CSX 2026년 3분기 실적 발표 콘퍼런스 콜: 매출 전망 상향 속 마진 확대

CSX(NASDAQ: CSX)가 2026년 3분기에 수송량, 매출 및 조정 수익성이 모두 증가했다고 발표했다. 경영진은 이익률, 자본 지출 및 잉여현금흐름 전망치를 유지하는 한편, 연간 매출 성장률 전망치를 상향 조정했다.

핵심 요약

• 주당순이익(EPS)은 전년 동기 조정 실적 대비 30% 증가한 0.57달러를 기록했으며, 조정 영업이익은 25% 증가했다.
• 수송량이 5% 증가하고 유류할증료 인상, 일반화물(merchandise)·복합운송(intermodal)·석탄 부문의 가격 상승에 힘입어 매출은 12% 증가했다.
• 유가 상승으로 인한 70bp의 악재에도 불구하고, 조정 기준 영업이익률은 전년 동기 대비 420bp 개선된 39.1%를 기록했다.
• CSX는 연료비 제외 비용을 3% 줄이면서 수송량을 5% 늘렸다. 연료 효율성은 역대 최고치를 경신했다.
• 경영진은 기존 2026년 매출 성장률 전망치인 한 자릿수 중후반에서 한 자릿수 후반으로 상향 조정했다.
• 연간 전망치는 영업이익률 350bp 이상 확대, 자본 지출 24억 달러 미만, 잉여현금흐름 80% 이상 증가를 유지했다.

핵심 재무 데이터

전년 동기에는 1억 6,400만 달러의 영업권 손상이 포함되어 있었다. 이에 따라 CSX는 영업이익, 이익률 및 EPS 비교를 전년 동기 조정 실적을 기준으로 제시했다.

사업 및 영업 실적

복합운송은 여전히 수송량 성장의 가장 큰 기여 요인이었다. 수송량은 7% 증가해 역대 최고치를 기록했고, 매출은 20%, 단위당 매출은 13% 증가했다. 경영진은 복합운송 수익성(yield) 증가분의 사실상 전액이 유류할증료 매출에서 비롯되었다고 밝혔다. 성장세는 국내 복합운송이 견인했으며, 국제 수송량은 대체로 안정적인 수준을 유지했다.

트럭 수송 용량 부족, 트럭 운임 상승, 디젤 연료비 고공행진이 계속되면서 도로에서 철도로의 수송 전환을 뒷받침했다. CSX는 버밍햄, 머틀우드, 볼티모어를 거치는 신규 서비스도 언급했다. 볼티모어를 통과하는 I-95 회랑의 완전 이단 적재(double-stack) 운행이 가능해짐에 따라 회사는 2027년 입찰 시즌에 진입하게 되었다.

일반화물 매출은 수송량 3% 증가에 힘입어 11% 증가했다. 불리한 제품 조합(mix)에도 불구하고 유류를 제외한 단위당 매출은 2% 이상 증가했다. 금속 수송량은 인프라 및 에너지 수요, CSX 네트워크 내 신규 제철소의 생산량 증가에 힘입어 12% 늘었다. 화학 제품 수송량은 전환 수요와 폐기물 및 석유 제품 수요 증가로 7% 증가했다.

비료 수송량은 13% 감소했다. 경영진은 인산염 공급 제약, 낮은 농작물 가격, 비료 가격 부담에 따른 수요 압박을 원인으로 꼽았다.

석탄 매출은 10% 증가했으며, 수송량은 2%, 단위당 매출은 7% 증가했다. 광산 생산량 개선으로 수출 물량(톤)은 7% 증가한 반면, 비교적 온화했던 여름 날씨로 인해 국내 물량은 소폭 감소했다. 경영진은 글로벌 지표 가격 상승의 시차 반영으로 4분기 석탄 단위당 매출이 전분기 대비 소폭 증가할 것으로 예상했다.

운영 측면에서 CSX는 미 연방철도청(FRA) 기준 부상률이 17% 감소하고 사고율은 4% 줄었다고 발표했다. 수송 속도(velocity), 대기 시간(dwell), 고객 입환(switching) 지표는 전분기 대비 개선되었다. 10월 평균 수송 속도는 시속 19마일을 상회했으며, 대기 시간은 10시간에 근접했다.

경영진 가이던스

경영진은 2026년 매출 성장률 전망치를 기존 한 자릿수 중후반에서 한 자릿수 후반으로 상향 조정했다. 나머지 가이던스는 동일하게 유지되었다.

• 연간 영업이익률 350bp 이상 확대.
• 자본 지출 24억 달러 미만.
• 잉여현금흐름 80% 이상 증가.
• 4분기 영업이익률 전년 동기 대비 350bp 이상 개선.

4분기에 대해 CSX는 인건비, 외주 서비스비 및 기타 비용의 일반적인 계절적 증가와 함께 기상 여건에 따른 연료 효율성 악화 압박을 예상하고 있다. 케빈 분(Kevin Boone) 최고재무책임자(CFO)는 회사가 역사적으로 3분기에서 4분기로 넘어가면서 전분기 대비 200~300bp의 이익률 하락을 경험해 왔다고 말했다.

