Rail Executives Insist PSR is a Growth Strategy

Critics of the precision scheduled railroading model have zeroed in on the cost-cutting measures that have followed in the wake of its adoption.

E. Hunter Harrison

Employee headcounts have been reduced, yards and service facilities have been closed, and fewer and longer trains are operated as a way to decrease the number of crew starts.

All of that saves money, which looks good on the balance sheet.

Yet during the RailTrends 2019 Conference held last week, executives of CSX, Norfolk Southern and Union Pacific insisted that PSR is not about cutting your way to greater profitability.

They said PSR is a traffic growth strategy even as they acknowledged that they have sought to adopt the philosophy of the late E. Hunter Harrison of having a “lean” operating structure.

CN CEO J.J. Ruest said adopting PSR leads to just 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,” Ruest said. “But it does not really address how you’re going to grow after that.”

He said the challenge for the industry is not just having an efficient railroad but creating a product that’s appealing to those who ship by highway instead of rail.

Harrison brought PSR to the Illinois Central and later Canadian National, Canadian Pacific and CSX.

He died in December 2017, nine months after taking over as CEO of CSX and implementing the PSR model there.

Mark Wallace, the executive vice president of marketing and sales at CSX, worked with Harrison at CN and CP.

He told the conference that PSR is a blueprint for providing better service and that will enable railroads to increase their share of traffic volume.

Currently, railroads have just an 8 percent slice of the $980 billion transportation market.

“Truckers have been eating our lunch for decades,” Wallace said. “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 said CSX is seeking to grow and not shrink its business and it believes it can do that by diverting traffic now moving on highways to rail cars.

“Recapturing just a tiny slice of the overall transportation spend can be a very big deal for an individual carrier,” he said.

Considering that CSX’s share of the overall transportation market is slightly more than 1 percent, Wallace said a quarter or a half a point of market share in would mean “billions and billions and billions of dollars of opportunity.”

John Scheib, the NS chief strategy officer, echoed the point that PSR has resulted in a more efficient operation that is poised for growth.

He said NS yards and main lines are much more fluid because it has reducing switching and is moving tonnage on fewer but longer trains.

“All that yields a capacity dividend, which means we can move more freight on the same assets,” he said. “We can sell that. And we do want to sell that.”

CN has been practicing PSR the longest of the North American Class 1 carriers and has also become the fastest growing.

It has adopted a strategy of becoming more of a supply chain partner with its shippers. That’s important because manufacturing and natural resource traffic is declining in some regions of its network.

One railroad executive who worked with Harrison at CN did offer a word of caution about cost cutting as a component of PSR.

If you cut the management ranks too deeply there will be fewer people around to hunt for shipping business.

Eric Jakubowski is now the chief commercial officer at railroad short line holding company Anacostia Rail Holdings. He said some Class I railroads have reduced management too deeply.

Sales forces have been slashed and trainmasters are spread too thin.

“These are people who had relationships, these are people who could solve problems, these are people who could go chase opportunities,” he said.

Harrison often said that a railroad practicing PSR would offer service was that was so good that it would sell itself.

Jakubowksi is skeptical of that thinking. “That’s a problem,” he said. “You can’t replace front line managerial people who are empowered to make decisions with people sitting at corporate headquarters running spreadsheets.”

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