Posts Tagged ‘Canadian National’

So What is Precision Scheduled Railroading and Why Does E. Hunter Harrison Believe it Will Work at CSX?

October 13, 2017

Since March, the term “precision scheduled railroading” has shown up in a lot of news stories about CSX.

But the model is anything but new. The term has received added attention this year because its chief promoter, E. Hunter Harrison, began imposing it shortly after he became the CEO of CSX last spring.

Harrison developed the model while serving as head of the Illinois Central Railroad. He later took it to Canadian National and then Canadian Pacific after he became the CEO of those roads.

Last year he proposed taking it to Norfolk Southern, but a rebellion by that railroads shippers, its board of directors and various government officials thwarted those plans and Harrison and his associates called off a proposed merger between CP and NS.

But less than a year later Harrison and the Mantle Ridge Hedge Fund successfully engineered a plan whereby Harrison became CEO of CSX.

The name of the model itself provides only a few clues to how it works. Like any philosophy, how it works in theory and how it works in practice are now always in synch and that appears to have been the case at CSX where service problems began within two months and accelerated during the summer.

Depending on who you believe, CSX is either ironing out the kinks or forcing its shippers to change how they do business.

PSR differs from the prototypical railroad practice of holding trains in a yard or on a siding until they’re full.

With PSR, deliveries are given priority from origin to destination as quickly as possible, and each asset is used and monitored constantly so customers can better plan their shipments.

As CSX Executive Vice President and Chief Operating Officer Cindy Sanborn explained it to Progressive Railroading magazine, PSR is designed to improve customer service, control costs, optimize asset utilization, enhance safety and aid workforce development.

Of course it is. What railroads doesn’t say it is doing those things.

Sanborn continued by explaining that PSR seeks to provide customers a more reliable, predictable and cost-effective shipping experience by creating train operating plans that seek to speed cars through the network.

Sanborn acknowledged that a charge made this week at a Surface Transportation Board hearing into CSX service issues that the railroad is forcing customers to change how they operate may be accurate.

“Our service may be configured differently, and the transition to the new system may mean that we’re asking some customers to make some changes, but ultimately we believe that the customer will be happier with that product,” she said.

The latter part of Sanborn’s comment mirrors what Harrison has been saying for weeks that, ultimately, customers will benefit from precision scheduled railroading.

It’s just that many CSX shippers aren’t seeing that yet and Harrison’s pronouncements are coming across as just so much public relations talk.

Trains magazine Fred Frailey columnist wrote last year when CP was trying to take over NS that Harrison has a core belief that freight cars should be moving, not sitting still.

He said Harrison learned this as a young railroad manager and if he saw cars that had been sitting around for awhile he would demand that they get out town on the next train.

When CSX began having its service issues this year, Frailey wrote another column about Harrison and what he is seeking to do at CSX.

Frailey thinks Harrison might have come to CSX with clear ideas about what needed to be done, how it needed to be and who should do it.

Among other things, he apparently believed that CSX had too many hump yards, too many trains and too many employees and contractors.

In short order, CSX made 1,300 train plan changes, cut 2,700 jobs and sent 1,000 contractor and consultant positions packing.

It has retired or stored 850 locomotives and eliminated more than 300 train crew starts per week. Twelve hump yards were converted to flat switching yards because a tenet of precision scheduled railroading is that that humping cars takes more time.

PSR holds that some car blocks can be switched more efficiently at intermediate stops between an origin and destination and in less time than it would take to classify each in a hump yard.

Frailey quoted an industry source who suggested that Harrison didn’t care if CSX loses customers. In the end, he is only interested in keeping those customers whose needs dovetail with the service that he wants to provide.

Most of those would be shippers needing transportation that provids CSX with high margins.

Shippers whose business is more competitive tends to be lower margin business and costs money to keep.

Harrison, like so many other corporate titans these days, is an adherent of the religion of cost cutting.

In that sense, he is not alone. All North American Class 1 railroads are talking about reducing expenses and driving down their operating margins.

The problem that CSX encountered after implementing Harrison’s vision was a clogged network.

Sanborn admitted to Progressive Railroading that the rapid changeover to precision scheduled railroading caused some shippers to experience “unintended effects.”

CSX owned up to it, Sanborn said, noting that in early August, Harrison emailed shippers a letter apologizing for the service disruptions.

“We have redoubled our efforts to resolve customer issues as quickly as we can and to improve communication with customers as we move forward,” she said.

Sanborn said that based on customer comments, CSX management is studying traffic flows across the network by closely analyzing connections between merchandise trains, yard jobs and locals.