경영진은 계절적으로 줄어들었던 인력이 복귀하고 차장(conductor) 교육 파이프라인을 확대함에 따라 2027년 1분기 인원수가 현재와 비슷한 수준을 유지할 것으로 예상하고 있다. 회사는 2027년을 위한 100개 이상의 생산성 향상 과제를 발굴했지만, 스티븐 앤젤(Stephen Angel) 최고경영자(CEO)는 생산성 기여도가 2026년만큼 크지는 않을 것 같다고 밝혔다.

리스크 및 주시 영역

• 유가 변동성은 3분기에 70bp의 이익률 악재로 작용했으며 단기 이익률에 계속 영향을 미칠 수 있다.
• 복합운송 증가로 애틀랜타 지역에서 일시적인 서비스 병목 현상이 발생했다. CSX는 지난 3년간 수송량이 50% 증가함에 따라 현지 입환 및 처리 용량을 50% 늘리기 위해 투자하고 있다.
• 다른 여러 서비스 지표가 개선되었음에도 불구하고, 이번 분기 복합운송 운행계획 준수율(trip-plan compliance)은 하락했다.
• 비료 수요는 인산염 공급 문제, 낮은 농작물 가격, 가격 부담 제약으로 계속 압박을 받고 있다.
• 국내 석탄 수요는 날씨에 계속 민감한 반면, 한 수출 고객사는 늦여름 화재 이후 임시 광산 폐쇄 조치를 관리하고 있다.
• 단거리 수송(drayage) 운전자의 수급 문제는 추가적인 복합운송 전환 성장의 주요 제약 요인이다.

애널리스트 Q&A 하이라이트

생산성: 경영진은 100개 이상의 과제가 이미 CSX의 2027년 생산성 계획에 기여하고 있다고 밝혔다. 주요 집중 분야는 자산 활용도, 내재화, 공급업체 단가, 외부 인력, 차량 및 기관차 활용도, 정비 효율성, 기술 기반 지출 가시성 등이다.

가격 책정: CSX는 시장 특성에 맞춘 가격 책정 방식을 계속 적용하고 있다. 경영진은 2026년 동일 매장 판매 가격 책정이 전년 수준을 상회할 것으로 예상하며, 연중 임의 일반화물 가격 인상이 가속화되었다고 밝혔다. 회사는 시장 상황, 수송 용량, 서비스 가치를 바탕으로 국내 복합운송 계약 갱신 가격을 책정할 계획이다.

국내 복합운송 성장여력: 경영진은 하워드 스트리트 터널, SMX 서비스, 도로 수송의 철도 전환을 통한 추가 성장에 대해 여전히 낙관적이다. 볼티모어를 통과하는 완전 이단 적재 통과 높이 확보 작업이 지난 입찰 시즌 대부분이 끝난 후 완료되었기 때문에, CSX는 이 운송 능력이 2027년 제안요청서(RFP) 및 운송 경로 지침에 더 본격적으로 반영될 것으로 기대하고 있다.

수송 용량 및 인력: CSX는 예상되는 수송량 증가를 처리할 수 있다고 밝혔다. 회사는 용량 계획을 구체화하고 상업적 수요 예측을 승무원, 기관차 및 인프라 배치와 조율하면서 열차 및 기관차 승무원 인력을 소폭 충원할 계획이다.

연료 절감 기술: CSX는 트립 옵티마이저(Trip Optimizer)의 출발-정지 기능을 부분적으로 도입 중이며 미 연방철도청과의 테스트를 계속하고 있다. 경영진은 이 기능이 궁극적으로 전체 열차 보유분에 도입할 수 있도록 승인받을 것으로 기대하고 있다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation's Third Quarter 2026 Earnings Conference Call. [Operator Instructions].

And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Corporate Communications. Mr. Korn, you may begin.

Matthew Korn

Thank you, Good afternoon, everyone. Joining me from the CSX leadership team are Steve Angel, President and Chief Executive Officer; Kevin Boone, EVP and Chief Financial Officer; and Maryclare Kenney, Senior Vice President and Chief Commercial Officer. In the presentation that accompanies this call, which is available on our website. You will find slides with our forward-looking and our non-GAAP disclosures. We encourage you to review them.

With that, I'm very happy to turn the call over to Mr. Steve Angel.

Stephen Angel

Thank you, Matthew. Good afternoon. I'm pleased to report that CSX has delivered another quarter of strong financial performance, earnings of $0.57 per share increased 30% compared to last year's adjusted results. Our volume grew 5% as more customers turn to our railroad to safely and reliably move their goods and our operating margin improved to 39.1%, which was 420 basis points higher than last year's adjusted results. The progress we continue to make on productivity has helped drive substantial growth in profitability, earnings and free cash flow. Our goal is to be the best-performing railroad in North America and the entire CSX team is responding to that challenge. We are proud of how far we've come this year and excited about our position as we look ahead to 2027.

Before we turn to the details, I want to recognize Mike Quarry, who recently announced his retirement after a 45-year career. Mike is a true railroader, who has made significant contributions to CSX, our customers and our employees. He also developed a deep bench of operations leaders and I am confident in Doug Ryhorchuk, Casey Albright and the entire operations team as we continue executing on our priorities of safety, reliable service and long-term value. We thank Mike for his leadership and wish him all the best.

