The three railroads have stored thousands of locomotives and freight cars, idled yards, and laid off thousands of employees as they adopt E. Hunter Harrison’s lean operating model.
The cuts have been amplified this year as railroads tighten their belts amid accelerating volume declines, creating a one-two punch that made railroad payrolls the fastest contracting of any industry in October.
“The end game is not to save our way to prosperity,” Kenny Rocker, Union Pacific’s executive vice president for marketing and sales, told the RailTrends 2019 conference.
Becoming more efficient, he says, ultimately makes UP service more reliable and consistent, which will help the railroad gain traffic.
“The end game is growth,” Rocker says.
Mark Wallace, who worked alongside Harrison at Canadian National and Canadian Pacific and is now executive vice president of marketing and sales at CSX, says the reason PSR exists is to enable railroads to provide better service.
“Truckers have been eating our lunch for decades,” Wallace says, pointing to rail’s 8% share of the $980 billion spent annually on transportation.
“The uncomfortable truth is that many former and potential rail customers have, however reluctantly, demonstrated a willingness to pay a premium for the superior reliability offered by the trucks,” Wallace says. “Given that backdrop, given that history, what are we to do? Well, I would argue: Enter Scheduled Railroading.”
Skeptics argue that PSR doesn’t help railroads grow, Wallace points out.
“Ultimately the objective of Scheduled Railroading, its very reason for being, is to better serve customers, present and future,” Wallace says. “Furthermore, I wish to assure everybody that at CSX our aim is to profitably grow — not shrink — the business.”
If CSX can continue to maintain its efficiency and service reliability, it will be able to regain business off the highway in the populous East, Wallace says.
“Recapturing just a tiny slice of the overall transportation spend can be a very big deal for an individual carrier. CSX’s share of the overall transportation market is just over 1%,” he says. “So consider what a quarter or a half a point of market share in a $980 billion annual market would mean to us. The opportunity is huge. Do the math: billions and billions and billions of dollars of opportunity.”
John Scheib, Norfolk Southern’s chief strategy officer, says PSR has improved the railroad’s service by making its yards and main lines much more fluid. As NS has streamlined its operations by reducing switching and moving tonnage on fewer but longer trains, it needs fewer locomotives, cars, and train crews.
“All that yields a capacity dividend, which means we can move more freight on the same assets,” he says. “We can sell that. And we do want to sell that.”
But Canadian National CEO JJ Ruest says Precision Scheduled Railroading is a one-time cost-cutting exercise that by itself doesn’t lead to volume or market share growth.
“Precision Scheduled Railroading helps you to fix your costs one time. But it does not really address how you’re going to grow after that,” Ruest says. “And I think that’s the challenge for the industry. Beyond fixing our costs, beyond having a very efficient railroad, how do we create a product that’s appealing to those actually using the road today?”
CN, the first major railroad to adopt Precision Scheduled Railroading, has been the fastest growing of the big systems for the past decade as it focused on becoming more of a supply chain partner with its customers. Now it’s embarking on a strategy to tie itself more closely to the consumer economy in Eastern Canada as manufacturing and natural resource traffic wane.
Eric Jakubowski, who worked with Harrison at CN and is now chief commercial officer at shortline holding company Anacostia Rail Holdings, warns that some of the Class I railroads have cut management ranks too deeply.
“These are people who had relationships, these are people who could solve problems, these are people who could go chase opportunities,” he says.
Harrison was fond of saying that a PSR railroad’s service would be so good that it would sell itself.
“That’s a problem,” Jakubowski says, particularly when sales forces are cut and trainmasters are spread too thin.
“You can’t replace front line managerial people who are empowered to make decisions with people sitting at corporate headquarters running spreadsheets,” Jakubowski says.
The executives all spoke last week at RailTrends 2019, a conference sponsored by independent analyst Anthony B. Hatch and industry trade publication Progressive Railroading.
The goal of PSR is to line the pockets of those greedy robber barons on Wall Street not to grow the railroads. Morgan tried this and Teddy bankrupted him and this lead to the Crash of 1907. PSR and Morganomics don’t work they will just bankrupt the economy and the railroads.
