Posts Tagged ‘precision scheduled railroading’

Canadian PSR Success Stories Unlikely to be Replicated by U.S. Class 1 Railroads

June 16, 2021

U.S. railroads that have adopted the precision scheduled railroading operating model like to describe it as a two-step process.

The first step involves ruthless cost cutting as freight schedules and operations are revised to move more freight in fewer and longer trains.

Some shops and yards are closed or reduced in their scope of operation, and layoffs are widespread as the carriers seek to do more with less.

The second chapter is a so-called pivot to growth. Class 1 railroads CEOs like to tell investor conferences that the savings from slimming down and becoming more efficient and reliable operators will enable railroads to chase after volume growth.

But what if the second chapter of the story is actually a myth?

Railroads have an answer for that. They’ll point to the experience of Canadian National and Canadian Pacific, both of which implemented PSR and once it was in place began enjoying double digit traffic growth.

Between 2010 and 2019 Canadian rail traffic rose 47 percent while U.S. rail traffic fell 2 percent.

Yet an analysis published on the website of Trains magazine suggested that what happened in Canada is less likely to occur in the United States.

What drove growth in Canada were factors unique to that country with much of it being driven by international intermodal, petrochemicals and fuel, and agriculture.

Canadian international intermodal traffic grew at the expense of U.S. West Coast ports and a 40 percent rise in containers landing at Canadian ports that were forwarded to the U.S. Midwest.

CN and CP also are hoping that Eastern Canada ports can divert traffic away from U.S. East Coast ports.

The Canadian carriers have other advantages including how farmers in Canada are more dependent on rail than is the case with U.S. farmers.

While Canadian agriculture shipments rose 16 percent over the past decade, U.S. agricultural rail volume fell 22 percent. In the United States, railroads haul less than 50 percent of grain ton-miles.

Coal offers another contrast. Most Canadian coal is metallurgical coal and exports of it to Asia drove a 10 percent increase in coal volume over the past decade.

In the United States, most coal is thermal coal used by power plants, many of which have been shifting to lower cost natural gas. U.S. railroad coal volume in the past decade fell 44 percent.

The Trains analysis noted CN and CP also have some other built-in advantages, including networks that are largely east to west across the country and rely far less than U.S. railroads do on interchange traffic.

The Canadian economy is more reliant on rail transportation because the country has longer distances between urban centers and a highway system that is less developed than that of the U.S. Therefore competition from trucking companies is less intense.

The analysis said CN and CP deserve credit for taking advantage of their opportunities and being creative in generating, for example, traffic to fill containers from U.S. destinations that would otherwise return empty to Asia.

They’ve done this by offering good service and competitive rates to keep this traffic from returning to U.S. ports, the analysis said.

It remains to be seen, the analysis concluded, how successful U.S. carriers will become in growing traffic as they claim to be doing.

But the key point, the analysis said, is that the type of success stories by U.S. Class 1 carriers that CN and CP have enjoyed are not guaranteed because of significant differences in the environments in which the carriers operate.

Oberman Fears Wall Street Pressure Harming Class 1 Railroads

May 28, 2021

A top federal regulator express concern this week during a webcast that Wall Street investors are pressuring railroads, which has thus led to a deterioration of freight service.

U.S. Surface Transportation Board Chairman Martin Oberman also raised questions about the need for major railroad mergers.

“Our mandate as an agency . . . is to ensure and protect a strong national rail network. That’s why we exist. And everything we do should be aimed at that outcome,” Oberman told investors.

He said the pressure from Wall Street includes pushing for ever-lower operating ratios and aggressive share buyback programs.

“There’s been a huge decrease in the level of the workforce over the last few years, I think something like 25 percent,” he said.

“I am concerned it has left the Class I’s with too little cushion to respond to a major crisis like the pandemic or the [polar] vortex, which is more likely to keep coming around. So we are keeping a close watch on the situation.”

In the past decade, the North American Class 1 railroads have adopted the precision scheduled operating model.

Typically, aggressive cost cutting, including reducing the size of the labor force and the number of trains being operated, has followed in the wake of PSR adoption.

The railroad have sought to reduce their operating ratios in a bid to boost profitability.

From February 2017, the month before CSX adopted PSR, through December 2020, U.S. Class I rail employment fell 21 percent overall.

“We’re seeing, I believe, some impact from that on the service side,” Oberman said citing missed switches and crew shortages.

“A lot of this stems from furloughs and quarantines from COVID, but I think it’s also related to the fact that the whole workforce has been greatly reduced over the last few years, I think largely in response to pressures from Wall Street. And I am beginning to get concerned that this could start impacting capital expenditures as well.”