Turning to Slide 4. The work underway to strengthen our safety culture contributed to another quarter of year-over-year improvement. Our FRA injury rate decreased by 17%, and our accident rate fell by 4%. While we are encouraged by that progress, our work is never finished. We will continue our efforts to reduce risk, increase awareness and improve communication to support our employees as they do their jobs. We do not and will not compromise on safety. We also continued improving productivity. Third quarter fuel efficiency was not only the best ever achieved by CSX, but also the best ever reported by any U.S. railroad and workforce efficiency as measured by gross ton miles per employee improved substantially year-over-year. This next slide shows our key service metrics. We're encouraged by the sequential improvement in velocity, dwell and customer switch data, which measure first mile and last mile performance.

Trip plan compliance for our carload business also improved modestly quarter-over-quarter, though intermodal trip plan compliance declined. We are handling more volume safely and efficiently, but we know our network can perform better. Operations is connecting more closely with our commercial team, giving us better visibility into demand and helping us get the right number of crews and locomotives to the right locations. Active crew management is improving engineering and conductor availability. Better planning and coordination between engineering and transportation is leading to less network disruption as we execute our capital projects. In technologies such as autonomous track inspection cars is helping us plan better and respond effectively to day-to-day events on the railroad, supporting faster trains and fewer delays.

Services started strong in October, with velocity averaging more than 19 miles per hour this month and dwell approaching 10 hours. Our team also did an excellent job preparing for Hurricane -- which we managed through with minimal impact. We intend to build on this momentum ensure that our service supports our growing business.

Kevin, please review our financial performance for the quarter.

Kevin Boone

All right. Thank you, Steve, and good afternoon, everyone. In the third quarter, the CSX team improved safety, but increased demand for our customers delivered substantial cost efficiency and made sequential progress in our service metrics. Revenue increased 12%, driven by higher fuel surcharge 5% volume growth and pricing gains across the merchandise, intermodal and coal markets. As a reminder, our prior year results included $164 million goodwill impairment. Adjusting for that charge, Higher revenue and lower nonfuel costs drove a 25% increase in operating income and 420 basis points of margin expansion despite 70 basis points of fuel price headwinds. This translates to a 30% increase in earnings per share.

Let's now turn to the next slide for a closer look at expenses. The team handled 5% more volume in the third quarter while reducing nonfuel costs by 3%. Labor expense increased by $19 million as improved workforce productivity and lapping of severance costs, mostly offset over $90 million of higher costs from incentive compensation and inflation. Labor expense will have a typical sequential increase in the fourth quarter, but reported headcount will be lower due to temporary seasonal reductions.

First quarter 2027 head count will be similar to current levels as these employees return to work, and we build our conductor training pipeline to start the year. PSO expenses were 10% lower reflecting our continued focus to drive efficiencies across this diverse pool of the costs. Savings were driven by improved utilization of both locomotives and vehicles, reduced reliance on external labor and multiple G&A functions absorption of intermodal volume growth and maintenance efficiencies across rolling stock and fixed assets. Steve highlighted our record fuel efficiency this quarter. I will reiterate the team's great work to reduce engine idling and utilize fuel savings technology, both of which deliver greater value and the higher current price environment.

Looking to the fourth quarter. On a sequential basis, we expect the normal seasonal increase in PSMO combined with typical weather-related reduction in fuel efficiency. Overall, a consistent and consistent with past years, we would expect some step-up sequentially in the fourth quarter expense line as we enter the winter months. And while fuel volatility can create some near-term noise we expect to deliver year-over-year margin improvement above 350 basis points in the fourth quarter. We are building a culture of continuous improvement that positions us to deliver further safety service and efficiency gains in 2027 and beyond. This includes a robust pipeline of sustainable efficiency initiatives that we are now incorporating into our 2027 budgets with clear accountability for results.

With that, let me turn it over to Maryclare to review our revenue performance.

Maryclare Kenney

Thank you, Kevin, and good afternoon, everyone. Our commercial group continues to deliver in a favorable environment of solid customer demand and tight trucking capacity. The consistent network performance delivered by our operations team, together with the new services added capacity and growth initiatives we've brought online have positioned us well to take advantage of the opportunities in this market. Our performance this quarter was strong, and I want to thank everyone at CSX for helping us maintain the momentum.

Turning to Slide 10. Let's go through the highlights of our third quarter volume and revenue results. Total CSX volume was up 5% in the third quarter, Total revenue was up 12%, and our revenue per unit was up 7%. Fuel contributed about half of our revenue growth as average diesel prices increased nearly 50% year-over-year. Our Intermodal business continues to contribute the largest share of our volume growth. So mix remains a headwind to overall RPU. Even with that mix impact, revenue per unit, excluding fuel, increased 1% this quarter. We remain encouraged by the results of contract renewals as we progress throughout the year. In merchandise, revenue increased by 11% with a 3% increase in volume.

