CN, NS CEOs Defend Scheduled Railroading

CEOs of Norfolk Southern and Canadian National sought to make the case for why precision scheduled railroading is best for shippers and railroads during the recent Midwest Association of Rail Shippers.

As reported by Trains magazine on its website, CN CEO Tracy Robinson argued that scheduled railroading is working for shippers and the railroad alike.

NS CEO Alan Shaw reiterated a point he made last year that the Atlanta-based Class 1 carrier is seeking to refine its scheduled railroading practices to move away from the cycle of reducing its workforce during economic downturns as has been the industry standard.

Robinson described PSR as basic railroading that provides consistent service. The key to that is providing on-time service.

“We are moving meaningfully faster, and we are dwelling less,” Robinson said.

“So we’re learning as we go, we’re relearning as we go, and we’re going to remain focused on scheduled railroading.”

During his remarks Shaw said NS is no longer trying to “time the market” in its decisions about crew staffing and assets.

“Because frankly, that’s where we’ve gotten in trouble in the past,” he said. “The economy moves up, and we don’t have enough crews, or enough intermodal chassis, or enough locomotives.”

Shaw said NS is taking a longer view by seeking to determine what it needs to get to where it wants to be in terms of operating efficiency three to five years from now and pouring resources into achieving that.

He attributed the service issues NS has experienced in the past couple years to trying to move up and down with the economic cycle.

Reacting to the current economic cycle has been useful in achieving short-term profitability but Shaw said that has come at the cost of lost revenue opportunity in the longer term.

“We took a look at this, and look at the revenue opportunity you lose, when you have a poor service product,” Shaw said. “And we’re also talking about the additional costs. I don’t think people realize a faster railroad is a less expensive railroad. One that’s running on time, one that’s running on schedule, is less expensive than one that’s running off schedule.”

Additional information about what Robinson and Shaw had to say can be read at https://www.trains.com/trn/news-reviews/news-wire/cn-ns-ceos-tell-shippers-service-will-continue-to-improve/

GAO Review of Effects of PSR on Rail Safety Inconclusive

The U.S. Government Accountability study concluded that the effects on railroad safety of the implementation of the precision scheduled railroading operating model is inconclusive.

One hallmark of PSR has been longer and fewer trains along with a reduction in railroad work forces.After adopting PSR, railroads cut their workforces by about 28 percent between 2011 and 2012.

PSR has been widely adopted by North American Class 1 railroads.

GAO said its study included interviews with railroad executives, employee unions, shippers and other stakeholders.

FRA officials told the GAO that the agency’s data about rail operations after adopting PSR didn’t show any clear conclusion on rail safety.

The agency said it continues to monitor railroad safety performance, including conducting inspections and reviewing existing regulations.

Railroad executives contended PSR has had no effect on railroad safety, while rail safety inspectors and employee unions pointed to safety concerns related to worker cuts and longer trains.

CSX CEO Emphasizes Teamwork at Town Hall

During his first week on the job, new CSX CEO Joseph Hinrichs held a town hall meeting at which he said the Class 1 carrier has no plans to end its precision scheduled railroading operating plan.

However, as reported by Trains magazine on its website, Hinrichs acknowledged that CSX needs to make improvements in its customer service and organizational culture.

The former Ford Motor Company executive said the latter two will be among his primary focuses at the helm of CSX.

“I was a customer for a couple decades. Our customers don’t really love us,” Hinrichs said. “We [Ford] did business with rail because we had to, not because we wanted to.”

Hinrichs said improving service will require having enough operating crew members to handle shipper demands and demonstrating to those shippers that CSX can deliver the service shippers demand.

The key to doing that will be teamwork, which means creating a culture where all employees feel appreciated and valued, work well together, support each other, and are proud to work at the railroad.

“Great teammates . . . don’t cuss at somebody, they don’t belittle somebody. And so hold yourself to that standard and hold your teammates to that standard and we can raise the level of our performance just by how we work together,” Hinrichs said.

He said he’ll be spending much of his first few weeks in the field meeting employees and learning about rail operations.

During the town hall meeting Hinrichs said he has no plans to make management changes.

