Trains top stories for 2018: No. 2, Precision Scheduled Railroading NEWSWIRE

A year ago, three of the Class I railroad systems — Canadian National, Canadian Pacific, and CSX Transportation — were operating under the late E. Hunter Harrison’s Precision Scheduled Railroading operating model.

Now the lone holdout among the seven Class I railroads is BNSF Railway, as Union Pacific, Norfolk Southern, and Kansas City Southern have all announced that they, too, would be adopting their own versions of PSR.

The spread of the operating philosophy — which focuses on efficiency and the intense use of assets such as locomotives, freight cars, and train crews — can be traced to the quick financial turnaround at CSX.

In the second quarter, CSX reported a record-low operating ratio of 58.6 percent. Wall Street took notice of CSX’s worst-to-first performance. And during second-quarter earnings calls analysts asked UP and NS — which had just reported record financial results — why they couldn’t be more like CSX.

UP CEO Lance Fritz and NS CEO Jim Squires both said, in effect, that they believed in their current operating plans and strategies and were confident that they could turn around their railroads’ sluggish operating performance.

By fall, they had changed their tune.

UP announced in September that on Oct. 1 it would begin implementing its own version of PSR. The goal, UP said, was to cut costs, boost profitability, and improve service.

But by rolling out changes slowly and in phases, UP aimed to avoid the disruption, shipper complaints, and increased regulatory scrutiny that accompanied Harrison’s rapid fire implementation of PSR at CN, CP, and CSX.

So far, UP says its operating changes are going smoothly. Shippers, connecting railroads, and federal regulators agree that UP has been able to avoid disruptive change.

NS followed suit during its third-quarter earnings call in October. And like UP, NS said it would gradually implement operating changes to minimize the potential for disruption. NS was making operational changes much more gradually than UP and planned to provide more details on its shift to PSR during an investor day scheduled for February 2019.

The NS announcement was a turnabout for a railroad that in 2015 and 2016 had called PSR a short-term, cut-to-the-bone strategy as it successfully fended off unwanted merger advances from the Harrison-led Canadian Pacific.

KCS, in its third-quarter earnings call, said it would likely have to adopt PSR principles because major interchange partner UP was moving to the operating plan.

KCS, the smallest of the Class I railroads, is heavily dependent on UP: It relies on a combination of trackage rights and its own rails on the cross-border corridor between Beaumont and Laredo, Texas. And UP accounts for more than half of the traffic that crosses the International Railway Bridge at the Laredo gateway bound to and from KCS de Mexico.

CP CEO Keith Creel — who as Harrison’s protege and successor is now the torchbearer for PSR — in October said the spread of the operating model made Class I consolidation more likely.

For the astounding success of a once vilified operating plan, the rapidness with which Precision Scheduled Railroading took over the North American railroad industry, and because the operating model went from a relatively unknown phrase to a well-used acronym in just a few years, Trains editors name Precision Scheduled Railroading the No. 2 story of 2018.

Read editors’ other Top 10 stories of 2018 online:
Trains Top stories for 2018: No. 10, Giants of RAIL PHOTOGRAPHY pass on
Trains Top stories for 2018: No. 9, Station Restorations
Trains Top stories for 2018: No. 8, Indiana Transportation Museum woes
Trains Top stories for 2018: No. 7; Fires, Floods, and Weather
Trains Top stories for 2018: No. 6, Runaways
Trains Top stories for 2018: No. 5, Bush funeral train
Trains Top stories for 2018: No. 4, positive train control