Management is seeking to nudge local operating managers to be more proactive in communicating with shippers and solving their problems.

CSX is also considering providing customers more frequent service. Sanborn cited the example of possibly discontinuing unit-train service for a customer who in the past used one or two trains per week, or about 200 cars, and instead offering daily service that would provide about 30 cars  a day.

“For the customer, that [would] mean they need fewer cars and less track space for storing empty or full cars, and there’d be less inventory tied up in transit at any one time,” Sanborn said. “For CSX, it means we are able to handle fewer cars in our scheduled merchandise service, with better balance on the network. That’s a more efficient approach.”

There’s that “e” word again. Efficiency is something that Harrison has long valued.

At the time that Harrison arrived, CSX was in the midst of another operating plan change that the Michael Ward administration had begun executing in April 2016.

That plan was based on the premise that the railroad would emphasize a triangle of routes extending from Chicago to New York, New York to Florida, and Florida to Chicago.

All other routes were secondary and would not receive the same level of maintenance as the key routes.

Trains began getting longer and departed yards every 28 hours rather than every 24 hours. The effect was fewer and longer trains.

At the time, CSX said this realignment would bolster service, boost productivity and improve safety.

But Harrison and his management team tore up CSX of Tomorrow in favor of precision scheduled railroading.

CSX Executive Vice President and Chief Financial Officer Frank Lonegro said last month during an industry conference that the previous operating plan had resulted in inconsistent financial results.

“Measured by operating ratio, we hovered around 70 percent,” he said. “It wasn’t that long ago that we had an industry-leading OR. Since then, though, the industry has made great progress … but we did not make meaningful progress. On the service side, [we’ve had] a couple of good years followed by a couple of not-so-good years.”

Another flaw of the CSX of Tomorrow plan was that it would take too long to show results. When it was announced, management said it would take years to implement.

But Wall Street is seldom willing to wait that long. John Larkin, a Stifel Equity Research analyst who follows CSX, told Progressive Railroading that many on Wall Street expected an operating ratio in the 50s in a matter of months. “That is obviously not a realistic expectation,” Larkin said.

But it was out there and many on Wall Street tend to view Harrison as a financial savior.

Larkin is among them, saying that Harrison is “the most brilliant operator of our time.”

The news that Harrison wanted to take over CSX was enough to send the value of the company’s stock skyrocketing by double digits.

The service problems of this year may have soured some shippers but they have not dented Harrison’s reputation on the Street.

Larkin argues that many critics, observers and customers are selling Harrison short for the recent performance hiccups.

“He will get CSX service fixed and lower the operating ratio to the targeted levels, no matter what. He won’t accept anything else,” he said.

Independent rail industry analyst Tony Hatch, whose views are often cited by Trains and Progressive Railroading, concurs, citing improvements in CSX service metrics.

Harrison and other top CSX executives have maintained throughout the troubles that things will turn around, that the issues are temporary.

Sanborn said that once the transition period has ended and the operating plan is fully in place that shippers will enjoy a fast and more fluid network. CSX will reap lower costs and a reduced operating ratio.

“While we have made a lot of changes since we began our transition [to PSR], there is still work to be done to refine the operating plan and continue to improve company performance and service to customers,” Sanborn said.

CSX management plans to send stakeholders a long-range strategy overview that it plans to reveal at its investor conference Oct. 29-30 in West Palm Beach, Florida.

“In broad terms, we’ll talk about financial and operational objectives and the timeframes in which we hope to achieve them,” Sanborn said.

“We’re bullish on the future and sometimes you have to break some eggs to get there,” Lonegro said.

Much of the faith that CSX management and Wall Street have placed in precision scheduled railroading is rooted in the belief that it is a strategy proven to work.

By that they mean that it worked at IC, CN and CP, although some skeptics have noted that the networks of those railroads differed greatly from that of CSX.

In touting PSR, Sanborn said it has been proven over time to improve the performance of railroads. It will provide a more intuitive and flexible railroad, she said.

“Our decision-making is driven by [PSR] principles,” she said. “As our business evolves, we will use that framework to determine how to continue meeting our customers’ needs, and operating safely and efficiently, in response to whatever new conditions develop.”

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CP Move Into Ohio a Bid to Compete with CN

October 12, 2017

Canadian Pacific and Genesee & Wyoming announced that they would cooperate in opening an intermodal service lane into the Ohio Valley, using an existing terminal in Jeffersonville, Ohio.

But the two carriers did not say when the service will begin or whether it would be provided with a dedicated train.