As for stock buybacks, Oberman said in some cases those have been funded with borrowed money.

Stock buybacks are efforts by railroads to boost earnings per share and stock prices.

“Those forces are of concern to me in terms of what they mean for the long-term health of the freight industry and whether we’re going to have an industry staffed enough to fully serve and with enough incentive . . . to keep spending money on greatly needed capital improvements,” Oberman said.

“It’s not our job to come in and micromanage and tell them how to run their companies, but it is our job to keep an eye on the ball so things don’t get too far out of whack,” he said.

Independent rail analyst Anthony B. Hatch told Trains magazine that for all of the talk about railroads cutting capital expenditures, the industry spends far more of their revenue on capital expenditures than most other industries.

He said financial strength is what enables railroads to keep their physical plants in good condition.

The STB chairman also questioned the rationale for railroad mergers as well as the substantial premiums Canadian Pacific and Canadian National were willing to pay to acquire Kansas City Southern.

As for railroad mergers, Oberman expressed skepticism that consolidation will lead to railroads being able to siphon more freight business away from trucking companies.

“I am all for promoting much more competition in the freight world, particularly among railroads and particularly with railroads getting more freight off the highways and onto the rails,” Oberman said, adding that what is needed is more rail competition, not less.

“The thing that’s impressed me most since I’ve come to the board is the lack of competition for most shippers in most parts of the country,” Oberman said.

Many of these shippers are captive simply because they are located on a single rail line with no opportunity for service from a distant second railroad.

House Committee Seeks Probe of PSR

May 17, 2021

The House Committee on Transportation and Infrastructure is seeking an investigation of the practice of precision scheduled railroading.

It has asked the U.S. Government Accountability Office to conduct the probe with a focus on how the practice has affected shippers, Amtrak, commuter railroads, employees and others.

A letter from committee chairman Peter DeFazio (D-Oregon) and Donald Payne Jr. (D-New Jersey), chairman of the Subcommittee on Railroads, Pipelines, and Hazardous Materials, asked Comptroller General Gene Dodaro to, “at a minimum,” investigate 10 aspects of the impact of PSR.

“These include the safety and service impacts of longer trains, and of reduced workforces; elimination or downsizing of yards and maintenance facilities; changes in dispatching practices; on-time performance of passenger trains; quality, availability and reliability of service to shippers; and increases in demurrage or other charges.”

The letter noted that longer trains, unhappy shippers, and a workforce pushed to do more with less is not a model to emulate “unless you’re on Wall Street.”

“But we can’t let hedge fund managers write the rules of railroading,” DeFazio said in a statement.

NS Focusing on Longer Trains

January 28, 2021

You can expect to see even longer trains on Norfolk Southern in the coming months.

NS Chief Operating Officer Cindy Sanborn said this week during an investor’s call to discuss 2020 fourth quarter financial results that NS is seeking to lengthen its trains.

The objective is to reduce its operating ratio, which NS said lags other Class 1 railroads.

The operating ratio reflects the percentage of revenue that is used to cover expenses.

Over the past two years NS has sought to cut operating costs by shifting to the precision scheduled railroading operating model.

It has ceased humping cars at six classification yards and sought to reduce its fuel, labor and locomotive-related costs.

Sanborn said NS is seeing more business but at the same time reducing resources and improving productivity.

“Our push for efficiency led to record train weight and record train length in the [fourth] quarter,” she said.

“These larger trains, combined with our strategy of better matching train size and locomotive horsepower, drove us to record fuel efficiency and enabled us to get the job done with a smaller workforce and a record low count of locomotives.”

NS is now moving freight with 16 percent fewer locomotives and 15 percent fewer crews.

The length and weight of its trains has grown by 10 percent.

That resulted in an 8 percent cut in operating expenses during the fourth quarter.

“Traffic coming back is both our challenge and an opportunity,” Sanborn said. “We can and will add resources to meet customer needs, but first we must explore every option to fully utilize our existing crews and locomotives.”

That will mean that ncreased traffic will be accommodated on existing trains.

It doing this, NS plans to re calibrate operations by re-balancing traffic among existing trains. Extra section trains will operate only when necessary.

Sanborn said doing this will involve seeking to optimally match train size with the pulling power of locomotives while minimizing the number of crew starts.

This is expected to result in an increase in mixing different types of traffic in the same train. It will be done by blocking traffic for the most distant points on the NS network.

“We will continue to look at yards and see how we can speed up cars,” Sanborn said. “The real mission around terminal capability and terminal footprint is around keeping cars moving, or not pushing cars into terminals, moving cars faster. So I think there’s still quite a bit of room there.”

