UPDATE 2-CSX CEO apologizes for problems, customers demand improvement

(Recasts with comments from major CSX customers)

Oct 11 (Reuters) - CSX Corp's chief executive apologized on Wednesday for lengthy service disruptions as some major customers said the No. 3 U.S. railroad needs to improve its operations and outline plans for network upgrades.

CEO Hunter Harrison defended his vision for improved efficiency at CSX, something he calls "precision scheduled railroading," as he appeared before a hearing of the U.S. Surface Transportation Board (STB) in Washington.

The STB announced the public hearing in August after customers complained of multiple service issues, including longer transit times, unreliable switching operations, inefficient car routings and poor communications with CSX customer service.

Harrison, appointed to the job in March, said his strategy was critical to his turnarounds of two Canadian railroads - Canadian Pacific Railway Ltd and Canadian National Railway Co.

Since he took over, Harrison has rapidly closed CSX rail yards, lengthened trains, mothballed locomotives, and slashed overtime pay and hundreds of jobs. He also changed the way rail cars are sorted in yards and replaced "unit" trains carrying a single commodity like coal or grain with trains carrying diverse freight.

"If I don't accomplish anything else today, I want to apologize to our valued shippers," Harrison said.

"Whatever problems we've had, we've had internally, we've made some mistakes, this is not a failure of precision scheduled railroading."

CSX's service disruptions have created costly logistical headaches for companies ranging from the chemical and agricultural sectors to the automotive industry and steel producers. All have supply chains, plants and distribution channels that rely on CSX's rail network across the eastern United States.

Under questioning from STB board member Ann Begeman, Harrison insisted that the "worst is over and the best is right around the corner." He said his turnaround plan has been implemented throughout CSX's system but still required "fine-tuning." He also hinted at more possible layoffs and other yard changes.

Wednesday's hearing marked the first public forum for customers to air grievances and give Harrison the chance to defend his strategy. The STB has been reviewing CSX's performance weekly and talking to senior management for months.

Representatives of global commodities trader Cargill Inc asked the STB to publish minutes of its weekly calls with CSX management, and asked CSX to add resources back to its network.

Chemours Company asked the STB to force CSX to file a "flight plan" outlining future system changes and how they will affect shippers.

In what could be a potential threat to CSX's revenues, Chemours also called for changes to federal regulations to allow shippers served by CSX to gain greater access to other operators.

A variety of trade groups due to speak on Wednesday have called on Congress to make it easier for shippers to file formal complaints about CSX and its problems keeping trains running on time.

Dow Chemical Co's supply chain Vice President Greg Jozwiak urged the STB at the hearing to improve rules to expedite relief when disruptions arise.

"The reality is the procedures take too long," Jozwiak said. "We need a service remedy counted in days, not weeks or months." (Reporting by Eric M. Johnson in Seattle; Editing by Frances Kerry and Tom Brown)