Trains magazine reported on Wednesday that a CP spokesman had declined to provide additional details, saying only that more information would be available during next week’s quarterly earnings call. A G&W spokesman did not respond to a request for comment.

The new service is an effort to fill containers that would otherwise return empty.

Usually, containers arrive in North America from Asia filled with consumer goods, but return empty across the Pacific.

There has been a growing demand for farm exports to Asia and those empty containers present new markets for railroads, shippers and steamship lines.

From CP’s perspective, Trains said, it the new intermodal service presents an opportunity to battle back against rival Canadian National.

CP has been losing market share at the Port of Vancouver to CN, which handles about 70 percent of the containers that move by rail to and from that port.

CN had direct rail access of agreements with other railroads to reach into the U.S. interior to such points as Indianapolis and Memphis, Tennessee.

However, CP has the advantage of the shortest route from Vancouver to Chicago.

“This service will put CP into an area that CN can’t reach, so they will be able to offer a differentiated product,” said Larry Gross, an analyst with FTR Transportation Intelligence in an interview with Trains. “I think it makes a lot of sense for CP to be working this way. The region is under-served from the west because of the interchange issues in Chicago.”

The containers will be moved out of Ohio by the Indiana & Ohio, which serves a 90-acre terminal in Jeffersonville owned by Bluegrass Farms.

The containers will then be interchanged in Lima, Ohio, to the Chicago, Fort Wayne & Eastern Railroad, which reaches Chicago via a former Pennsylvania Railroad route.

Most of the traffic on the 281-mile CF&E is chemicals, farm products, fertilizers, paper and steel. The 469-mile I&O primarily handles ethanol, farm products, fertilizers, lumber, paper and steel.

CP and G&W officials noted in a news release earlier this week that the Jeffersonville terminal can be easily accessed from Columbus, Cincinnati, and Dayton.

Gross said the key to making the intermodal lane work will be providing a seamless interchange in Chicago.

“With the volume involved being to and from Asia, it won’t be tremendously service-sensitive but the service will need to be reliable,” he said. “Having the ready source of outbound volume is certainly a plus, so the pacing item will be the ability to attract inbound volume.”

Trains noted that the CP-G&W arrangement is similar to a 2013 deal that CN and the Indiana Rail Road reached to provide international intermodal service from Indianapolis to the British Columbia ports of Vancouver and Prince Rupert, British Columbia.

INRD Expanding Container Capacity

September 12, 2017

Representatives of the Indiana Rail Road participated in a ceremony last month to mark the completion of the expansion of an increase in capacity of a West Coast port.

INRD interchanges container with Canadian National that are transported to and from the port at Prince Rupert, British Columbia.

Eric Powell, INRD manager, business development said in statement that “the Port of Prince Rupert can now handle almost 1.4M TEUs per year, double the capacity of just a year ago, thanks to the addition of a second ship berth, four Super Post-Panamax cranes and on-dock rail. For [our customers], this means the same fast, reliable Asian service with room to grow and, soon, more ocean service options.”

Powell said the port is the closest North American port to Asia and has an ice-free, deep-water harbor that can handle ships of any size.

In the meantime, INRD is adding a second crane to its Indianapolis ramp along with new stadium light.

“Our Indiana intermodal business to/from Asia and Europe has grown an average of 37 percent year-over-year since we opened in 2013,” Powell said.

He said the new lights and crane are expected to go into service no later than Nov. 15.

CN Again Makes Sustainability Index

September 12, 2017

Canadian National has made the Dow Jones Sustainability World Index for the sixth consecutive year.

The Montreal-based railroad also made the North American Index for the ninth consecutive year.

In a news release, CN said that it was the only Canadian company listed in the transportation and transportation infrastructure sector.

The DJSI surveys sustainability leaders from each industry and analyzes economic, environmental and social performance on issues such as corporate governance, risk management, climate change mitigation, supply chain standards, stakeholder engagement and labor practices.

It then selects the top 10 percent of the 2,500 largest companies in the S&P Global Broad Market Index from each sector based on their sustainability scores.

“At CN, running a safe and sustainable railroad is at the core of our business culture and community spirit. It touches every aspect of what we do, enabling us to build a strong future for our customers, employees and the communities in which we operate,” said CN President and Chief Executive Officer Luc Jobin in a statement.

CVSR Locomotive North of the Border

August 21, 2017

Many of you are aware that some of the locomotives used on the Cuyahoga Valley Scenic Railroad once operated used in Canada. A few were even built there.

In this image, it is June 1972 in Toronto and Canadian National No. 6777 (now on the CVSR) sits at Toronto Union Station between assignments.

