degree. I applied to Maryland and Wharton, and my dad gave me $25 and said, ‘Here, apply to Harvard and see what they say.’ I applied and they accepted me, and I borrowed the money to do that. I had no idea in the world what I wanted to do. I said, ‘I’m going back to Baltimore, and any big company that’ll hire me in Baltimore, that’s where I want to work’ because I knew there were people that wore white shirts and ties and went into offices and did something. And it just so happened that the railroad was hiring at that time, and here I am, 33 years later.

It is funny that my grandfather spent his whole career on the old B&O railroad, which is part of our legacy and my dad spent about two years, but he was down on the coal piers. So there happens to be railroading in my family, but it’s just a coincidence. I’ve been here 33 years and I’m still learning new things, because it’s complicated.

How is railroading complicated?

Sounds real simple, doesn’t it? But when you think about it, we have to maintain that infrastructure. I mean, we spend $800 million or $900 million a year just keeping the tracks in condition. The other thing, in the 23 different states, here’s what you know on a railroad: When you come in, something happened overnight. The only question is, what was it, how bad is it, and how do you fix it? You still have to move the business for the customers, and if you think about it, we touch about every part of the economy. And it’s an outdoor sport. The way I like to think about it is, it’s a 21,000-job outdoor job shop. It’s not like a factory line and it’s largely a self-directed work force. When that crew gets on the train, you give them a safety briefing and you let them know what their job is, but then they’re out there by themselves doing the work themselves.

The other thing that’s nice for our employees is there are so many different things you can do within the railroad. When I joined the railroad, an old guy told me, ‘if you stay here five years, you’ll stay here forever, ‘cause it gets in your blood.’

What was your role when you started, and what roles did you serve?

I started off in the purchasing department. I was there for about a year, and I was a eager beaver. I would get my projects done very quickly, and they didn’t have enough new projects to give me. It was the worst job I ever had, in the sense that I didn’t have enough to do. I can remember sitting in that little cubicle waiting for 5 o’clock. Fortunately, they were hiring people in the finance department at the time, so I went into the finance department for about three or four years. Then I went into sales and marketing for the coal part of our business, and did that for probably 15 years. Then I went out to the field to run an operation, came back in as the chief financial officer, then ran all of operations, and then became the president. So I’ve seen most aspects of our business, which is really helpful in my current job, because when people come in, I not only understand what they’re telling me, I understand what they’re not telling me.

What are some of the major ways in which the industry has changed?

The industry changed dramatically probably about 2003, 2004. If you go back farther, we were the Internet of the 1800s, if you think about it. We were the ones that connected the country. That’s how people moved, that’s how goods moved. Most major cities grew up either around a waterway or a railroad, because transportation is so important. We were the prime driver. Because we were so dominant and so important to the economy, we got very heavily regulated very early on.

When the interstate highway system was built in the 1950s and ‘60s, trucks started taking a lot of our business away. So in 1980, the Congress had an important decision to make, either to nationalize the railroads or free them up to compete. Between 1980 and roughly 2000, we did a tremendous improvement in our efficiency. At the beginning of the period, what is now CSX had about 100,000 employees. Now we have 30,000 employees, and we move roughly double the amount of business we did back then. We got bigger, more efficient cars, we got better locomotives. We’ve reduced our emissions from 1980 by 90 percent by these more efficient locomotives, so we’ve changed from just downsize-and-cut-costs to how do we grow the business. We’re making enough money so we can make investments to grow the business. For instance, back in that early period, we were investing somewhere around $900 million a year. This year we invested $1.7 billion. We’re investing for the future.

How do you see the industry changing?

Technology is going to be more and more a driver, as with most industries, and particularly with ours. You’re going to see us more and more getting into markets we haven’t been in for years. Fresh fruits and vegetables from California, we used to do that many, many decades ago. We’re actually back in that business. We have a service that we can run with the Union Pacific railroad. We can get it across the country as fast as a trucker can now. So fresh fruits and vegetables into Florida, into the New York market, moving wine, we’re moving a lot of orange juice in Florida up into Jersey, so we’re getting a lot more into markets that we haven’t been before. There are growing markets and probably one of the biggest is partnering with the trucks. It’s a good business model because we’re so much more efficient, we can make money and they can save money,

How active are you with the Port of Jacksonville and its terminals?

We’ve given them a lot of ideas. I think one of the challenges there is to be as effective as they need to be. They need one dock to load intermodal trains. We’ve given them a number of ideas around that. As always, funding is an issue. It’s always been our policy that we provide the track, the crews, the train, the landing spots. The ports have to take care of their own capital, and that’s usually the way it works. But it’s always a challenge, especially with the tough economy, for the funding.

How much does coal account of your business?

Coal’s about 25 percent of our business, so it’s very important to us. There’s some denial about what some people would like to see in the energy sector. About 50 percent of our electricity comes from coal. About 20 percent from nuclear, and probably in the mid-20s from natural gas, and wind and solar, like 1 percent. The fact is there’s (not) enough new (energy) generation to match population growth in the last decade. There’s going to be a shortage of electricity. Gas plants you can probably build in three years. A nuclear plant, you’d probably need 10 to 12 years, so the lead time on these things are tremendous. I think eventually what’s going to happen is people are going to start seeing their electric bills double, and triple, because of the more expensive (energy) being brought in. Coal will continue to be used. So when I think about it for our company, it is not an issue for probably 10 to 15 years.

The railroad has an aging workforce. How do you deal with that?

