Effect of PSR on Short Lines Has Been Mixed

As a Wheeling & Lake Erie stone train sits in the siding at Summit Street in Akron awaiting a new crew a westbound W&LE manifest freight heads out of town. Some short line and regional railroads have picked up new business after their Class 1 interchange partners adopted the precision scheduled railroading operating model.

Precision scheduled railroading as practiced by all but one North American Class 1 railroad system has had a mixed effect on short line railroads a survey undertaken by Progressive Railroading magazine concluded.

The effect of PSR on short lines is a key question given that 48 percent of rail freight traffic is transferred from a Class 1 to a short line while 10 percent of traffic is moved by a short line from one Class 1 to another.

“There are pluses, minuses and unknowns,” said Chuck Baker, president of the American Short Line and Regional Railroad Association.

Baker said that on the whole PSR has led to networks that operate “smoother, faster and more efficiently.”

“When you drill down in detail on the positive side of PSR, in a lot of locations there’s more frequent service — going up to five or even seven days a week now,” Baker said.

“And there are more frequent interchanges and pickups and better things to sell to your customers.”

Other positive have been opportunities for short line to pick up business in the wake of upheavals in the Class I network.

“There are some customers who find it easier to locate on a short line — more so than perhaps they would have thought to do so before,” Baker said.

What has been tough on short lines, though, has been the loss of Class 1 employees who tended to field sales, marketing, customer service and interline affairs that shippers and short lines had relied upon.

Class 1 railroads have in some instances dropped some less profitable business to focus on traffic that better fits their revamped networks.

“Short lines want every customer, every carload, every time,” Baker said. “Obviously, we get the reality that some business is more attractive than others, but we want all the business.”

Stefan Loeb, executive vice president and chief commercial officer at short-line holding company Watco, noted that many short line railroad executives have been upset about the implementation of PSR because it has resulted in a lot of changes.

Loeb, though, said Watco would rather adapt to PSR than fight it.

“From a short-line perspective, the opportunity to succeed — especially in the carload business — has never been better,” he said. “You are [offering] that entrepreneurial first-mile, last-mile service to the customer. And when you hand that car off to an efficient, faster, long-haul network, that creates the best product I’ve ever seen in the industry.”

Loeb cited as an example his railroad’s service to two shippers in Decatur, Illinois, Archer Daniels Midland and Tate & Lyle.

Watco took over in September 2018 a CSX secondary route that had served both companies and service increased from three or fewer days a week to daily.

“We have no mainline, so we could serve the line consistently,” Loeb said.

Maryland & Delaware Railroad President Cathrin Banks said the implementation of PSR by Norfolk Southern has not adversely affected her railroad as much as she feared.

Banks said the M&D, which operates 120 miles of track along the Delmarva Peninsula in Delaware and Maryland , is finding a more efficient freight-rail network for its agriculture and poultry shippers.

“In those early days of PSR, there seemed to be a focus [by the Class Is] on just streamlining operations, increasing revenue and decreasing the operating ratio,” Banks said. “And we were watching that carefully because if their overall traffic is declining, that impacts the short lines.”

But Banks said the M&D didn’t feel that and its volumes remained steady.

Iowa Interstate CEO Joe Parsons said his railroad has gained some business a s result of service changes implemented by Class 1 railroads moving to PSR but otherwise it hasn’t had a significant effect on the Iowa Interstate.

Parsons said he wouldn’t characterize PSR as a “good thing” for the U.S. rail industry.”

He said PSR boils down to is doing more with less.

“I think it’s easy to cut, but it’s really hard to grow,” Parsons said. “And that’s the challenge the railroad industry has going forward. How do we continue to grow and how do we continue to be a vital part of the nation’s transportation network.”

Eric Jakubowski, chief commercial officer for short-line holding company Anacostia Rail Holdings believes PSR will become a “foundational building block” in achieving a more efficient railroad system.

But in the meantime, the relationship between Class Is and short lines during the transition has been less than collaborative.

“I think their pursuit of operating ratio objectives and matching themselves to their peers is what [PSR] has become, and they’ve taken some dramatic steps that are counterproductive in the long run,” Jakubowski said.

He cited as an example how Class I railroad have cut sales and marketing staff at a time when the rail industry wants to divert more truck business.

“Now you’re divorcing yourselves from the very people with direct relationships with these customers,” Jakubowski said. “That doesn’t make a lot of sense to me. And that’s a direct outcome of PSR.”

He said some Class I carriers have increased freight rates to to improve their operating ratios and “chase away certain business for a variety of reasons.”

That resulted in less traffic and “created some confusion in the marketplace about what business railroads really want,” Jakubowski said.

“A frontier that has yet to be addressed is how do you take PSR principles and apply them so that they mean something to customers and you do it in practice with [short line] partners,” he said.

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