Merchandise RPU, excluding fuel, was up over 2% despite unfavorable mix in markets with the largest impacts within chemicals and fertilizers. Including fuel, RPU was up 8% year-over-year. Volume performance was more varied across our merchandise markets compared to the second quarter. Metals was the top performer, gaining 12% as fuel demand particularly plate, has been very good across infrastructure and energy markets. We're also benefiting from increasing output from the new steel mills located on our network that are ramping up at a favorable time.

Chemicals was also a highlight, with volume up 7% and driven by conversion and good opportunities in waste and petroleum products. In contrast, fertilizers has been the softest merchandise area for us, with volume down 13% for the quarter. The headwinds in this market have persisted for some time with supply issues, limiting phosphate shipments and low crop prices weighing on fertilizer affordability and demand. Reduced trucking availability, high truck rates and elevated diesel costs continue to benefit our Intermodal segment. Conversions from the highway remains strong, and the new service offering through Birmingham, Myrtle Wood, Baltimore and other areas are performing well and attracting new business. In areas such as Atlanta were substantial profitable volume growth has led to temporary service tightness. We're working closely with our operations team as CSX invests in additional capacity. Total intermodal volume was up 7% year-over-year and reached a new all-time record with revenue up 20% and RPU up 13%.

Essentially, all of the RPU increase was driven by fuel surcharge. As we've seen through '26, the domestic business drove this quarter while international remained roughly stable year-over-year. I'm encouraged by the outlook into the fourth quarter, although please keep in mind that we have now lapped the gains from the service agreement with BN that added new business last fall. Lastly, coal revenue increased by 10%, driven by a 2% increase in volume and a 7% increase in RPU.

Export tons grew by a solid 7% as mine output increased while domestic tons declined modestly during a relatively mild summer where natural gas prices remained around $3. On price, global coal benchmarks have moved higher this quarter supply constraints in China lifted pricing for Australian exports. This has gradually flowed to U.S. export prices, which provided a moderate benefit to our yields in the third quarter. We expect another small sequential RPU increase in the fourth quarter from the lagged effects of these higher benchmarks. As we move into the fourth quarter, we're pleased with what we've accomplished while working hard to finish the year strong. We expect normal seasonality in our merchandise markets with some support in ag and food from a good Midwestern harvest. We also have several capacity expansions scheduled to ramp up into year-end, particularly in chemicals and minerals.

Demand indicators remain good for domestic Intermodal, and we're pleased to enter the bid season with the benefit of full double-stack operations on our I-95 corridor through Baltimore. Finally, coal demand appears fairly stable in the near term. Utility burn will be driven by weather conditions. While on the export side, we've been successful in maintaining volume even as a customer mine works through a temporary closure following a fire in late summer.

To sum up, as we move into year-end and anticipate the start of 2027, our focus will remain on consistent execution, winning business from the highway and ensuring that our pricing reflects the quality of the service we provide.

Thank you, and I'll now turn it back to Steve to close.

Stephen Angel

Thank you, Maryclare. Now we'll review our updated guidance for 2026 on Slide 12. We now expect revenue growth in the high single digits compared to the mid- to high single-digit range we provided previously. The rest of our guidance is unchanged. I'm confident that we will achieve full year operating margin expansion of more than 350 basis points. Our outlook for capital expenditures remains below $2.4 billion. and we expect free cash flow growth of more than 80%. This outlook reflects our strong performance through the first 9 months of the year as well as our expectations for the fourth quarter.

As we move into 2027, we will be focused on ensuring we have sufficient resources across the network to support a growing business, which will include adding to our train and engine employee pipeline. We remain committed to sizing our workforce to the needs of a safe, reliable and efficient railroad.

In summary, we feel very good about our railroads position as we approach year-end and are encouraged by the opportunities ahead. I came to CSX just over a year ago, and I continue to be impressed by the dedication our employees bring to this company and the pride they take in being part of CSX. Together, we have made great progress towards our goal of being best-in-class as we build a high-performance culture that embraces continuous improvement. As we carry this momentum into 2027, we'll also mark CSX's 200 anniversary, tracing back to the founding of the B&O railroad. It is a significant milestone and an opportunity to recognize our history while showing how CSX continues moving the economy forward.

So Matthew, with that, I'll now open it up to questions.

Operator

[Operator Instructions]. And our first question comes from the line of Chris Wetherbee with Wells Fargo.

질의응답

Christian Wetherbee

Steve and team, obviously, the productivity that you've been able to drive so far in '26 has been very solid. We've seen meaningful margin expansion. You noted, Steve, as we're starting to think about '27 I know the productivity and the planning is going on for that year. Can you give us a sense of sort of where you think you are in the process? I think the OR improvement has been better than we expected this year. But as you look at the opportunity ahead of you, volume is growing. You noted maybe rebuilding the pipeline of employees. Can you give us a sense of what the potential productivity opportunity is from here?

Stephen Angel

Well, we're still working on it as you mentioned, but we already have a little over 100 initiatives that are contributing to our productivity target next year. Obviously, this year was a big year for productivity. I don't think '27 will be as big, but it will certainly be a significant number next year. But it's something we continue to work on. team's very excited about Kevin's playing a heavy role in that, and we feel very encouraged about productivity going into '27.