We went from 100,000 to 30,000 people, so we had a 20-year period when we hired almost nobody. And people can retire at age 60 with 30 years of service, and we have lots of people with 30 to 40 years of service. So in the last seven years, we’ve replaced about a third of our workforce. Railroad jobs are attractive jobs. A high school graduate can make $75,000 to $100,000. There are not a lot of jobs like that, with the manufacturing base leaving the United States. Secondly, our jobs are not exportable.

We’re finding that people like the jobs we have to offer. Now they have to like the lifestyle that goes with it, because when you’re a conductor or an engineer, especially at the beginning of your career, you can get the call at 3 or 4 in the morning, ‘show up in two hours, you’ve got to run a train.’

There’s some history trivia to the tracks, correct?

The width of a railroad track was really set by the width of two horses back in Roman days. The Romans built basically the road system. They made it for a chariot with the width of two horses, so when they started coming up with railroads, they made it that same width. Even like the rockets we move for the space shuttle, they had to be made so they could be moved by railroad, so how we’re doing some of our space exploration is really determined by what the Romans did back centuries ago.

The company’s doing very well, and CSX is a direct reflection of the economy. What do you see with the economy?

We’re not seeing what’s being said in the press. Actually, the second quarter of last year with our earnings release, we said we thought it had bottomed. We were down 21 percent in the second quarter of last year, which is the biggest dip we’ve seen. Ever since that second quarter, we’ve seen it gradually increasing. Each quarter continues to get just a little bit stronger, nothing dramatic. All our market segments have been positive on a year-over-year basis, but the weakest one is housing-related. Automotive is through the roof, but that’s because it was so bad. We’re seeing everything moving in the right direction.

Do you have a positive outlook for the economy?

We continue to say that we continue to gradually improve. We’ve been saying that over a year and a half, and it does continue to do that. We don’t see a double-dip (recession) coming. We don’t see it booming, either. Normally after this severe of a dip, you’d expect to see a fairly quick rebound. We’re not seeing that. We’re seeing a fairly gradual rebound. Companies have a lot of cash right now. I think they’re concerned about investing it for two reasons. One, some have a concern about a double-dip. I think the larger concern is increased regulation and edicts coming out of Washington. When I talk with our customers, I ask them what their biggest challenge is. A half to two-thirds say Washington, D.C. With the uncertainty around regulations, people are hesitant to make longer-term investments, to hire additional people, and I think that’s a real constraint.

I think the second element is 70 percent of our economy is driven by the consumers. I try not to watch the news because it’s too darned depressing, but if you sit there and listen to some of the news media, you’d think the world was ending. It really hurts people’s confidence when they’re barraged by this constant negative feedback.

But 80 percent to 95 percent of the people have the same job they had before this recession, yet they’re hesitant to spend their money because they feel poor. Their house is worth less, not that they were about to sell it. Their 401(k) is less, not that they were about to retire, but they feel like they’re less wealthy. I think people are holding back. Now, you can only hold out so long.

What does the CEO of a railroad do?

You’ve really got to keep up with everything that’s going on, because the railroad is so embedded into everything.

One of the most critical things is what I call getting the right people on the bus. You have to have really good people and they have to work together, because we’re very team-oriented and one person can’t make it happen on the railroad.

There’s good ambition and bad ambition. If you have good ambition, you want the organization to do better, you want to do a good job, and eventually you’ll be rewarded by that with more responsibility, and eventually, more pay.

But then you have people that want to climb the ladder, and will do it over people’s backs. That’s the bad ambition. If you see the bad ambition, you have to kill it immediately. It’s a cancer on your organization.

So we’re very big on teamwork, and it’s getting the right people and then letting them do their jobs.

The second thing that’s become required in my job in the last couple years, is going to Washington, D.C. I probably go up there two or three times a month now. You have to get up there with the policymakers and have them understand what we bring to this country, so they don’t do something that’s injurious to our ability to continue to do that.

As the president, chair and CEO of the largest Fortune 500 company in Jacksonville, how involved are you in the local business community, politics and the Jacksonville Civic Council? Do you have time?

Not really, because I do have requirements throughout the country, and a lot in Washington, D.C. I am on the Civic Council, but I really don’t have the time to devote to it. My difference is with personal philanthropy. I try to give money. I do want to make this a better city, and that I can do.

We do encourage people to give their money and give their time, and we’ve done much better on our United Way campaigns in the last couple of years.

We operate in 23 different states. In many towns where the railroad runs may not be through the best neighborhood in the city. We’ve said we need to move more of our philanthropy out to those communities where we actually operate trains.

Do you see any more mergers in the future?

No. That’s a very quick answer, but there are two big railroads in the West. We’re a combination of a lot of railroads. The past mergers were many times overlapping railroads, where you could keep one line and get rid of another line, so there were a lot of synergies there, but now we operate pretty much everywhere east of the Mississippi. The western railroads are west of the Mississippi. So there aren’t duplicate lines.

What’s your day like?

I normally am in here at 6 a.m., give or take 15 minutes, and most days probably I’m out 12 hours later. I probably travel two days a week on average. I probably work a 60-70 hour week. People talk about the 40-hour work week. I don’t think there are many 40-hour work weeks out there. Probably most industries, they are at least 50 hours. And when you get into a company like ours, you can get a call at 2 in the morning about some issue that has to be dealt with. When you have a 24/7 operation, I think the hours tend to expand a little bit more. Whatever it takes.

But when you like your job, you think differently about the hours.

That’s the key. You enjoy what you’re doing.

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