“That’s not true. We do,” Ice says. “And our history shows we care about efficiency very much. And all of our conversations with our employees show that as well.”
BNSF is the lone Class I holdout as E. Hunter Harrison’s operating model spread from Canada to CSX Transportation in 2017 and to the other three U.S. systems late last year. BNSF Executive Chairman Matt Rose, who retired last month, was highly critical of PSR this year.
Ice, who addressed the North American Rail Shippers annual meeting on Thursday, said he was reluctant to discuss PSR because the nuances of BNSF’s growth strategy get lost.
“Growth from our perspective is important. It’s important to our customers, so it’s important to us. We also think that’s the way you thrive for a long time,” Ice says.
Growth and efficiency also go hand in hand.
“To be able to grow you have to do a lot. First of all, you have to have good service. To compete for business you have to have a good cost structure,” Ice says. “So this really doesn’t mean you don’t care about efficiency. You have to have a good cost structure to be able to compete. You have to get a lot out of your assets to be able to have enough capacity to move business.”
Volume and revenue growth also support capacity investments.
“So as you hear us say things like we have a bias for growth, for BNSF that also means, though, that we expect to be efficient and we expect to get value for what we do,” Ice explains. “All three of those things fit together to form that cycle: we get returns, we invest in our railroad, that lets us handle more business, create more returns and then reinvest in our railroad.”
Warren Buffett, chairman of BNSF parent Berkshire Hathaway, fielded several questions about PSR during Berkshire’s annual meeting on May 4. Buffett suggested that BNSF needs to become more efficient, which did not surprise anyone at the railroad’s headquarters in Fort Worth.
“We know that. We’re working on that,” Ice says. “It’s not a new thing for us. We do that by having initiatives that drive cost outcomes across time and we’ve got a significant basket of those for this year.”
Ice says Buffett’s message to Berkshire investors was consistent with the expectations it has set for BNSF, which it purchased in 2010.
BNSF does not need an operations overhaul, Ice says, and it’s already doing what every railroad does by focusing on things such as terminal dwell, quickly turning assets like locomotives, setting schedules for individual cars, and running longer trains.
“Many of the things that get talked about, everybody does,” Ice says. “And any operating team worth its salt does those things. So we’ll do stuff our way, we’ll drive improvement.”
Ice was asked about the widening operating ratio gap between BNSF and its western rival, Union Pacific, which adopted PSR on Oct. 1. Buffett was asked the same question at the Berkshire annual meeting.
“We’re keenly aware of what everybody does,” Ice says, echoing Buffett’s comments. “We’ll watch what they do. We’ll implement the things that work for us … and you should expect to see good improvement from us.”
Part of UP’s four-point operating ratio advantage stems from traffic mix, Ice suggests.
BNSF operates what’s by far the industry’s largest intermodal franchise and is the railroad most reliant on intermodal traffic, which generates lower revenue per unit than carload freight. UP, on the other hand, has the industry’s highest-volume merchandise network.
So called efficiencies have not lead to significant price reductions undercuting trucks thus far. Wall Street is pocketing the money. Furthermore, train lengths for intermodal and mixed trains in my opinion have reached the laws of diminishing returns under PSR.
One of the things that seems to get lost in the PSR / growth discussion is that one of the ways you compete for growth is pricing. To the extent that PSR reduces a railroad’s expenses it can make it more competitive on price.
Amen to Paul Bouzide’s comments below. It’s refreshing to see a concise, compelling grasp of an issue thaat should have been resolved decades ago. The competition is on the highways and waterways, not on steel wheels. Future growth, and stabilization of existing service will depend on how fully and enthusiastically access is embraced. Mergers aren’t the answer, per se, but commitment to access and reasonable handling are essential. Too big is frequently too big to manage well.
I think the factor being overlooked in this discussion is a clear recognition of just what it is that railroading does/provides. Transportation is part and parcel a service business. After 3 decades of decline and stagnation from about 1950 to 1980, one would think that lesson would not have to be re-learned, but apparently it does. No saleable service, no customer. No saleable service, no growth. No saleable service, no future. The case studies many posters have written are proof positive of the limitations of PSR. I was especially impressed by one example of fruit/vegetable blocks being handled innthe vicinity of Selkirk. Under PSR, turn-around time was almost doubled.
Traffic segregation by priority served a valuable function for decades, the practice derived from llong experience. Abandoning it in favor of a fad ginned up by investor relations doesn’t bode well.
Herb – There’s a time and a place to clear out the yard and send whatever stuff you have over the road. Not every train is the Santa Fe Super C, the premium intermodal train which ran at speed with a couple of trailers and a caboose.. We all know how that one flopped.
There is also a time and a place for a train geared to a specific market segment. Thus, the unit train or the block of reefers you cite.
The wisdom is to know what’s the time and what’s the place. If you, Herb, are implying there’s a shortage of wisdom at The Top, well, most likely you are right.
As a rule of thumb, ask the men and women on the front lines – yard crews, marketing, T+E, mechanical. They know how to run the railroad. The new guy in the corner office probably doesn’t.
Efficiency? On CP Rail today I saw two of the longest trains ever.
EB steamship containers in Wauwatosa (Wisconsin), three engines, one each point, middle and tail. (That’s a first – I never saw dstributed power in three places on the train.)
WB mixed steamship and domestic containers through the Milwaukee Amtrak train shed, two engines on point, on in the middle.
I’ve been watching CP in Wisconsin for decades and never seen anything like it.
Unlike what EHH said he was doing on CSX, the trains were both pure container. No merchandise, no trailers.
Re: the price the railroads will have to pay for the next round of mergers will almost certainly be full competitive access.
Totally agree. This should have been forced on railroad with the last round of mergers. And, this would be a giant first step in finally selling the most useful parts of the national rail network to the Feds, and have it funded like the REST of the transportation infrastructure. It might take 50+ years, but eventually we’d at least FINALLY have a level playing field.
I wonder what will happen to BNSF? They seem to be the odd-man-out, right now.
I’d hate to see BNSF end-up as a short-term thinking “public company” again. But if there’s another round of mergers billions will be required to play. Is Uncle Warren going to want to expand his train-set? (Oh, hunny, can we expand my train-set into the spare bedroom to the east? I’ll just knock out this wall. I donno Warren, how much is it going to cost?)
Paul; the price the railroads will have to pay for the next round of mergers will almost certainly be full competitive access. In other words; every rail shipper will be able to pick and choose which railroad they want handling their business. Hunter had alluded to being open to discussing some form of competitive access when CP was seeking to “dance” with either NS or CSX and I suspect this was one reason the other Class 1’s lined up against him.
The US railroads have long been adamant that any form of open or competitive access was unacceptable yet; both CN and CP have thrived under the form of competitive access available to Canadian rail shippers since 1986.
There are many of us in the rail shipping community here in the US who believe some form of competitive access in this country would work equally well for both the railroads and their customers.
I hope BNSF can merge or otherwise tightly operationally align with an eastern road and create a true transcontinental network similarly focused on growing intermodal market share and having a dominant intermodal traffic mix.
That’ll force UP and the other eastern to either follow suit or double down on carload/transload dominant mix. If it’s the latter (and there’s still a place for bulk and carload/transload railroading in my view with the right cost and service mix),it would de facto serve to increase segregation of intermodal and premium operations from carload/bulk. I’ve always believed they are somewhat incompatible and in conflict from a capacity and service perspective.