Posts Tagged ‘precision scheduled railroading’

No Turning Back, Foote Says

January 18, 2018

New CSX CEO James M. Foote wanted to make one thing clear. On his watch there will be no turning back from the commitment made to precision scheduled railroading that the late E. Hunter Harrison brought to the carrier last year.

James Foote

During a conference call on Wednesday to discuss the railroad’s fourth quarter financial results, Foote praised Harrison and said CSX would not be where it is today without him.

“I am committed to seeing his vision through and making CSX the best railroad in North America,” Foote said.

Speaking during the same conference call the newly-appointed CSX vice president of operations, Edmond Harris, said the carrier will continue what Harrison started, including operating fewer trains, putting more locomotives into storage, moving the same tonnage with fewer freight cars, and having a more fluid network.

“The table has been set,” Harris said, saying CSX will take advantage of technology and boost the use of distributed motive power.

Foote said he made changes to the sales and marketing structure to simplify the organization by reducing the leadership group to three business units and aligning certain functions into other departments.

He said he also implemented changes in the operating department at the staff and field levels in order to achieve more efficient operation and achieve service improvements.

Foote noted that one of his first moves as CEO was to order the hump to be razed at Tilford Yard in Atlanta.

The yard, which remains open as a flat switching facility, was one of eight hump yards that were converted last year.

As for what the future holds for CSX operations, Harris said that he favors run-through interchange trains and would like to see CSX bypass the Belt Railway of Chicago by running merchandise trains directly to BNSF and Union Pacific.

He will also seek partnerships with short lines railroads and other Class I carriers to create shorter, more efficient routes.

CSX will study creating directional running for longer trains and will continue to build longer trains pulled by fewer locomotives per train.

Foote said CSX will make it a priority to improve its on-time performance, which was just 56 percent in the fourth quarter of 2017.

Calling that unsatisfactory, Foote said CSX plans to create schedule plans for every carload as a way to improve on-time deliveries.

Foote acknowledged that the rapid changes that Harrison ordered at CSX before his death last Dec. 16, disrupted operations, resulting in angry shippers and additional regulatory oversight.

The railroad also lost some traffic, but Foote predicted that most of it will return. “We are seeing some of those customers return already,” Foote said.

However, CSX doesn’t expect to recoup the 7 percent loss it suffered in domestic intermodal business after it closed its Northwest Ohio Intermodal Terminal and ditched the hub and spoke strategy toward building intermodal traffic.

CSX’s intermodal strategy will be built on increasing container traffic to East Coast ports and not on seeking to develop low-volume service lanes.

Capital spending will fall by 20 percent to $1.6 billion in 2018 on top of a 25 percent cut last year.

That prompted some analysts on the conference call to express concern about CSX’s ability to maintain its infrastructure.

In response, Chief Financial Officer Frank Lonegro said CSX will spend $1.4 billion this year on track maintenance, which he said is about the same as it spent in previous years.

Lonegro said most of the curtailed capital spending would have been for new locomotives and freight cars. But with 900 locomotives in storage, and 20,000 cars sidelined, he said it would be many years before CSX needs to buy more rolling stock.

Looking ahead to a March 1 investors conference, CSX executives said they did not want to provide many details about their expectations for this year and beyond other than they expect the operating ratio to improve due to operations improvements and efficiency gains.

However, they did say that CSX expects to reduce its payroll by 2,000 people this year and that it ended 2017 with 3,282 employees than it had on the last day of 2016. CSX now employs 24,000. CSX also reduced the number of consultants that it hired by 1,418.

Advertisements

Foote Named Permanent CSX CEO

December 23, 2017

James M. Foote had the word “acting” removed from his title on Friday after the CSX board of directors unanimously voted to name him the company’s permanent president and chief executive officer.

James Foote

Foote had been named acting CEO on Dec. 14 after E. Hunter Harrison was placed on medical leave. Harrison died two days later.

In a news release, CSX said that Foote will also join the board of directors.

“Jim has decades of railroading experience and the board is confident of his ability to lead the company,” says CSX Chairman Edward J. Kelly III in a statement. “He has already had a markedly positive impact. The board looks forward to working with him.”

