Service Woes Get Airing at Shipper Conference

Shippers and Class 1 railroad executives discussed service issues this week during presentations at the North East Association of Rail Shippers meeting.

Top executives of CSX and Norfolk Southern insisted that although their service isn’t what anyone wants it to be, they are working to improve it.

The executives said their efforts are being hindered by crew shortages and supply chain disruptions.

Farrukh Bezar, CSX’s senior vice president and chief strategy officer, said the carrier has full conductor training classes and expects to increase significantly its operating employee ranks by the middle of the summer.

NS Chief Marketing Officer Ed Elkins made a similar pledge and repeated a common refrain that Class 1 executives have been making for months that it has faced higher than expected attrition among its work force and is having a tough time hiring new workers during a tight labor market.

Elkins, who began his railroad career as a conductor, said NS has a record number of conductors in training.

One shipper told the conference that his company has shifted loads that once moved in intermodal service to trucks.

That has cost more, said Ken Sanchez, the president of Chesapeake Products of Baltimore, and the company has passed those costs on to its customers.

He said carload traffic it ships by rail, including loaded hopper cars bound for Ohio, has sat in railroad yards for days and endured terminal delays, slow trains and car shortages.

The customer service departs of railroads have been non-responsive.

The crew shortage issue was emphasized by Todd Tranausky, vice president of rail and intermodal at FTR Transportation Intelligence.

He said no carrier could say it is satisfied with the service it is providing.

More information about the presentations can be found at the website of Trains magazine at https://www.trains.com/trn/news-reviews/news-wire/railroad-executives-outline-train-crew-hiring-challenges-promise-service-improvements/

Conference Speakers Optimistic That Intermodal Traffic Growth Will Continue

Colorful containers on a late day eastbound intermodal train on  CSX in Clinton, Ohio.

Speakers at the recently concluded North East Association of Rail Shippers virtual fall conference expressed cautious optimism that recent growth in intermodal volume can help railroads recover from traffic losses prompted by the COVID-19 pandemic.

Jason Seidl, managing director of Cowan and Company said the consensus among railroad executives who spoke during the conference is that current trends could continue for the remainder of 2020 and into next year.

Railroads are bullish on intermodal for the time being due to continued tightness in the trucking industry that has sent some shipment onto the rails.

Kansas City Southern CEO Pat Ottensmeyer said the USMCA treaty, which replaced NAFTA,  “allows North America to emerge as an even more powerful force in global manufacturing and trade.”

However, Ottensmeyer said the United States “must do a better job” coordinating policy with Mexico and Canada in order to maximize the benefits of the treaty.

Tom Tisa, who heads business development for CSX, noted that railroads posted intermodal traffic records in August because retailers were restocking depleted inventories and preparing for the holiday sales season.

However, Tisa expressed some uncertainty that the intermodal surge is sustainable although he is optimistic that it will continue.

Speakers at the conferences noted a contrast between how Canadian Class 1 railroads are managing their precision scheduled railroading operating model with how it is being done by U.S.-based carriers.

Analysts said this probably is because Canadian National and Canadian Pacific have been using PSR for a longer period of time whereas the U.S. carriers are still in early stages of

PSR, particularly those focused on chopping costs and paring assets.

Whereas U.S. railroads are still looking to sell low-density lines, Canadian carriers are seeking to add routes, including some lines they once spun off.

Shipper Views on PSR are Mixed

Although all North American Class 1 railroads but BNSF have embraced the precision scheduled railroading model with enthusiasm, their customers are less enthusiastic.

Shippers attending a conference earlier this year of the North East Association of Rail Shippers heard ixed reviews about PSR.

One panelist said it’s too soon to say whether PSR has or will deliver its promised benefits of better service.

Todd Tranasky, vice president rail and intermodal at FRT Associates, said at mature PSR railroads, including Canadian National and Canadian Pacific, service has stabilized and even improved in some lanes.

However, adverse weather has skewed the service quality at other carriers that have recently implemented PSR, making it difficult to draw a firm conclusion on the operating model’s impact.

“Shippers are not entirely happy with the changes that have occurred, even though PSR has not been the only influence on railroad behavior and modal dynamics,” Tanasky said.

An analysis published in Railway Age noted that attendance at the NEARS conference last April was the second largest in the history of the conference, something the magazine attributed to the adoption of PSR by CSX and Norfolk Southern as well as CN and CP, all of which serve the Northeastern United States.

Speaking to the conference, NEARS President Jason Seidl said that shippers had an initial bias against PSR because of how poorly the practice unfolded at CSX in 2017.

