CSX’s Labor Deal with Locomotive Engineers: A Step Forward, but Risks Remain

The recent tentative labor agreement between CSX Corporation (NASDAQ: CSX) and the Brotherhood of Locomotive Engineers and Trainmen (BLET) marks a critical milestone in the railroad’s efforts to stabilize its workforce. However, lingering risks—from unresolved negotiations with its largest union to operational headwinds—suggest investors should temper optimism. Below, we analyze the implications of the deal and the challenges that could derail CSX’s recovery.

The BLET Agreement: Progress, but Not a Panacea

On May 9, 2025, CSX announced a five-year tentative labor agreement with the BLET, covering approximately 3,400 locomotive engineers (20% of its frontline workforce). Key terms include competitive wage hikes, improved healthcare benefits, and work rule changes to enhance predictability and quality of life. If ratified, the deal would bring nearly 75% of CSX’s unionized workers under new contracts within the past nine months—a significant step toward labor stability.

The agreement’s structure aligns with prior deals CSX struck with 13 other unions, signaling a strategic shift toward standardized terms. As CEO Joe Hinrichs noted, the pact reflects CSX’s “transformational approach” to collective bargaining. However, ratification remains pending, and the deal’s effectiveness hinges on resolving the critical impasse with the SMART-TD union, which represents 6,000 trainmen/conductors.

Market Reaction: Muted for Now

Investors have been largely unfazed by the BLET agreement. CSX’s stock price has hovered around $28.05 since the deal’s announcement, roughly 14.5% below the consensus price target of $32.81 (as of May 2025). While the agreement reduces near-term strike risks, broader concerns—including weak financial performance and unresolved union talks—keep the stock anchored near its 52-week low of $26.22.

Analysts attribute the muted response to several factors:
1. SMART-TD Negotiations: A failure to reach an agreement with SMART-TD by December 2025 (the Railway Labor Act’s deadline) could trigger strikes costing $1 million per day in lost revenue.
2. Earnings Pressure: CSX’s Q1 2025 results saw EPS drop to $0.34 (below estimates) and revenue fall 7% YoY to $3.42 billion. Declining coal shipments (down 27% YoY) and infrastructure bottlenecks, such as delays at the Howard Street Tunnel, amplify profitability challenges.
3. Cost Pressures: While the BLET deal aligns with prior agreements, rising labor costs require offsetting efficiency gains through Precision Scheduled Railroading (PSR). CSX’s current operating ratio of ~75% remains elevated compared to peers like Union Pacific (68%).

The SMART-TD Stakes: The Final Hurdle

The BLET agreement alone cannot secure CSX’s operational stability. The unresolved SMART-TD negotiations remain the biggest wildcard. In late 2024, SMART-TD rejected an initial proposal over concerns about job security and geographic reassignments. CSX insists that consolidating regional seniority into a single system would improve efficiency, but workers fear it could erode job stability.

A breakdown in talks could force CSX into a costly strike, especially if other unions honor picket lines. The stakes are high: SMART-TD represents nearly 40% of CSX’s unionized workforce, and a prolonged disruption would exacerbate financial strain.

Operational and Strategic Challenges

Beyond labor, CSX faces significant operational hurdles. The Howard Street Tunnel delays and declining coal demand (a once-major revenue driver) highlight the need for diversification into higher-margin sectors like intermodal and chemicals. CSX’s five-year plan targets 3.1% annual revenue growth, with earnings projected to hit $3.8 billion by 2028—up from $3.24 billion in 2025.

However, execution risks persist. The company’s reliance on coal—still 15% of revenue—exposes it to cyclicality, while PSR gains remain unproven. Investors will scrutinize CSX’s ability to lower its operating ratio and improve network efficiency through infrastructure investments, such as the Howard Street Tunnel upgrades.

Conclusion: A Fragile Path to Recovery

The BLET agreement is a positive step, reducing strike risks for 20% of CSX’s critical workforce and signaling progress toward labor stability. However, the stock’s muted reaction underscores lingering doubts. Key risks include:
- SMART-TD negotiations: A failure to resolve terms by December 2025 could trigger a strike, costing ~$1 million/day.
- Financial performance: CSX’s Q1 2025 EPS of $0.34 and 7% revenue decline highlight vulnerabilities.
- Operational execution: PSR must deliver cost savings to offset rising labor expenses and declining coal volumes.

Investors should monitor two critical catalysts:
1. SMART-TD agreement ratification: A resolution by year-end would alleviate strike risks and boost confidence.
2. Operating ratio improvement: A sustained reduction to ~70% or below would signal successful cost discipline.

Until these milestones are achieved, CSX’s stock is unlikely to close the $4.76 gap between its current price (~$28) and the consensus target ($32.81). While labor stability is advancing, the path to sustained recovery remains fraught with uncertainty.

Final Takeaway: The BLET deal reduces near-term strike risks but doesn’t erase the need for CSX to resolve SMART-TD talks and demonstrate PSR-driven efficiency gains. For now, the stock’s valuation reflects these unresolved challenges.