Foote said in the same statement that his intends to continue to implement Harrison’s model of precision scheduled railroading, saying that its implementation is well underway, with the most critical components of the implementation completed and beginning to generate measurable operating improvement.

“We look forward to providing an update on our strategic progress and to showcase our deeply talented management team at our upcoming investor day in March,” Foote said.

Before joining CSX last October, Foote was president and CEO of Bright Rail Energy, a technology company formed in 2012 to design, develop, and sell products that allow railroads to switch locomotives to natural gas power.

He previously served as executive vice president of sales and marketing at Canadian National, which he had joined in 1995 as vice president of investor relations to assist the company’s privatization.

Foote began his railroad career in 1972 as a laborer in the mechanical department with the Soo Line Railroad in Superior, Wisconsin.

For nine years, he worked in operating positions with the Soo Line and the Chicago & North Western fulltime while earning his undergraduate and law degrees.

STB Wants More CSX Service Information

December 16, 2017

The U.S. Surface Transportation Board is taking a renewed interest in CSX operations.

The STB wrote to the railroad on Thursday to ask its managers for a meeting with board members and requested that they provide a detailed update on the ongoing implementation of its precision scheduled railroading model.

In the letter, the STB asked for information concerning the current state of the CSX network and key performance measures in light of continued reports regarding service issues.

In its reports to the STB, CSX has contended that operational improvements have been accelerating, with average train speed up 19 percent and terminal dwell time down 13 percent when compared with the average for 2016.

In the past two weeks, on-time performance has improved and now stands above last year’s levels, but has not yet topped the 81-percent level recorded in the second quarter.

But that hasn’t been enough to satisfy some shippers.

“The board continues to hear concerns related to CSX service challenges or inadequate service, particularly about unsatisfactory ‘last mile’ performance and lack of communication regarding changes to service before they occur,” commissioners Ann Begeman and Deb Miller wrote to CEO E. Hunter Harrison.

The STB sought to encourage CSX to continue to participate in the Chicago Transportation Coordination Office, which helps smooth railroad traffic through the nation’s busiest rail gateway.

That was apparently in response to Harrison saying in October that he was considering pulling out of the CTCO, which the Class I railroads and terminal lines use to monitor such things as yard car inventories, maintenance-of-way planning, weather alerts and service priorities.

“While we recognize that several key performance measures have shown noticeable improvement in recent weeks, other metrics, such as car order fulfillment and local service performance, have lagged when compared to 2016 and first quarter 2017,” they wrote.

The STB also wants CSX to explain its lack of progress in improving car-order fulfillment, including why it can’t match or exceed local service performance from 2016.

Also on the STB’s list is a request for information on the progress the railroad has made on developing trip plans for individual carloads, as well as efforts to improve communication with shippers.

Harrison on Medical Leave From CSX

December 15, 2017

CSX announced Thursday night that CEO E. Hunter Harrison has taken a medical leave of absence and Chief Operating Officer James Foote is serving as acting CEO.

E. Hunter Harrison

The announcement said Harrison is dealing with complications from a recent illness.

A conference call was to be held on Friday morning to discuss the situation.

Harrison has been thought to have health issues for some time. It was reported earlier this year that he sometimes uses supplemental oxygen and that due to an undisclosed illness he has curtailed his traveling.

Concerns about Harrison’s health had been an issue early this year after hedge fund Mantle Ridge acquired a block of CSX stock and pushed for the company to make him CEO.

The CSX board of directors had demanded that Harrison’s medical records be examined by independent physicians, but he declined and the demand was later dropped.

Foote worked with Harrison years ago at Canadian National and was brought to CSX this past October with the idea of eventually succeeding Harrison as CEO of CSX.

“Hunter is a good friend and has been a colleague of mine for many years. He is an icon in the industry and we pray for his speedy recovery,” Foote said in a statement. “I have been following the CSX story very closely since January, but did not realize just how much progress Hunter and CSX’s able team have made replicating the transformation we effected at Canadian National some years ago.”

Harrison agreed to a four-year contract when he agreed to become CEO of CSX.