Operator

And our next question comes from the line of Brian Ossenbeck with JPMorgan.

Brian Ossenbeck

Maybe, Steve, we can just get your thoughts on the operating department and the structure going forward. Obviously, Mike's a big part of building out the bench there. Do you think this is like a dual COO type of role? Are you going to take on some additional operating responsibilities? Are you doing an external or any type of search? Maybe just give us some context in terms of how you got to this decision and how you're going to evaluate this going forward?

Stephen Angel

We'll continue doing what they've been doing. And Casey has been in charge of network ops and service design, and Doug has been in charge of engineering and mechanical and transportation. So they'll continue doing what they have been doing. They're just going to report directly into me I look forward to that. I don't know how much most of you know about my background, but I most think can be as an operating CEO and that's what I'd like to do if you go back into my early days, I actually ran manufacturing operations for GE and I installed one of the first lean production systems in the United States back in the 90s. So operations always have been in my blood. And I look -- I'm not a lifelong railroader like a lot of people, but operations is in my blood, and I look forward to getting more involved with Doug and Casey. Casey, again, 30-year veteran the CSX started off in dispatch. Doug had 4 decades at CN doing just about every job inside of operations and he's been with us the last couple of years and that they both do a great job. So I look forward to working very closely with them.

Operator

And our next question comes from the line of Stephanie Moore with Jefferies.

Stephanie Benjamin Moore

Thanks for the question. Really appreciate it. I would say I wanted to take a step back. I think there's a lot of really strong top line momentum that we're seeing here. Clearly, we can all see this on the volume front. I think we can all see the fuel contribution. But as you think about just the pricing opportunity, even ex fuel. Maybe help us understand how we're thinking about that opportunity in 2027. Clearly, inflationary pressure even beyond just the transportation environment or more top in center of these at this point in time. So I'd love to get your thoughts on just pricing as we look into 2027.

Unknown Executive

Yes. Thanks for the question. I'd tell you pricing really remains a key focus area for the team. We've talked about that a lot this year. As Steve mentioned on previous calls. We're really taking a surgical approach to pricing. You mentioned inflationary pressures. We recognize those. We're having conversations around that with customers as we go through the renewal process. I would say, as a reminder, we can't touch every contract every year, but we are focused across markets. We still expect for this year, our same-store sales pricing to be stronger than it was last year. And I would tell you, we have seen discretionary pricing on the merchandise accelerate as we move throughout the course of this year.

Operator

And our next question comes from the line of Scott Group with Wolfe Research.

Scott Group

Thanks. So Steve, I think in the past, you said that you don't like plan for growth. But we're -- this is going to be our third year in a row volume growth, which I actually don't think has ever happened at CSX before, at least back to like. So I guess what's the sustainability of this in your mind? And what does this mean for the network? Are we handling this well? Do we need more people? Do we need more locomotives? And is this -- as you continue to get volume growth? Is this just a sort of a further opportunity for productivity if we get to continued growth.

Jeffrey Kauffman

Well, I'm encouraged by all of our growth initiatives that Maryclare and the team are driving. And it looks to me like we have some momentum on the growth side. I think you're correct. What I've said before is when I look at the types of earnings per share growth I want to drive, I generally assume modest volume growth. And that generally is the case. But again, as I look at what's going on here with all the initiatives, it looks pretty positive going into next year.

With respect to our ability to handle the volume, we feel very confident we can handle the volume. We are adding some headcount. I think Kevin said that in his remarks on the T&D side to make sure that we were properly manned to from an operating standpoint, a transportation standpoint to serve the business that we have and the business and the additional volumes we expect to come. So again, encouraged by the initiatives that are underway, and I think we're going into the year from a pretty good position on the top line and we'll be ready to serve that business.

And our next question comes from Tom Wadewitz with UBS.

Thomas Wadewitz

I wanted to get a sense if you could provide some help on the key pieces of intermodal volume growth. And then give us a sense -- domestic , to be clear, domestic intermodal volume growth and then just how we think about how much runway is left, whether it's available boxes in UMAX or whether it's just kind of how far the service has progressed on, let's say, Southeast Express with CP. But I just -- I guess I think of the MAX kind of new services related to Howard Street and things you could do as that was debottlenecks and then maybe CP Interline is potentially specific drivers. But if you could run through what are kind of the biggest drivers on domestic intermodal. And is there still a lot more to go in '27?

Stephen Angel

Yes, sure. Thanks. So domestic has really driven our growth this year. International has been kind of relatively flat in particular in the recent quarter. What I'd say on the domestic side is we've got a number of initiatives out there. The team we've talked about on previous calls, the work the team has done in relation to SMX and Howard Street Tunnel. And so in both places, we continue to see volume growth, and we've been very pleased with that over the course of this year. SMX has been in play longer than Howard Street.

We finished the work around the tunnel in the full double-stack clearances after we were through the majority of bid season this past year, so we have seen momentum build on Howard Street, but we're excited about getting into next year's bid season, which is really starting right now and having that solution and kind of more of the RFPs and the routing guides as we go forward.