Hinrich drew a few laughs when noting that he is an Ohio State fan and the colors of CSX locomotives are too much like the colors of rival University of Michigan.

He quickly added that he wasn’t saying the locomotives liveries will change to OSU colors of scarlet and gray.

Foote Defends PSR in Spirited Speech

CSX CEO James Foote gave a spirited defense of the precision scheduled railroading operating model during a speech to a shipper’s association, but acknowledged his company needs to do a lot of things differently.

As reported by Trains magazine on its website, Foote told attendees of the Midwest Association of Rail Shippers that blaming the railroad industry’s recent service issues on PSR is nonsense.

In hindsight, Foote said CSX made mistakes during the COVID-19 pandemic, including laying off workers when business plummeted.

“If I had the decision to make over again . . . we would have never laid off an employee,” Foote said. “Never. But there was no vision of the future, there was no idea what we expected to encounter.”

Foote said at the time he and other railroad executives expected the business downturn to play out as had other business downturns with the same cycle of layoffs and recalls.

CSX laid off about 1,000 operating workers but when it attempted to recall them, many didn’t return.

The CSX train and engine workforce was about 7,000 at the end of 2019, dipped to about 6,000 during the pandemic and rose to 6,800 after recalls went out.

Although CSX hired another 2,000 T&E workers, its workforce has fallen to 6,600 T&E employees because about half of the new hires have quit within the first six months of employment.

Foote said that happened because they began realizing they would have to work on weekends and holidays or miss the birthdays of their children.

He said the industry needs to find ways to make railroad work more attractive.

“We need to provide employees with greater flexibility,” he said. “Is it a different kind of bid arrangement, where they can go work on this kind of job one day, and this kind of job another day — yard jobs, where they can have a regular assignment and work regular days off, and then the people that want to make more money can bid the road jobs.”

Foote also took issue with the criticism that Class 1 railroads are acting at the behest of powerful investors.

“Everybody says, ‘oh, my God, he’s beholden to Wall Street,’ ” Foote said. “Do you have any idea how much money CSX has lost because of our failure to move freight? Enormous amounts of money. This doesn’t benefit me. This doesn’t benefit the shareholder. This doesn’t benefit anybody.”

He described the criticism of PSR as an excuse to “blame the railroad management for something they intentionally did. It’s insanity.”

More of Foote’s comments can be read at https://www.trains.com/trn/news-reviews/news-wire/csxs-foote-blaming-psr-for-rail-problems-is-nonsense/

NS Launches New Operating Plan

Norfolk Southern launched on Monday a new operating plan that is largely focused on improving intermodal service although it will be applied to all types of freight shipments.

The plan, known as Thoroughbred Operating Plan|Service Productivity Growth was described as an evolution of its previous operating plan known as Thoroughbred Operating Plans 21.

TOP|SPG continues to build upon the elements of the precision scheduled railroading model with its emphasis on efficiency but also adding and more point-to-point intermodal service.

For example, NS will consolidate all intermodal traffic moving between Chicago and Harrisburg, Pennsylvania, at one terminal in Chicago, 47^th Street.

Under the previous operating plan, NS operated one train daily between 47^th Street in Chicago and Rutherford Yard in Harrisburg and one train daily between 63^rd Street in Chicago and Rutherford.

In the new operating plan Chicago-Harrisburg intermodal operations will be consolidated at 47^th Street and expanded to four daily trains between there and Harrisburg. The intermodal trains serving the 63^rd Street terminal will be eliminated.

NS officials said they are seeking to increase the number of miles per day that cars travel by reducing how often those cars are handled en route and how much time they spend sitting in yards.

The running time will be adjusted for more than half of all road trains. Schedules will be changed for 90 percent of all scheduled trains.

There will be changes to 39 percent of yard blocks. The officials said the new operating plan seeks to reduce network directional imbalance, and simplify operations of routes and terminals.

The carrier indicated it will increase the number of daily intermodal trains it operates systemwide from 79 to 85.

NS CEO Alan Shaw cautioned that implementation of the plan won’t occur overnight.

