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.