Beyond the new solutions, we're working closely hand-in-hand with our channel partners and then to our national accounts team directly with shippers to look at opportunities for truck conversion. Truck capacity has obviously tightened pretty significantly over the course of the last couple of quarters. And we have customers that are existing customers today, they're continuing to look to rail to move more of their business to an intermodal solution because of what they're seeing in the truck market. So we're very optimistic about the opportunities that are -- that continue to be in front of us as we close out this year and go into next year on the domestic intermodal side.

Operator

And our next question comes from the line of Brandon Oglenski with Barclays.

Brandon Oglenski

Here. Kevin, I know you spoke to guidance for, I guess, greater than 350 basis points improvement in the margin in the fourth quarter. But how do we think about that sequentially? I think you did give some detail on headcount PSO.

Kevin Boone

Yes. Thanks, Brandon. When you think about third quarter to fourth quarter, there's typical seasonality in that. We're hitting the winter month. So you'll see PSO typically move up a little bit. On the labor side, as you move into vacations, heavier vacations around holidays, other things, capital programs move off, you'll see a little bit of labor costs come in. But that's typically normal seasonality. So if you look back after the last 3 to 5 years, 200 to 300 basis points of margin degradation from third quarter to fourth quarter. Obviously, all the initiatives we're doing, we're looking to offset as much of that as we can. But there is normal seasonality that we will see and we anticipate on both of those cost line items.

Operator

And our next question comes from the line of Jonathan Chappell with Evercore ISI.

Jonathan Chappell

Thank you. I don't know if is on the call. And if not, I guess, someone else can answer it. But Maryclare mentioned some temporary issues in Atlanta. We watched the weekly data. It looks like there were some ebbs and flows as the volume remained strong through the third quarter. How do you feel, as you're stepping away about the resourcing, not just of labor, we've talked about headcount, but all the different things that go into, if we do have a peak season and a cyclical recovery for the next couple of quarters, do you feel that you're operating efficiently enough and can add resources on a less than one-for-one basis to keep those service metrics or you'd like to keep them throughout the year?

Stephen Angel

Yes. So what we're doing -- and again, we mentioned -- this is Steve. What we mentioned was coming out of the third quarter. Third quarter was improvement over the second quarter. October is an improvement over the numbers you're seeing in the third quarter. But the focus is this on the service side. We continue to refine our capacity plan, including positioning of resources based on the expected demand, and we do that working very closely with Maryclare organization. Better planning and coordination between engineering and transportation is creating less disruption on our network, which gives our ops team more freedom to operate.

We've been investing in capacity where needed. And Atlanta is a good example of that, where we've seen a 50% increase in volume over the last 3 years. And we're investing in track infrastructure to increase our switching and processing capacity by 50%. And of course, good crew management as part of the equation to improve T&E availability in addition to adding a modest number of T&E headcount. So that's what we're doing.

Operator

And our next question comes from the line of Ken Hoexter with Bank of America.

Ken Hoexter

Kevin or Steve, PSN dipped 400 basis points year-over-year, maybe even more than you thought. Maybe talk about some of the specific programs or just such a great achievement. How structural is this, what goes on? Because mean we've seen waves at CSX of market improvement, then there was slippage before you got there, Steve. So just wondering how you do that. And then in that 350 basis point target, if you're continuing to do this improvement, you did a 400 basis point improvement 3Q to 4Q. I guess, Kevin, is there any reason you could or could not do the same level of improvement in the fourth quarter year-over-year?

Kevin Boone

Ken, yes, look, part of the guidance for the fourth quarter is we've seen some extreme volatility on the fuel side, right? So when you think about the third quarter, we had peak diesel prices and coming into the quarter, that accounted for probably a little over 100 basis points of margin pressure versus what we had expected coming in just from the fuel price increase. So we're looking to eye on that. We'll have better clarity as we move through the quarter on there. But in terms of PSO, specifically, I would say the first area is we always look at are the costs that we're paying others outside of CSX.

And I have to give a lot of credit to the team, the procurement team, the operations team, to really take a closer look at those costs that we're paying and really, some of those that we've in-sourced, other terms, we're challenging those costs and getting better rates through our suppliers, but it's across the board. And whether it's vehicles, whether it's equipment, asset utilization, a big, big focus on the asset utilization side, just rates in general, as I said, external labor rates, we really look closely at and making sure there's a level of accountability when we're paying others on the outside. And in terms of the pipeline, as Steve talked about it, over 100 initiatives already. We started in the second quarter. I think it's the earliest we've ever started in my 9 years here at CSX in terms of thinking about the next year. We're really building that muscle and building a continuous improvement kind of mindset around here.

In fact, we're already thinking about '28 as well as we think about '27. So we're a deep bench. I would also say on the technology side, that's another area where I just see a lot of opportunity to provide greater resources, greater clarity in terms of where the spend is. And we're seeing some early signs of that. I would say some more to be done in the next year and those visibility tools allow the leaders out there to really identify costs and go after them. But it's across the board, great job by the team, and there's a lot of ownership across the organization for it.

Operator

And our next question comes from the line of Dan Moore with Baird.