PSR is a false profit. Although PSR is more than scheduling freight trains, scheduled railroading has been around for decades. Take a look at some passenger schedules and the expedited freight trains of the 60’s and 70’s. I don’t know if these execs are delusional or liars as they worship WS. Too, longer trains are slower generally and will take more time to break down or unload at the destination. What savings and service improvement is that?
UP’s loss of carload traffic over the last several years is continuing in spite of PSR. So, in the long run how can that be good when its PSR is really designed to keep shedding customers, just like everyone else PSR has done. They proclaim that PSR provides more capacity since trains are much longer but, where is the “growing” carload traffic?? It ain’t there as service continues to be poor and rates seem to keep going up.
That is Harrison’s true legacy.
There is an old saying: if you don’t have it (service) you can’t sell it. It is still a “product”.
The way I see it Hunter Harrison was only hired by one railroad to be the CEO. All the others were forced upon the company’s by hedge funds to increase their profits. Squeeze the company until it has nothing left give and then sell the stock and move on to the next victim.
PSR has resulted in longer time from load ready to go to loaded car delivered, but demurrage charges are increased; how could any shipper or consignee not be happy??? The job of a real salesman is not to snow the customer; it is to help the customer find the best way to manage both his inbound and outbound freight.
Buit, remember,RRs so dysfunctional that motor freight drayage across Chicago is faster than unit intermodal are the darlings of the same crooks/morons who gave us the Great Recession.
Not a single executive admits to problems, problems with PSR. They are like PR people , they only see the “company line”. The first step to solving problems is to admit you have a problem.
These PSR railroads are making enemies out of their customers by charging demmurrage for not taking or returning cars at a prescribed time. Bare in mind a lot of these charges are the fault of the railroad not delivering or picking up cars as the agreed on time. Customers are now filing suit against the railroads for causing the demmurrage , some in amounts of a million dollars. Shippers are constantly going to hearings with federal officials complaining of not only poor service, refusal of service and over charging on dummurrage charges.
That is not a way to get customer loyalty and repeat business. Frankly it is a way run business off and it is happening a lot. No way to run a railroad or anything else.
Of everything I have watched here so far – the comment about illusion of High OR has nailed It!. OR is what the industry may be showing to the “financial community” to spike the stock price. It has been known for decades that SOME portion of the railroad business has good OR. But, compared with its competitors, the railroad industry is a high fixed cost business, where the property, property maintenance and property taxes will still be there after lower OR business is gone. In college transportation economics or transportation engineering we learned that any business that covers its costs and contributes to the gross revenue and net revenue is business you want to flow to the bottom line. When you do not serve customers you have idle locomotives, and other under utilized assets and a smaller bottom line. Penn Central lost a lot of profitable local business as they were trying to focus only on whole trains from Chicago to the East Coast. Does anybody remember how Penn Central was still trying to sell debentures to the “financial community” saying their plan was working – even the same week they declared bankruptcy? It sounds like the “High OR business plan” is resulting in idle assets in a year when the competitors need more truck drivers to keep up with the growth in the economy. HEADS UP FOLKS: This week I read there are ongoing tests of self driving trucks in two states. While it is still early, trucking industry folks are openly optimistic that the technology will ease the growing shortage of drivers.
Sounds like they graduated from Trump University, just keep babbling like an idiot and somebody will start believing you.
It does sell itself when your class 2 partners have crews waiting for trains that never arrive , arrive later or when they arrive have a huge car count and then the PSR railroads want to charge the customers for not loading and unloading the cars fast enough.
If one wants to know how a railroad { or any business for that matter } is performing, would you ask the executives or would you ask the customers? The customers, of course. Maybe these execs could get their customers to back up their claims…….then again………..maybe not.
I just read so so so so much crap I need 2 shovels to dig my way out !
FEC success in short haul is based on:
1) net movement of goods into dead end peninsular Florida thus it is extra costs for truckers to drive in and then back out.