In his statement, Foote said that the precision scheduled railroading operating model is well in place at CSX and “the company has amassed the critical talent – through education of the internal team and supplementation with a complement of strong PSR operating veterans and a strongly supportive Board – sufficient to follow through and execute on the PSR operating plan.”

CSX Executive in Presentation Lauds Precision Scheduled Railroading, Explains How it is Benefiting Shippers

December 5, 2017

A CSX executive gave a rosy assessment of the benefits of the precision scheduled railroading model during a speech at the RailTrends 2017 conference last week.

Michael Rutherford, CSX vice president of industrial products, said carload customers are benefiting from faster and more dependable service.

Although the closing of hump operations at eight CSX yards has received much publicity, Rutherford said a less visible change has been the practice of blocking cars closer to their origination and pushing them further across the network before they are flat-switched or classified in a hump yard.

“That’s how you get the speed and reliability,” he said. “Hump yards make sense where they make sense. They just don’t make sense everywhere.”

Rutherford said running cars through hump yards was adding two or more days to their transit time and cars were sometimes humped more that once.

Since implementing the precision scheduled railroading model, Rutherford said, CSX has reduced the average merchandise transit time from just under seven days to just under six days by early November.

Rutherford cited an example of faster transit times between Buffalo and Syracuse, two New York cities located 150 miles apart.

Previously, freight traveling from Buffalo to Syracuse went through Syracuse to Selkirk Yard near Albany to be classified. It was then sent back west to Syracuse.

“We used to have to boomerang the car over Selkirk,” Rutherford says. “As a result, the actual route miles were three times the actual distance from Buffalo to Syracuse.”

Today an eastbound train picks up a block of Syracuse cars in Buffalo and drops them off in Syracuse, which Rutherford said is a faster, more reliable service that costs less.

Although many CSX shippers prefer to see their cars move in unit trains because they view that as more reliable than regular merchandise service, Rutherford said that where possible CSX is shifting unit train business into the merchandise network as a way to streamline service.

Rutherford said the downside to unit trains is the extra time expended in building and unloading them, which adds expense by requiring the use of more freight cars.

Metal shipped for a customer in a unit train would require 10 days to load, move from origin to destination, and unload, Rutherford said. But smaller blocks of carloads moving in daily merchandise service has reduced the moves to two days and the shipper is able to use 10 to 15 percent fewer cars to handle the same traffic

Those now surplus cars are being re-assigned to other shippers to carry other freight.

Rutherford acknowledged that CSX is seeking to change the behavior of its shippers by encouraging them to order only the number of cars they need and to unload their shipments more quickly.

When shippers order extra cars, those cause congestion. Precision scheduled railroading seeks to keep rolling stock moving along.

“The change has been transformative,” he said, citing performance measures of reduced terminal dwell time and faster average train speed.

However, Trains magazine observed that Rutherford did not say that CSX’s on-time performance remains lodged at its 2016 level with about a third of its trains arriving late.

Now did he acknowledge that some shippers still believe service is subpar or deteriorating.

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.”

CSX Converts Cumberland Hump to Flat Switching

May 22, 2017

As expected, CSX last week converted its hump yard in Cumberland, Maryland, to flat switching.

It is the fifth such yard to have its hump closed since E. Hunter Harrison became CEO in March and implemented his precision scheduled railroading operating philosophy.

Among other things, that approach looks with disfavor upon hump yards in the belief that they add cost and transit time to freight movements.

Other hump yards that have been converted to flat switching are located in Toledo, Ohio; Louisville, Kentucky.; Hamlet, North Carolina; and Atlanta.

A memo sent to CSX employees last week indicated that the hump at Selkirk, New York, will also be closed in favor of flat switching.

The remaining CSX hump yards are in Waycross, Georgia; Birmingham, Alabama; Nashville, Tennessee; Cincinnati; Avon, Indiana (Indianapolis); and Willard, Ohio.

CSX managers have indicated that those yards are being evaluated and that the railroad expects it could have between two to four hump yards left in its system once that review is completed later this year.

Trains magazine reported that when CSX closes a hump, it does the flat switching on the receiving and departure tracks. The classification bowl tracks stand empty.

The railroad said track and switches from the classification bowls will in time be used elsewhere.