CSX Transportation, known colloquially as simply CSX, is a Class I freight railroad operating in the eastern United States and the Canadian provinces of Ontario and Quebec. CSX Transportation was incorporated in 1827 and had headquarters in Jacksonville, Florida, US. CSX provides rail, intermodal, and rail-to-truck Trans load services and solutions to customers across a broad array of markets, including energy, industrial, construction, agricultural, and consumer products (CSX, 2021). CSX’s network connects approximately 240 short line and regional railroads and more than 70 ocean, river, and lake ports with major population centres and small farming towns. It operates 1,300 daily freight trains and coordinates with national, regional, and local agencies. Porter’s five forces analysis will further help us understand the risks and opportunities the Company is exposed to.
Competitive Rivalry in the Market
The freight railway industry is an essential pillar of economies in North America. Freight trains carry the majority of goods all over the continent. There are multiple types of competition. It includes other railroads, other modes of transportation, product competition and geographic competition. Railroads are private companies that compete against each other for business. Rail customers often have connections to competing railroads, either directly or in conjunction with a short-haul truck movement. Some rail customers can also build. (AAR, 2021) CSX has to compete with other Class I Railway operators in the region. Class, I competitor are Canadian Pacific Railway, Canadian National Railway, Norfolk Southern Railway, BNSF, and Union Pacific. CN Rail and Norfolk Southern are its big competitors because they operate in the Midwest, Eastern US, and Canada. CN Rails annual revenue for 2020 was $10.3B (Forbes, 2021) compared to Norfolk Southern posted yearly revenue for 2020 was $9.789B (Macrotrends, 2021). CSX posted annual revenue for the year 2020 was $10.583B (Macrotrends, 2021). There is high-level competition in the industry.
Threat of Substitutes
The threat of substitutes is high where a better alternative is available. The other options to the railways’ industry exist today, as they had been centuries ago. The world is evolving the global freight load is increased. Train, trailers and Cargo Planes are the available modes for freight transportation. The freight train is an economical and sustainable solution, and this helps reduce road congestion and CO2 emission. Aeroplanes are an expensive mode of transportation. Trains are the most cost-effective and efficient mode of mass transportation. They help achieve the goals of acceptable emission levels and can reduce road congestion. Their effectiveness has made them unassailable in the short term. Few pilot projects are going on for finding a better solution, such as Hyperloop (Wearefinn, 2018). Hyperloop can disrupt freight transportation. The cost and scale required to replace the railroad in the near future seem impossible. Therefore, the threat of substitute remains low.
The Threat of New Entrants
There most common barriers to entry are regulatory requirements, initial capital, and expertise. The regulatory authorities or government can limit or even foreclose entry to industries with such controls as license requirements and limited access to raw materials. Regulated industries like trucking and freight forwarding are prime examples of it. The government also can play a significant indirect role by affecting entry barriers through controls such as air and water pollution standards and safety regulations (Luenendonk. M, 2019). To start a freight railway company is a problematic ambition; the major impediment is the massive capital required. The requirement to form a network of trails that connect the cities and ports is demanding. There is a low threat of new entrant.
Bargaining Power of Buyers
The Bargaining Power of Buyers is high if the buyers are significant; they can switch easily to another supplier who may be in numbers (Slater & Olson, 2002). Customers are demanding as they required the best available services for their value. Usually, freight train customers are bulk buyers. They sign long-term contracts, which gave them the upper hand. The safety of goods, on-time delivery and low cost, are the main decision-making factors for the buyers. Thus, the buyer can deflect to other service providers if they do not cater to their demands. There is a large customer base, and companies know to improve service standards to stave off competition. Companies can switch companies, but they use trains as a primary mode of transportation, and companies are aware of that fact. Considering all the factors, buyers have moderate bargaining power.
Bargaining Power of Suppliers
The significant sources of supply to the freight railways industry are rolling stocks. Rolling stocks include carriages, locomotives and other vehicles used on railways. The rolling stock providers are specialist industry, and their products are used as input to the railways’ transportation industry. The suppliers’ industry is more concentrated than the industry to which it sells, and no readily available substitutes are available (Oregon State, 2021). The providers know their importance, and they can drive the cost of the industry. Another thing they can impact is long term cost, as the quality determines the repairs and maintenance cost. A small number of suppliers may generate monopoly or oligopoly, which can give them unchecked power. The rate also plays a vital role in when to replace the said stock. Independent rolling stock providers can exercise high bargaining power.
References
AAR. (2021). Railroads Face Fierce Competition. Available at: https://www.aar.org/article/railroads-face-fierce-competition/#!)
CSX. (2021). CSX Company Overview. Available at: https://www.csx.com/index.cfm/about-us/state-information/csx-company-overview/
Forbes. (2021) Canadian National Railway. Available at: https://www.forbes.com/companies/canadian-national-railway/?sh=f88db7d353bfMacrotrends. (2021). Keio Corp.
Luenendonk. M. (2019). Threat Of Substitutes – Porter’s Five Forces Model. Available at: https://www.cleverism.com/threat-of-substitutes-porters-five-forces-model/
Macrotrends. (2021). CSX Revenue 2006-2021 – CSX. Available at: https://www.macrotrends.net/stocks/charts/CSX/csx/revenue
Macrotrends. (2021). Norfolk Southern Revenue 2006-2021 – NSC. Available at: https://www.macrotrends.net/stocks/charts/NSC/norfolk-southern/revenue
Oregon State (2021) Analyzing the Organization’s Microenvironment. Available at: https://open.oregonstate.education/strategicmanagement/chapter/3-analyzing-the-organizations-microenvironment/
Slater, Stanley & Olson, Eric. (2002). A fresh look at industry and market analysis. Available at: Business Horizons. 45. 15-22. 10.1016/S0007-6813(02)80005-2.
Wearefinn. (2018). Is hyperloop a competitor to aviation? The jury is out. Available at: https://www.wearefinn.com/topics/posts/is-hyperloop-a-competitor-to-aviation-the-jury-is-out/