2) as a Class I ‘short line’ there is intrinsic costs with interchange at Jacksonville thus short haul pricing is competitive with the peninsular haulage.
3) CSX as basically abandoned Southeast Florida as a viable market. The only reason CSX trackage can support Amtrak trains at 79 mph is Florida DOT ownership from Sebring south.
These unique conditions are difficult to duplicate in other markets.
psr does not grow business, any CEO that says that is flat out lying. I deal with railroads everyday and I can tell you that service under psr has gone down hill. the main reason rail traffic has declined this past year or more is BECAUSE of par. you can’t continue to get rid of customers and expect to continue to be profitable just by raising rates on the few customers you have left. I challenge any class one CEO to show me a satisfied customer.
Yes, and the FEC has modelled its services to successfully market short haul freight and intermodal operations. They give back to the market some of the operational and economic efficiencies they have implemented. The Class 1’s have not done so. They have mostly pocketed improved financials with stock buy backs and dividends even in the face of dwindling business.
I like to point out one ” precision scheduled railroad” everyone forgets about that has been doing it for years and actually have grown their business this way: Florida East Coast Railway. The key difference though was that they didn’t cut assets for the sake of it, they cut it as A ORGANIC RESULT of scheduled railroading THAT WORKS.
Total BS plane and simple. Just deliver better service at a cost that beats trucking.
1. Is there any large corporation who you would trust the management to tell the truth? Witness Boeing, Exxon, Dow Chemical, Lehman Brothers etc. These guys have only one objective, to keep Wall Street happy today. As outsiders, you can rest assured there will be no bad news for public consumption.
2. Although the two Canadian roads will not badmouth the revered Hunter, they are already past the worst stage of PSR and acknowledge that growth in revenue is essential. Mongeau made his mark on CN by trying to undo the damage Hunter had done with the shipping community. The other four are just entering the PSR cesspool with smiles on their faces. We can only hope that with Rose retired Buffet is getting some objective information before pushing BNSF over the ledge.
3. “We have to cut costs so we can be more competitive” or we had to destroy the village to save it. We’re talking about business the railroad doesn’t have and isn’t captive: intermodal and box cars. Box cars are already in danger of disappearing because of slow turn times, how are longer infrequent trains going to address that? Intermodal is declining as the industry goes for squeezing yield at the price of volume. We all know how much truck business there is on the interstates but the railroad big terminal, big intermodal shippers doesn’t even address this. Ever see a Cedar Rapids Steel Transport (CRST) trailer on a train? Trucks have virtually unlimited frequency, the railroads think less trains are better. Is the reason the business isn’t growing because the price is too high or because the service is inadequate. CN is expanding the number of intermodal terminals.
4. Look at the success of the industry. Its roots are not in marketing service: outside booms in traffic such as powder river coal, oil and frac sand, double stack technology forced on the industry, relentless cost control/reduction through technology developed by outsiders, in the Northeast wholesale abandonment of main lines, and exploitation of the power of deregulation to squeeze the captive bulk traffic base.
The only thing that can be said for sure is that sooner or later the carousel and there will be some new theory to save the industry. Maybe the truth is that the railroads are bulk haulers dependent on the course of industry and energy. They can compete for high value traffic in long distance high volume markets only (my apologies to the FEC).
What a joke! No one should believe this for a second. Customer service goes out the window with psr which is all about controlling costs. With psr the railroad industry is shrinking and ignoring opportunities for growth.
What is Campbell Soup saying?
A lot of empty words by myopic executives.
Reading the comments below it seems that no one is convinced by the duckspeak.
Yet more Newspeak, the official language of Oceania.
You measure success by results…..not intentions. PSR is a dismal failure based on results.
This months issue of Trains talked about PSR. One of the executives pointed out they are speeding up trains by eliminating intermediate stops. The trouble is there is customers at those intermediate stops that are not getting their orders delivered on time. At those intermediate points many local railroads are not getting timely deliveries. In other words PSR is another gimmick contrived to give investors a quick hit of cash without regard for the actual customer.