Photograph by Robert Farkas

Class 1 Railroads Adding Few New Cars, Locomotives

August 19, 2017

Despite rising traffic, North America’s Class 1 railroads are not expanding their rail car fleets.

In the second quarter of 2017, rail car deliveries were 10,625 units versus 10,042 in the first quarter, the Railway Supply Institute’s American Railway Car Instate Committee reported.

The rail car backlog on July 1 stood at 66,561 units, up from 60,471 on April 1 but down from 66,681 on Dec. 31, 2016. At the end of last year’s comparable quarter, the backlog totaled 89,155 units.

Progressive Railroading reported hat after surveying North American Class 1 railroads it found that the carriers aren’t acquiring many rail cars. Last years railroads purchased only a small quantity of rail cars.

Railroads own 20 percent of all freight cars in North America, with lessors controlling 50 percent. Rail shippers own 20 percent and TTX manages 10 percent.

Norfolk Southern, for example, saw its budget for freight cars fall to $50 million this year after spending $121 million last year on rail car acquisitions.

NS is studying how it can create a smaller, more homogeneous car fleet that would increase cost effectiveness and boost flexibility for operations.

That might mean having fewer types of box cars. NS currently uses 20 different box cars.

The Class 1 railroads plan to continue to modernize their locomotive fleets, but not all of them expected to purchase new engines.

NS spent $290 million last year to acquire 50 new locomotives and modernize some existing units. This included transforms GE Dash 9 locomotives from DC to AC traction.

In 2017, NS is looking to buy 50 new locomotives, most of them GE Evolution™ Series Tier 4 models.

Canadian National expects to receive 22 new locomotives this year after purchasing 90 units in 2016.

CSX hasn’t said if it plans to acquire new motive power in 2017, but it has said it is storing more than 900 units as part of an perational review and the Precision Railroading transition.

The carrier bought 100 new locomotives in 2016 under a long-term purchase agreement after receiving 200 units in 2015 as part of that contract.

CN Net Income Up 20% in 2nd Quarter

July 29, 2017

Canadian National said that its net income rose 20 percent in the second quarter of 2017 due to strong volume growth across most commodity groups.

The company reported net income of CA$1.03 billion or CA$1.36 diluted earnings per share, compared with CA$858 million, or CA$1.10 diluted EPS, during the second quarter of 2016.

Revenue rose 17 percent to CA$3.3 billion, carloadings increased by 14 percent and revenue ton-miles gained 18 percent compared with the same period in 2016.

In a news release, CN attributed its revenue increases to higher volumes across several sectors, including Canadian grain and fertilizers, overseas intermodal traffic, frac sand, coal and petroleum coke exports, crude oil, and finished vehicles.

Another factor was higher fuel surcharge rates, freight rate increases and the positive translation impact of a weaker Canadian dollar.

Compared with 2016, revenue was up 33 percent for metals and minerals, 33 percent for coal, 23 percent for grain and fertilizers, 20 percent for automotive, 17 percent for intermodal, 12 percent for petroleum and chemicals, and 6 percent for forest products.

Operating expenses rose 18 percent to CA$1.8 billion compared with a year ago.

CN posted an operating ratio of 55.1 percent for the quarter, an increase of 0.6 points over the prior-year quarter.

“Once again, CN delivered solid quarterly performance with strong volume growth across most commodity groups, building on the momentum started in the fourth quarter of 2016,” said President and CEO Luc Jobin in a statement. “Our team of railroaders remained focused on balancing operational and service excellence while efficiently adjusting to the growing demand.”

In looking to the second half of 2017, Jobin said the period will present challenges due to a strengthening of the Canadian dollar.

The Montreal-based railroad said its goals for the remainder of 2017 includes an adjusted diluted earnings per share in the range of CA$4.95 to CA$5.10 compared with last year’s adjusted diluted EPS of CA$4.59.

Appeals Court Strikes Down STB On-Time Standards

July 18, 2017

Another federal court has struck a blow to the efforts of the U.S. Surface Transportation Board to establish on-time standards for Amtrak trains.

The Eighth U.S. Circuit Court of Appeals found the STB standards to be unconstitutional, saying that the STB had “exceeded its authority” in creating the standards.

The appeals court ruling came in the wake of a similar U.S. Supreme Court decision that development of on-time metrics by the Federal Railroad Administration and Amtrak as directed by Section 207 of 2008’s Passenger Rail Investment and Improvement Act was unconstitutional.

In the Eighth Circuit ruling, Chief Judge Lavenski R. Smith acknowledged that the absence of on-time standards would make it impossible for the STB to investigate or adjudicate disputes brought by Amtrak against its host railroads in the event that punctuality fell below 80 percent for two consecutive quarters.

