The three railroads have stored thousands of locomotives and freight cars, idled yards, and laid off thousands of employees as they adopt E. Hunter Harrison’s lean operating model.
The cuts have been amplified this year as railroads tighten their belts amid accelerating volume declines, creating a one-two punch that made railroad payrolls the fastest contracting of any industry in October.
“The end game is not to save our way to prosperity,” Kenny Rocker, Union Pacific’s executive vice president for marketing and sales, told the RailTrends 2019 conference.
Becoming more efficient, he says, ultimately makes UP service more reliable and consistent, which will help the railroad gain traffic.
“The end game is growth,” Rocker says.
Mark Wallace, who worked alongside Harrison at Canadian National and Canadian Pacific and is now executive vice president of marketing and sales at CSX, says the reason PSR exists is to enable railroads to provide better service.
“Truckers have been eating our lunch for decades,” Wallace says, pointing to rail’s 8% share of the $980 billion spent annually on transportation.
“The uncomfortable truth is that many former and potential rail customers have, however reluctantly, demonstrated a willingness to pay a premium for the superior reliability offered by the trucks,” Wallace says. “Given that backdrop, given that history, what are we to do? Well, I would argue: Enter Scheduled Railroading.”
Skeptics argue that PSR doesn’t help railroads grow, Wallace points out.
“Ultimately the objective of Scheduled Railroading, its very reason for being, is to better serve customers, present and future,” Wallace says. “Furthermore, I wish to assure everybody that at CSX our aim is to profitably grow — not shrink — the business.”
If CSX can continue to maintain its efficiency and service reliability, it will be able to regain business off the highway in the populous East, Wallace says.
“Recapturing just a tiny slice of the overall transportation spend can be a very big deal for an individual carrier. CSX’s share of the overall transportation market is just over 1%,” he says. “So consider what a quarter or a half a point of market share in a $980 billion annual market would mean to us. The opportunity is huge. Do the math: billions and billions and billions of dollars of opportunity.”
John Scheib, Norfolk Southern’s chief strategy officer, says PSR has improved the railroad’s service by making its yards and main lines much more fluid. As NS has streamlined its operations by reducing switching and moving tonnage on fewer but longer trains, it needs fewer locomotives, cars, and train crews.
“All that yields a capacity dividend, which means we can move more freight on the same assets,” he says. “We can sell that. And we do want to sell that.”
But Canadian National CEO JJ Ruest says Precision Scheduled Railroading is a one-time cost-cutting exercise that by itself doesn’t lead to volume or market share growth.
“Precision Scheduled Railroading helps you to fix your costs one time. But it does not really address how you’re going to grow after that,” Ruest says. “And I think that’s the challenge for the industry. Beyond fixing our costs, beyond having a very efficient railroad, how do we create a product that’s appealing to those actually using the road today?”
CN, the first major railroad to adopt Precision Scheduled Railroading, has been the fastest growing of the big systems for the past decade as it focused on becoming more of a supply chain partner with its customers. Now it’s embarking on a strategy to tie itself more closely to the consumer economy in Eastern Canada as manufacturing and natural resource traffic wane.
Eric Jakubowski, who worked with Harrison at CN and is now chief commercial officer at shortline holding company Anacostia Rail Holdings, warns that some of the Class I railroads have cut management ranks too deeply.
“These are people who had relationships, these are people who could solve problems, these are people who could go chase opportunities,” he says.
Harrison was fond of saying that a PSR railroad’s service would be so good that it would sell itself.
“That’s a problem,” Jakubowski says, particularly when sales forces are cut and trainmasters are spread too thin.
“You can’t replace front line managerial people who are empowered to make decisions with people sitting at corporate headquarters running spreadsheets,” Jakubowski says.
The executives all spoke last week at RailTrends 2019, a conference sponsored by independent analyst Anthony B. Hatch and industry trade publication Progressive Railroading.