Daniel Moore

I can't remember if it was, Tom or Chris, that asked a question on Intermodal earlier in the call. But maybe as a follow-on to that, pretty rare environment that we find ourselves in right now, specifically as it relates to domestic intermodal. And the spread between highway to rail costs is probably as great as I've ever seen it in the last 30 years. With that in mind, recognizing that domestic intermodal tends to be a higher touch in terms of renewals and that it could be a fairly meaningful driver of yield moving forward. Could you maybe just spend a minute refreshing our memories on how you approach a market like this and the potential impact it might have going forward.

Unknown Executive

Sure. Happy to. So on intermodal, just as a starting point, we got to remember that the business is split between domestic and international. And so maybe just starting on the questions around domestic. But on the international side, that is an important part of our overall Intermodal portfolio. I think I've mentioned it before, a lot of that business is contracted under multiyear deals that have fixed adjustments. And I would say it is not highly correlated to the trucking market, like you see on the domestic side.

On the domestic business, it's a mixture of how our contracts are structured. I would say we think about domestic bid season. It's kind of starting right now for 2027, I think you've heard from us, you've heard from others over the course of this year that the truck market inflection that occur, the tightness in capacity really started after we were good ways into the 2026 bid season. And so there is a lag effect to that. Certainly, as we're looking at new renewals on annual contracts, which we see a lot in our rail asset product, we're going to price to the market. We're taking into account what's going out there going on out there. We're looking at capacity. We're looking at the value of the service that we provide. We have other business, though, that isn't necessarily on an annual application. And so we will manage that and make sure we're continuing to price to the value of the service as those come up for renewal.

Operator

And our next question comes from the line of Ari Rosa with Citigroup.

Ariel Rosa

Congrats on some strong results here. And also congrats to Mike on his retirement. I was hoping you guys could speak quickly about just the rail partnerships the progress there, the level of volumes that you're seeing across some of the partnerships with BN and CN and CP. And how you're thinking about that particularly in the context of the opposition that you've announced to what UPS is proposing and how you see the partnerships reflect as kind of a downward weight to some of the issues that they've raised.

Maryclare Kenney

Yes. So I've talked about it before. I spent a lot of time in my career here on the intermodal side of the business. And I would tell you, it's been common practice for CSX to work closely with our interline partners, to try to find new and, in some cases, better solutions for our customers. So that's nothing new for us. We've done this kind of year in and year out. We're always looking for ways across our lines of business, but I would say, in particular, when you think about intermodal, trying to find solutions that improve transit and improve reliability for our customers. And so we're committed to continuing to do that. We've been happy with the results we've seen with the partnerships we formed over the last several years, and we'll continue to work on this going forward.

Operator

And our next question comes from the line of Walter Spracklin with RBC Capital Markets.

Walter Spracklin

I've got a question here for Kevin. And this is really on the cost side. And I know if we look back at second quarter, both truck and rail had pretty good quarters there. But here in the third quarter, we've seen some warnings in the truck segment, mainly on the back of higher costs. And I guess, truck is going to be more exposed to fuel costs and labor costs and that might explain the difference in the relative cost experience that you're seeing relative to truck.

But -- of fuel, is there anything you're seeing in terms of cost pressure that worries you going into 2027. Anything that's popping up on the labor side with any of the -- obviously, we're seeing driver shortages, but are you seeing any shortages on your end in terms of your attempts to hire. Anything on the cost side that's keeping you awake at night as we look into 2027.

Kevin Boone

Yes. Thanks for the question. I spent a lot of team with time with the quality team here recently and book the same driver shortages across the market. They're experiencing that. That should be obviously a good demand environment, and that's something that we've talked at length about -- to put it bluntly, quality has a lot of opportunity, right? And there's a lot of opportunity on the cost side, and there's a lot of opportunity to price to the market. And so we're looking at all of those opportunities. We'll be meeting here next month to put together the 2027 plan.

But I expect some improvement as we move into next year in that business. Driver recruitment is going to be a big focus of that team, but also driving costs out of the business. And then the pricing side as the market turns and there's limited capacity, quality, in particular, should be benefiting from that.

Operator

And our next question comes from the line of Vaske Majors with Stephens.

Unknown Analyst

Can you talk about the tests you guys are doing on the 0 to 0 fuel savings technology -- what are you getting in the field? What's your sense of the path to FRA approval there? And is any of that productivity factored into some of the comments you made about opportunities in 2027?

Unknown Executive

Yes. I mean we've been using Trip Optimizer for some period of time, and we've seen benefits in terms of fuel efficiency from that, what you're mentioning is the 0 to 0, which is start to stop. And that is partially implemented. We continue to work through the test process with FRA, and I would expect eventually that will be approved, and we'll be able to take that capability across the entire fleet.

Operator

And our next question comes from the line of Jason Seidl with TD Cowen.

Jason Seidl

Thank operator, and in here. First of all, definitely shout out to the operations team there, impressive quarter and congrats on the retirement there to Mike. Maryclare, questions to you. I know a lot has been said about intermodal and the opportunity there. But obviously, a tighter truck market and higher fuel cost out east also presents an opportunity for your carload business. Maybe you could talk to a little bit about that and what your team is doing to sort of go after that freight.