However, the court in essence decided that the STB’s inability to measure on-time performance is not a problem for the judiciary to solve.

There are two cases pending before the STB in which Amtrak alleges that host railroads needlessly delayed Amtrak trains.

One case involves the handling by Canadian National of the Saluki and Illini between Chicago and Carbondale, Illinois, while the other regards Norfolk Southern’s handling of the Capitol Limited west of Pittsburgh.

In both cases, Amtrak contends that dispatching decisions made by the host railroads are delaying its trains.

The STB had contended that it had the legal right to establish on-time standards “by virtue of its authority to adjudicate complaints brought by Amtrak. Any other result would gut the remedial scheme, a result Congress clearly did not intend.”

Supporting the STB’s position were 13 intervenors, including the National Association of Railroad Passengers and its state affiliates, and the U.S. Conference of Mayors.

Challenging the on-time standards were Union Pacific, CSX, CN and the Association of American Railroads.

They argued that the “gap-filling rationale does not allow one agency to assume the authority expressly delegated to another.”

The court found that the only place in federal law where the 80 percent standard was spelled out was in section 207, which the Supreme Court ruled unconstitutional because Amtrak had a hand in developing it.

Although the court let stand Congress’ setting a statutory right of passenger train “priority” over freight trains, the practical effect of the court decision is that Amtrak has no way to challenge a host railroad’s systematic denial of that right.

Instead, the only motivation for railroads to keep Amtrak trains on time are the proprietary and confidential incentive contracts Amtrak has been able to negotiate with its host railroads pertaining to on-time handling.

The only action Amtrak can take against a host railroad would be to refuse to make incentive payments due to non-performance under the terms of its operating contract with a host railroad.

The court rulings do suggest that Congress could give the FRA a mandate to establish on-time standards provided that Amtrak was not a participant in the writing of those standards.

CN, INRD Continue Cooperative Ventures

June 6, 2017

The Indiana Rail Road and Canadian National continue to work together in moving freight with their latest cooperative venture being construction of a 16,000-foot interchange track in Newton, Illinois, to interchange intermodal and other freight.

The lines of both railroads run parallel west of Newton for three miles. Newton is the eastern terminus of CN’s Effingham District while it is the western end of the INRD line from Indianapolis.

Both rail lines were formerly owned by the Illinois Central.

Before expanding the siding, the only place for the two railroads to interchange freight was a 2,600-foot siding, which has become inadequate due to an increase in intermodal and carload traffic shared by the two railroads.

The expanded siding is also expected to be used by coal and grain traffic as well.

Since launching their joint intermodal service in July 2013, the “direct-to-Indianapolis” intermodal traffic has grown an average of 44 percent a year.

Container moves have grown from 12,500 in 2014 to 17,200 in 2015 to 26,100 units in 2016.

INRD is expanding its Indianapolis intermodal terminal located just south of downtown.

Major improvements at Canadian west coast ports are expected to drive more intermodal traffic growth to Indianapolis.

The Port of Prince Rupert, British Columbia, and the Vancouver Deltaport are currently being expanded.

Prince Rupert is the closest port to Asia and is 2.5  days sailing time closer than Los Angeles. Vancouver is 24 hours closer and is the fourth-largest port in North America.

The average transit time from major Asian ports to Indianapolis is 22 days via Prince Rupert and 24.5 days via Vancouver.

CSX, CP May Launch Run-Through Trains

May 29, 2017

CSX and Canadian Pacific are reportedly discussing ways to eliminate traffic congestion in Chicago, including creating run-through trains.

 “We’ve had some discussions with CSX operationally as well as commercially,” CP CEO Keith Creel said last week at an investor conference.
Noting that the talks are in the early stages, Creel said that the goal is to reduce transit time and improve service reliability.

CP currently relies on Norfolk Southern to move CP trains between Chicago and Detroit because CP does not have its own route from the east.

Stack trains cannot use the Windsor Tunnel beneath the Detroit River and CP has used CSX in recent years to move double stacked container between Chicago and Buffalo.

This puts CP at  competitive disadvantage against its chief rival Canadian National, which reaches Chicago over the former Grand Trunk Western and when can get through Chicago on the Elgin, Joliet & Eastern, which CN acquired in 2009.

CSX and CP interchange about 400 cars per day in Chicago, making CSX CP’s largest interchange partner railroad there.

Creel told the investor conference that 100 of those cars could be sent deep into CSX territory as a run-through train to avoid handling in Chicago. CSX could build trains destined for points on CP.