In a video created to announce the new operating plan, Shaw said the goals of the plan are reducing the complexity of the NS network by reducing train meets and how often cars need to be worked while en route.

In a social media post, NS said the new operating plan “isn’t a radical change in how we work with our customers, but a shift in how we execute our operations to move their shipments more directly and consistently.”

NS said there will be no operating changes for most customers and for those who are affected It has been working with them to ensure they are prepared for coming changes.

Above all, NS indicated, the new operating plan seeks to provide greater consistency in the service provided to shippers.

Union Rips PSR in Letter to STB

The adoption of the precision scheduled railroading operating model is the culprit behind service issues that Class 1 railroads are having, a railroad labor union has told the U.S. Surface Transportation Board.

The SMART Transportation Division wrote in the April 1 letter that the nation’s freight railroad network is “at a breaking point” and “cannot sustain any more reductions.” The union, which represents 40,000 railroad workers, wants the STB to intervene.

The letter said crew shortages that Class 1 railroads have blamed for service issues are self-inflicted hindrances that railroads brought on by their adoption of PSR.

The concerns raised by the union are similar to those raised earlier this spring by a trade association that represents grain shippers.

Railroads reduced their worker ranks during the worst of the COVID-19 pandemic when freight traffic plunged.

But after traffic began rebounding, some furloughed workers chose not to return to their railroad jobs. The Class 1 carriers have characterized this as being higher than usual compared with previous times when furloughed workers were recalled.

The union letter said about 33 percent of the country’s railroad workforce was laid off when PSR was initially implemented and thousands of locomotives were placed in storage.

One hallmark of how PSR has been implemented in the United States by Class 1 railroads is operating fewer, but longer, trains.

Class 1 railroads have been actively seeking to hire new conductors in areas with acute crew shortages but have bumped up against a tight labor market.

The union letter cited other operational changes that have adversely affected freight service.

It said that in an effort to save fuel crews have been restricted from operating trains at maximum authorized speeds.

“ . . . they are directed to limit the locomotive’s throttle position, acceleration, and overall train speed to no more than forty  mph. This not only impedes system fluidity, but it greatly hamstrings a railroad’s ability to service customers.”

As the union sees it, Class 1 railroads are now in a position of not having enough crew members or locomotives “to operate the necessary number of trains required to provide a level of service that equals the current level of demand.”

The union’s letter also took aim at railroad attendance policies that the union said require train crews to work 29 out of 30 days per month.

 “Not only has morale dropped to an all-time low, but employees are also leaving the industry in unprecedented numbers,” the union wrote.

NS Revising its Operating Plan

Norfolk Southern has given its operating plan a new name.

During a fourth quarter earnings call with investors this week, company officials said the new plan, known as TOP SPG, involves a reworking of the railroad’s merchandise operating plan.

TOP, which denotes Thoroughbred Operating Plan, is the NS version of precision scheduled railroading, which the company implemented in summer 2019.

SPG stands for service, productivity and growth, which Chief Operating Officer Cindy Sanborn described as the three facets of the plan.

The operating plan covers all types of trains and freight. The plan calls for long trains and a more balanced train plan that NS President Alan Shaw said seeks to improve efficiency and service.

The new operating plan will be implemented this spring as NS places into service a new wave of conductors who are going through training.

Sanborn acknowledged that during the fourth quarter service quality was not where the company wanted it to be, which she attributed in part to crew shortages in some regions of the NS network when the number of operating personnel fell by 8 percent.

NS has sought to compensate for this by boosting its locomotive fleet by 5 percent by putting back into service idled units. It also has been operating fewer but longer trains.

During the fourth quarter average train speed declined 17 percent compared with the same period in 2020. Terminal dwell increased 24 percent.

Sanborn said both metrics have improved this month but NS remains hindered by crew shortages stemming from COVID-19 infections and quarantines.

NS plans to continue to convert locomotives from DC to AC traction operation. Sanborn said the motive power fleet is now 60 percent AC traction and two-thirds of it is capable of being used as distributed power.

During the fourth quarter NS completed one siding project and plans eight additional siding projects in the Southeast where many routes are single track.

Adding siding capacity is key to being able to operate longer trains.

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

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

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

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.