Maryclare Kenney

Yes, absolutely. I would tell you, we're working on opportunities across our markets, and we've certainly seen as truck capacity has tightened additional opportunities over the course of the last quarter. I think a great example in the impact in terms of business trends is in our Forest Products segment. So we came into this year, that was one of the areas we were most concerned about, quite frankly, because we saw quite a few closures on the paper and pulp side last year. And then obviously, the segment is very tied to housing, which we all know has been lackluster for an extended period of time. while we really have not seen any improvement in the demand side of the equation in that market, the team has done a really nice job as we've seen truck capacity tighten. This market is -- does have a lot of truck utilization. And so with both our building products, shippers as well as our paper shippers working with them to identify new solutions that we can deliver and increase capacity that we can provide to help support their needs. But we're really doing this across markets as there's -- as opportunities present themselves and feel optimistic about that as we close out this year and go into next year.

Operator

Our next question comes from the line of Ravi Shanker with Morgan Stanley.

Ravi Shanker

Just a housekeeping here. The other revenue line was pretty strong this quarter. I just wanted to see if there were any unusual items there? And kind of what do you think of the run rate of that line going forward?

Kevin Boone

Yes. The biggest drivers of that upside that we saw in the third quarter really related around the in-transit reserve and then a little bit higher in intermodal storage costs as you've seen that market tighten. As you look at the fourth quarter, when you look at the average for the year, we've been averaging in the mid-30s per quarter when you average it, we'll probably do a little bit better than that in the fourth quarter, depending on intermodal continuing its tightness in some other areas, but around that level.

Operator

And our next question comes from the line of David Vernon with Bernstein.

David Vernon

So Maryclare, within the carload business, back in June, you guys have turned on fuel surcharges for the carload business, I think. Can you share how much incremental fuel revenue that tariff traffic sort of generated with the introduction of those surcharges for the third quarter?

Maryclare Kenney

Yes. I don't think we're going to put a precise number out there. I would say just across the board, we're making sure as fuel costs have gone up that we're being thoughtful about that and have that conversation with the customers, and they understand they're seeing similar impacts on the trucking side.

Operator

And our next question comes from the line of Richa Harnain with Deutsche Bank.

Richa Talwar

So another one for Maryclare, you're getting so much air time call Mary. So I just wanted to ask, you mentioned customers looking to push more growth to intermodal. I think we all see that and you're finding more conversion opportunities. I guess, what are the biggest issues or bottlenecks to picking up this growth from customers that maybe are not so eager, what is left to solve to make this more seamless? And I guess, what more do customers want? And how are you ensuring that the growth is sticky and if TL rates begin to fall, that won't lead to an unwind of some of this tailwind.

Maryclare Kenney

Absolutely. So I'll maybe start with the tail end of the question. I think customers see the value of rail in all environments, but it's accelerated. Certainly, as you think about where fuel prices are today and where capacity is, I think what's important and what I've seen since the 15 years that I've been here is the most important thing to customers is consistent and reliable service. And so that's why there's so much effort and work between my team and operating team to ensure that as we're converting business, we're making sure we're delivering a good service product to our customers so that it's long term and it's sustainable.

When I think about what -- as I think about the conversion opportunity, there's certainly a lot of interest right now with what's going on in the broader market. Sometimes it's education with the customers, making sure they understand where there's opportunity to convert. We do have a national accounts program from an intermodal perspective where we engage directly with the shipper. We'll look at their truckload file confidentially for them. We'll evaluate the truckload load file and show them where there's lanes that are opportunities for intermodal conversion and then give them visibility to what service looks like in those lanes. So they have more comfort in terms of transitioning that from truck to rail.

As I think about the cycle that we're in right now, I know questions have been asked about box capacity chassis, all of those things, I think the area that we're keeping the most focused on right now is the drayage driver. And so you've heard from some of our channel partners, there's a lot of focus there. There's been an effort in terms of recruiting additional drivers. I would say, as you think about the broader market, obviously, driver capacity is challenging over the road. The benefit on the drayage side is it's a more efficient move. You can make more terms in a given day. And so I think there's more opportunity there as we go forward.

Operator

And our final question comes from the line of Jeff Kaufman with Citizens Bank.

Jeffrey Kauffman

Congratulations on a very solid quarter. Kind of a follow-up, actually, I'll give Maryclare a break and then go back to the operations team. a lot of productivity improvement and safety improvement this quarter, can you give us an idea of where you'd like these metrics to be within, say, 12 months, 24 months? And what that could mean in terms of driving incremental operating ratio if you're able to hit those targets?

Unknown Executive

Well, I think in terms of continuous improvement. As I look at the safety metrics, as I look at our operating ratios, operating margins, everything, I think in terms of what can we do to improve. And we have a whole company that's dedicated to that. Kevin alluded to the fact or I did earlier, that we have a little over 100 initiatives that we're working on '27 productivity now. We're starting to work on '28, too. So to me, it's all about driving productivity. It's all about continuous improvement. It's all about improving our safety metrics, our service metrics, our financial metrics so that we can be best -- deliver best-in-class performance and best-in-class performance for our employees, for our customers and for our shareholders.

Operator

And ladies and gentlemen, this concludes our question-and-answer session and today's conference call. We thank you for your participation, and you may now disconnect.