NS expects its workforce size to hold steady or only decline slightly this year.

However, it will recall and retrain furloughed employees for work in other crafts rather than hire new employees.

NS did suffer some increase in terminal dwell times and lower trains speeds as volume picked up around the late 2020 holiday season.

Service also took a hit at time due to high numbers of workers having to quarantine due to the pandemic.

During the fourth quarter, cars spent 16 percent more time in yards while average train speeds fell 5 percent.

“We’ve gotten a lot better. We’re not at 2020 levels, but we are much, much better,” Sanborn said.

NS Revenue, Profits Fell in 3rd Quarter

October 29, 2020

As expected Norfolk Southern reported this week that its revenue and profits sank during the third quarter due to traffic declines that the railroad tied to the COVID-19 pandemic.

Operating income fell 6 percent to $939 million while revenue dropped 12 percent to $2.5 billion.

Adjusted  earnings per share rose 1 percent to $2.51.

During the period NS posted an adjusted operating ratio of 62.5 percent.

During the quarter NS reduced expenses by 15 percent while its traffic volume fell by 7 percent.

Intermodal volume grew 1 percent during the quarter, but merchandise traffic and coal combined fell 11 percent.

Domestic intermodal was up 9 percent while international intermodal volume fell 11 percent.

Coal volume alone fell by 32 percent, which represented most of the volume declines said NS Chief Marketing Officer Alan Shaw.

NS CEO James Squires said the railroad plans to pick up the pace of precision scheduled railroading changes, including closing hump operations in Macon, Georgia, and revising its southern service plans.

“As we continue rolling out PSR, our team sees additional opportunity for efficiency and growth that will close the [operating ratio] gap with the rest of the industry,” Squires said during an investor’s conference call.

The carrier said it is aiming to reach an operating ratio of 60 percent in 2021.

Chief Operating Officer Cindy Sanborn said the change NS is making to its operating plans are more than tweaking.

She said there will be longer trains that will move faster. Train length was up 12 percent this quarter compared to 6,600 feet a year ago.

Increases in intermodal and merchandise traffic have been added to existing trains.

Crew starts in August and September did not increase even though traffic volume rose.

The NS workforce in the third quarter was 18 percent below what it was a year ago.

Shaw predicted a rebound in consumer-related traffic, including intermodal and automotive, but expects anything connected to energy to recover more slowly.

He said there is no hope for coal traffic to improve so long as natural gas prices remain low and utility stockpiles stay 45 percent higher than they were at this time last year.

Sanborn said NS still has the ability to increase train length because only 9 percent of merchandise trains at at the maximum of the horsepower of their locomotive consists.

Just 10 percent of NS intermodal trains are longer than 10,000 feet.

NS in September closed its hump at Enola Yard near Harrisburg, Pennsylvania.

The closing of the hump in Macon next week will mark the sixth hump that NS has idled since 2019.

 “A lot of these hump conversions that you’ve seen  . . . actually improves car speed,” Sanborn said. “And at a system level what we want to do is avoid touches all together if at all possible. If we can speed the cars up, that’s good for us in terms of asset intensity and it’s also good for our customers. It provides them a more timely service product.”

As part of its redesign of southern operations, NS also plans to close several local yards around Atlanta.

As other railroads practicing PSR have done, NS is pre-blocking more traffic at origin and focusing on block-swapping en route.

NS will still have jump yards in Elkhart, Indiana; Conway (Pittsburgh), Pennsylvania; Birmingham, Alabama; and Chattanooga, Tennessee.

Conference Speakers Optimistic That Intermodal Traffic Growth Will Continue

October 2, 2020

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.

NS to Close Enola Hump

September 24, 2020

Norfolk Southern will end hump operations on Sept. 25 at Enola Yard near Harrisburg, Pennsylvania.

The carrier said Enola will change to flat switching. A railroad spokesman said some jobs will be curtailed by the change, but no jobs will be lost in the diesel shop.

The closing of the Enola hump is the fifth hump that NS has closed this year. Earlier it shut down the hump in Bellevue, which is NS’s largest railroad classification yard in the East.

NS also shut down hump operations in Allentown, Pennsylvania; Sheffield, Alabama; and Linwood, North Carolina.

The NS spokesman sought to frame closing the Enola hump as a service improvement, saying it would reduced the amount of time that rail cars wait to be processed.

Shuttering humps has been a part of NS adopting the precision scheduled railroading operating model in which use of hump yards is de-emphasized in favor of pre-blocking more traffic at point of origin and engaging in block swapping en route.

NS CEO Extols the Virtues of PSR

September 18, 2020

Norfolk Southern CEO touted the virtues of precision scheduled railroading this week during a presentation to investors, crowing about how the railroad is doing more with less.

