That’s the conclusion of railroaders, industry analysts, and shippers who spoke at the North East Association of Rail Shippers conference last week.
The rocky implementation of PSR at CSX Transportation under E. Hunter Harrison looms large in the memory of shippers, regulators, and the three Class I railroads that are shifting to PSR-based operating models.
Cowen & Co. analyst Jason Seidl, who serves as NEARS president, says if this round of PSR implementation creates massive delays for shippers, as it did temporarily at CSX in the second half of 2017, the industry runs the risk of having new regulations imposed by the Surface Transportation Board.
“Every trade association has a press release already written about poor service … they’re just waiting to date it,” says independent analyst Anthony B. Hatch of ABH Consulting. “The STB is already ready to open that envelope. They’re ready to have a hearing.”
Norfolk Southern Chief Marketing Officer Alan Shaw says the railroad aims to grow during its shift to PSR and will make changes slowly to avoid service disruption. NS also has increased the frequency of local service, which reduces congestion and helps make service more reliable.
Federal regulators understand this approach, Shaw says, and STB reaction to NS’s plans has largely been positive.
Gil Lamphere, a railroad financier who has served on the boards of Illinois Central, Canadian National, and CSX, last fall discussed Precision Scheduled Railroading with members of the STB, who are concerned about potential service impacts as well as the industry’s focus on the operating ratio.
Federal regulators are watching carefully as some Class I railroads cut back on capital spending and return money to investors in the form of share buybacks, Lamphere says. Some railroads also have reduced intermodal service in low-volume lanes and de-marketed less profitable merchandise traffic.
“You don’t abuse monopolistic power from land that was given to you in the 1850s for a right of way,” Lamphere says.
The industry is at a crossroads, Lamphere says. The future of railroading is not about the size of each railroad’s slice of the transportation pie.
“It’s making the pie bigger,” Lamphere says.
CN realizes this, he says, and is investing in capacity and technology that will enable it to grow.
Under PSR, railroads try to closely balance locomotive, crew and freight car fleets to current traffic levels — which can make railroads less resilient after bad weather, serious derailments, or unpredictable swings in volume.
Shippers urged railroads to keep a buffer of extra locomotives, crews, and cars on hand so that they can maintain service in the face of unpredictable events.
“In the long run, much of this is very, very necessary for us to accomplish in this industry, but how you do it and how quickly you do it is the watchword,” says Eric Jakubowski, who worked with Harrison at CN and is now chief operating officer of shortline holding company Anacostia Rail Holdings.
Shaw said NS would be putting the cart before the horse by making service changes, then adjusting resources only after the railroad sees efficiency gains.
“We’re going to get service right first,” Shaw says.
Service is key for an industry that has endured self-inflicted service problems during the past two years as the network has slowed down.
“The service product has to get more consistent. And hopefully PSR can do that,” Seidl says. “And then you can see gains on the intermodal and merchandise side.”
Todd Tranausky, a rail and intermodal analyst with FTR Transportation Intelligence, says it’s too early to measure how well railroads are doing with their PSR conversions, particularly considering how harsh winter weather in February, followed by flooding in March, affected Union Pacific and BNSF Railway.
Overall industry data — from train speed and average terminal dwell to things such as freight car utilization and carload volume trends — are inconclusive thus far, Tranausky says.
Service levels will ultimately determine whether railroads gain carload and intermodal volume or continue to lose market share to trucks, Tranausky says.
Current freight trends are stacked against railroads, he points out.
From 2012 to 2017, there was a significant increase in the percentage of freight moving less than 100 miles, a distance traditionally outside the realm of railroads. And the 10 commodity groups that are shrinking the fastest tend to be hauled by railroads, while the 10 fastest-growing commodity groups tend to be hauled by truck.
“If Precision Scheduled Railroading can delivery service and efficiency benefits consistently, then you will see more time-sensitive truck freight move into intermodal,” Tranausky says.
If not, shippers say they will be forced to use trucks even more often.
For those who believe trucks pay their fair share of user taxes, when have you seen a J B Hunt snowplow crew clearing snow, or how about roadway washouts. Has one ever seen Roadway Yellow working on the road repairs? How about new roads. Have anyone seen a UPS construction contractor building new highways? As for the Highway Trust fun, it is $ 100 billion in the red. As for those taxpayer funded rail projects, they are few and far between. The railroads pay far more in state and federal tax than they get in return.
Austin Priest, trimming fat is what railroads did in the 70’s and 80’s because they were a dying industry because of over-regulation and decades of underinvestment. What we see today is slashing through muscle and bone of what was a relatively healthy industry. You have no idea how Harrison screwed-up CN operations when he implemented what is now known as PSR, and even today, nearly two decades later, CN falls on its face as soon as there is an inch of snow on the ground (who would have thought they have snow in Canada?), holding trains for crew and power and delaying shipments by several days (and so long for that supposed better service). Right-sizing the plant for today’s traffic may sound right, but as the article said, tomorrow’s traffic will not move according to the same patterns as they are today. Thus, as they get rid of unwanted traffic, and willfully fail to capture new traffic to replace lost traffic (that would create an ‘unbalance’ in the system, you know), you can clearly see why the railroad industry may no longer be around within a few decades.
Will somebody please get a message to the damn wall street analysts and hedge funds to stop trying to micro-manage businesses they know nothing about???? That’s where this whole mess started.
Cutting business, losing existing customers, laying off employees, closing yards / shops and destroying future growth opportunities…….that is the legacy of psr “Pretty Screwed Railroad”
When roads get clogged by trucks politicians respond by building more capacity to move people. What happens when railroads get clogged, the railroad chases business away. Result more roads not railroads.
There isn’t a week that goes by without a railroad being gifted with grant money from us taxpayers, whether it is a flyover or a tunnel clearance project or a new bridge, taxpayer money is flowing to for-profit railroads. So people need to stop saying that trucks are subsidized and railroads are not. And lets not forget the higher road use taxes truckers pay.
PSR requires that railroad CEOs be high wire artists extraordinaires. They need to be running no more equipment with no more crews than are needed, but they cannot reduce their employees or their equipment to the point that they cannot easily grow new business. If they cut too far, they won’t be able to respond to surges or emergencies and especially not to new business. In a certain sense, they have schedule and run very efficiently, meeting all their promised service levels. At the same time, however, they have to have spare equipment and crews. In other words, they must allow inefficiency in equipment and crew levels to permit future growth. Nonetheless, certainly the cutback in intermodal and merchandise lanes is not a good sign that the railroads are future oriented.
JF Turcotte I disagree with your statement. What the railroads are doing is trimming the fat meaning getting rid of things that are not essential for running the railroad. If you can’t make your business run more efficiently enough, you might as well go out of business therefore everyone loses their jobs.
“If Precision Scheduled Railroading can delivery service and efficiency benefits consistently, then you will see more time-sensitive truck freight move into intermodal,”
No you won’t. Because PSR-ized railroad are busy getting rid of existing traffic, and are not interested in capturing new traffic. It’s just a going-out-of-business strategy. Lucky for CN that EHH decimated CP’s customer base starting in 2012, so it was able to partly undo the damage made between 2000 and 2009.
Re: Current freight trends are stacked against railroads, he points out.
Not to mention private capital competing with public capital. For every buck the railroads invest to capture one truck off the highway, there’s more FREE capacity on the highway for OTHER trucks. It’s a no win situation for railroads.
Maybe it’s time to unload the railROAD infrastructure on the government to level the playing field.
It seems everybody but the railroads has figured out how to run a good infrastructure scam on the government.
It’s time to get-a-move-on or all the PSR in the world isn’t going to help in the long term.