“Despite an initial bias against PSR driven by CSX’s early service failures, they seem to be cautiously optimistic that PSR implementation on the part of NS, Union Pacific and Kansas City Southern will have a more balanced approach.” Seidel said.

Railway Age observed that it remains unclear how PSR is affecting shippers.

In its analysis the magazine observed that PSR has become a “buzz-acronym much of the Wall Street sell-side community has embraced with predictable gusto, because it appears to be based on generating short-term ‘shareholder value’ (an equally popular buzz-term) and not on long-term, sustainable top-line business growth.”

Looming over the discussion about the effect of PSR on freight shippers is the shadow of the late E. Hunter Harrison, the railroad executive who is most associated with favoring the PSR model, having implemented it at the Illinois Central, CN, CP and CSX.

It was Harrison’s implementation of PSR at CSX that most soured many shippers.

“Hunter implemented PSR on CSX way too fast. He broke a lot of eggs. It’s better to make changes much more carefully over a longer time, without cracking the eggs,” said MidRail LLC Chairman Gil Lamphere, who earlier in his career as a railroad entrepreneur and investor dealt with Harrison.

Lamphere was critical of how Class 1 railroads have been behaving since switching to the PSR operating model, saying much of what has occurred in the railroad industry has been driven largely driven by the influence of hedge funds and their short-term return on investment focus.

That has been particularly the case with the obsession by Wall Street and railroad CEOS on operating ratio, which is the percentage of revenue that is used to pay expenses.

Lamphere described this as the “cult of operating ratio.”

He said to Wall Street investors operating ratio is the inverse of operating profits, which should be based on price times volume, not on reducing expenses.

“This isn’t about expenses. It’s about sustainable growth,” Lamphere said. “The Class I railroads have become oligopolies. Money paid out to shareholders is money that’s not being re-invested into the network.”

However, Lamphere said there is one exception. CN is investing capital and adding capacity in a strategic and intelligent manner.

“The future of railroads is not about taking a slice out of the pie, but growing the pie,” Lamphere said.

If the U.S. Class 1 carriers fail to do PSR intelligently, he said, the government is going to get involved.

By that he meant the Class I’s have to respect short line railroads and their interchange points with the Class 1s.

“The Surface Transportation Board is watching this very carefully. STB is sensitive to shipper needs,” Lamphere said.

PSR can be disruptive to the operations of short-line railroads, Lamphere said.

Many short lines do not believe their Class 1 partners are paying attention although he acknowledged that it’s a challenge for the Class Is to integrate short lines into PSR.

Railroads that have implemented PSR have said that it is about better and more efficient movement of rail cars.

This has resulted in changes in how often railroads switch some customers. In many cases changes in railroad operations have been designed to pressure shippers in doing business in different ways.

This has created stress for shippers said Ken Sherman, vice president and general manager of global supply chain logistics provider Intellitrans.

He said shipper concerns with PSR revolve around “planning, smart execution, change management and financials.”

Sherman described planning as order management. “The top priority for shippers is to fill customer orders on time. This results in shipper anxiety when trying to plan for potential change in carrier service.

Shippers build average transit times into the planning process so changes in transit time can negatively affect order fulfilment capability.

In some instances customers have added up to six extra days into transit plans because of PSR implementation.

He said that resulted when shippers changed the routing of some freight to avoid congestion in some yards that resulted during the implementation stages of PSR. But that added transit time.

Sherman said first-mile/last-mile service consistency is critical to shippers but turnover in local train and engine crews has resulted in such service inconsistencies as incorrectly placed rail cars at facilities, missed switches, bill of lading corrections, and increased origin and destination dwell times.

Switching service changes has strained empty car supply, Sherman said.

“Decreased fleet utilization requires acquisition of additional assets to make commitments or keep the plant running,” he said.

Sherman said PSR’s reductions in manifest service “has created the perception that the railroads no longer want this business.”

But Sherman said some shippers have found that they will have to wait for implementation of PSR to play out and for railroads to work out their problems because the perceived hassle is not worth the effort to switch to truck until rail service improves.

Another drawback of PSR is that railroads have virtually no reserve capacity for special situations, including special train/switch availability for hot-car situations.

Shippers perceive that railroads lack sufficient customer service representatives to answer an increased volume of inquiries

If a rail car is placed on the wrong train, it travels further, which limits or eliminates a railroad’s ability to get it turned around.

There have been some positive results from PSR, Sherman said, including decreases in in-transit dwell time, fewer lost cars and intra-carrier mishandled cars, decreased transit time and  improved transit consistency.