That includes fewer trains, fewer employees and maybe soon fewer hump yard operations.

Squires said during the Morgan Stanley investor conference on Thursday morning that NS may idle more hump yards after closing humps at four classification yards this year.

NS has labeled its PSR plan as TOP21 and before it was implemented last year NS had 10 active hump yards.

But this year it has ceased hump operations in Bellevue; Sheffield, Alabama, Linwood, North Carolina, and Allentown, Pennsylvania.

Squires said that under the TOP21 operating plan NS has substantially reduced its dependence on major classification yards.

“Over the past year we’ve fundamentally changed the way we run our railroad to ensure the greatest efficiency across our operations,” Squires said.

“Step change is hardly adequate to describe the pace at which we’ve reduced resources and assets. And yet we’ve dramatically improved the service we’re providing to our customers and have created new capacity in the process.”

He said the potential exists for curtailing more hump operations.

NS has six hump yards still in operation including Elkhart, Indiana; Conway Yard near Pittsburgh; Enola Yard near Harrisburg, Pennsylvania; Chattanooga, Tennessee; Birmingham, Alabama; and Macon, Georgia.

Some changes NS has implemented were a response to falling traffic during the COVID-19 pandemic, including the end of dedicated auto rack trains due to auto assembly plants shutting down.

But once those plants resumed production, NS did not return to running auto rack trains but instead began carrying finished vehicles in the consists of general merchandise trains.

However, not all of the lost traffic is due to the pandemic. NS has seen its daily carloads fall 4 percent since TOP21 was fully implemented in July 2019.

Crew starts are 19 percent lower, train weight has increased 6 percent compared with last year, and the average train length has risen 11 percent.

NS has reduced its workforce by 24 percent since early 2019 and the active locomotive fleet is down 27 percent to 2,561 units as of July 31.

A surge in domestic containers has pushed NS intermodal volumes in recent weeks to fall peak levels as retailers seek to restock low inventories and e-commerce business and related parcel traffic has risen.

The carrier is working with such freight companies as J.B. Hunt, Hub Group, FedEx, and UPS to bring increase intermodal volume.

Panel Discusses Pros, Cons of PSR

August 20, 2020

The precision scheduled railroad operating model might seem to be the same at all railroads that use it, but panelists said during the Midwest Virtual Rail Conference that there are differences from railroad to railroad in how the model is practiced and the consequences for shippers.

Panelists said some shippers have benefited greatly by the use of PSR by Class 1 railroads, but others have suffered.

In some instances it is not the model itself that caused that but the lack of adequate personnel that railroads have to support their operations.

That latter point was emphasized by Dan Sabin, president of short line Iowa Northern.

His the 253-mile railroad interchanges with three Class 1s practicing PSR, Canadian National, Canadian Pacific and Union Pacific.

When the late E. Hunter Harrison implemented PSR at CN and CP, a byproduct was staff cuts that resulted in the loss of institutional knowledge by experienced local operating personnel.

Those positions were either eliminated or replaced with inexperienced people who have proven difficult to work with.

Sabin said CP has a responsible marketing team, but its interchange service is unreliable. As a result, some of his customers refuse to route freight via CP.

CN personnel, Sabin said, have a condescending attitude that reflects a lack of understanding of the benefits of traffic growth that can come from working closely with short line railroads.

Of the three Class 1s that Iowa Northern works with, Sabin said Union Pacific is the best.

He said UP kept experienced local operating people in place while reducing bureaucracy at its headquarters.

It has focused on Iowa Northern’s role of providing first- and last-mile service, has communicated well, has assigned a liaison who can get through any department at headquarters within a day, and has been open to suggestions Iowa Northern has made.

“They adopted a lot of their operations to fit what our customers needed and showed an incredible amount of appreciation for what we are doing with them. They are making changes quickly to identify and rectify service issues,” Sabin said.

Tyler Dick, a lecturer and principal research engineer at the Railtec program at the University of Illinois at Urbana-Champaign, said Harrison sought to combine elements of two opposing strategies in railroading.

One approach, known as hold-for-tonnage, is to hold onto freight cars in yards until enough of them have accumulated to operate one train.

The other approach, known a schedule adherence, seeks to use shorter trains to provide more frequent service with shorter transit times.

In Harrison’s vision, PSR sought to provide consistent, frequent service to reduce terminal dwell and transit time but doing so with long trains and reduced rolling stock requirements to minimize costs.

Hence PSR practitioners seek to operate general-purpose trains instead of dedicated single-commodity trains.

PSR also has changed the way local service is provided. Rather than use multiple crews on the same shift, railroads are using one crew per shift that shares motive power.

This might be a more efficient use of assets but it comes at the cost of service flexibility.

Dick said PSR also did away with the practice of locals gathering traffic, taking it to a yard and then sending it to a hump yard for classification into blocks organized by destination.

Under PSR, there is more emphasis on pre-blocking outbound traffic at origin or local yards.

That has meant less need for sorting with hump yards, which in turn can be converted to flat-switching in order to reduce costs.

In short, Dick said PSR simplified traffic flows and switching requirements while maximizing train size and minimizing dwell time.

Yet he said PSR is not one thing but a collection of actions that change operating practices and culture.

Peter Swan, an associate professor of logistics and operations management at Penn State Harrisburg, said PSR has resulted in more efficient railroads that use less equipment and have reduced the variability in transit times by reducing the use of hump yards.

That has benefited some shippers and been useful to the railroads during the COVID-19 pandemic-related changes in freight traffic.

On the other hand, Swan said, other shippers are in worse condition because they’ve seen their transit times get longer and they now need a larger car fleet to compensate for that.

That has particularly been the case, he said, with freight originating on light-density lines that have seen reduced service frequency.

Swan cited the case of an unidentified short line that used to receive 50 cars three times a week from a Class 1 connection. Now it receives 150 cars once a week.

He noted that short lines fortunate enough to have their interchange located in close proximity to a busy Class 1 terminal might see five day a week interchange on a reliable schedule.

PSR has also resulted in Class 1 railroads forcing demurrage and accessorial charges onto shippers. Railroads used to bear those costs.

“Normally in a service business you try to provide some service the customer wants,” Swan said.

“Under PSR the railroads provide a service and the customers can take it or leave it to a large extent.”

Pandemic Effects on Supply Chains Has Been Uneven

July 2, 2020

The effects of the CVOID-19 pandemic on supply chains served by railroads have been uneven.

A panel of shippers convened on behalf of Railway Age magazine also agreed that despite the pandemic rail service has been strong in recent months with shippers able to get better pricing if they deliver volume to Class I carriers.

Whereas the pandemic had depressed paper shipping to levels one panelist called the “slowest demand environment” she has seen during her time in the industry, chemical shippers have been relatively unaffected because they were deemed to be providing essential services.

The shippers expect traffic volumes in July to exceed those of June but two shippers predicted that July traffic will be flat when compared with the same month in 2019.

Shippers are uncertain if traffic will pick up in the fall.

The paper shipper said business has been adversely affected by retailers having to shut down during stay at home orders.

The retailers weren’t buying paper to advertise what they had for sale.

The shipper said her company has thus far shipped 23 rail cars of paper thus far in 2020 while in a typical year it would ship 750 cars for the year.

On the other hand, the shipper said, shipment of paper for packaging or masks businesses has been strong.

Shippers on the panel noted concerns about the lack of adequate customer service from railroads, which they attributed to the carriers having cut management positions in that area.

One shipper said she seldom hears from the customer service departments of the railroads she works with and another shipper said the customer service representative at the railroad he works with is too inexperienced to be helpful.

A panelist said the situation seems to be that railroads have reduced their staffing by so much that as rail shipping has begun to recover in recent weeks the carriers are struggling to get employees back to positions that could handle the increase.

That shipper said this was similar to what happened during the recession of 2008.

Railroads have been pushing shippers to use self-service applications.

However, when something goes wrong and a shipper tries to reach the railroad customer service department by phone, it has been difficult at times to reach someone who is knowledgeable and helpful.

One shipper said the more that his company uses its own technology the more a railroad it works with wants to work with them.

This has been particularly the case with trucking where anything that can eliminate wait time or paperwork for drivers is welcomed by the carriers.

Yet panelists noted that Class 1 railroads are seeking to boost their traffic volume and marketing staffs are reaching out to shippers for more business.

Although the pandemic has disrupted supply chains, the panelists do not expect it to result in major changes once the pandemic abates.

They attributed that to supply chains already being efficient before the pandemic struck.

Some panelists expect there might be a shift to less reliance on goods made in China to greater use of goods from Southeast Asia or India.

That could result in more shipments landing at East Coast rather than West Coast ports.

Asked about the effect of precision scheduled railroading, the panelists said it has helped with long-haul freight moves but the first-mile and last-mile segments remain slow and frustrating.

Some shippers highlighted a discrepancy between their unchanged transit times and the bragging of Class I railroads about improved transit times, increased velocity and lower terminal dwell.

An emphasis on trip plan compliance might be a better measurement of rail service, but shippers said trip plan compliance can be flawed, too.