Thoughts on the late E. Hunter Harrison's Precision Scheduled Railroading, the Magic Elixir for Maximum Profitability and Low Operation Ratios

Note:  When I first published this post in October 2018, Norfolk Southern had not yet succumbed to the magic elixir known as Precision Scheduled Railroading. They'd tried closing classification yards that they thought were superfluous (DeButts Yard in Chattanooga) only to find that it seriously bit them in the a$$.  The resulting train stoppage on lines and west to Memphis, Birmingham, the Meridian Speedway and New Orleans was a wake up call to the Management:  You can't just cut assets without understanding what removing those assets will do to your operations.  As a result, Norfolk Southern decided to redesign its operations with a "clean sheet" method. Their new plan TOP 21 (Thoroughbred Operating Procedures 2021), is a modified version of Precision Scheduled Railroading.  NS decided to look at what worked and made sense before trying radical solutions that caused operations to slow down and alienate customers to the point of complain about a lack of service or  to change to an alternate means of transportation.  So far NS has increased lengths of trains and reduced train starts, which cuts crew costs and has announced that trains would use distributed power units which saves fuel.  They've also announced that they will add manifest cars to intermodal and unit trains they can get them to their destinations quicker without impeding the progress of those trains.

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Precision Scheduled Railroading, the wonder drug for railroad profits, as advertised by the late showman E. Hunter HarrisonWho'd led the Illinois Central Railroad, the Canadian National Railway, after it acquired the Illinois Central, the Canadian Pacific Railroad and finally CSX where he succumbed to chronic Pulmonary Disease.  Lauded for its effects on profits and dividends by Investment bankers, sometimes it works and sometimes not so much.

Lance Fritz at the Union Pacific finally succumbed to the pressure from investment bankers in September 2018 as he agreed to a limited, non-disruptive implementation of PSR.  Patrick Ottensmeyer announced that Kansas City Southern would follow suit, because of its extensive trackage rights and interchanges on the UP.  That left Norfolk Southern announcing in its October 2018 earnings call that after and despite a record low 65.2% operating ratio, record crew productivity and record quarterly profits that they would also implement limited, non-disruptive elements of PSR.  Only Burlington Northern Santa Fe, who is owned by Berkshire-Hathaway, did not succumb to the flavor of the day and take the "green pill" that's been demanded by investment bankers.

You might remember that Jim Squires and his operating team at Norfolk Southern tried to follow Hunter Harrison and CSX in Precision Scheduled Railroading, by closing down classification yards and flat switching instead of hump yard switching by closing DeButts Yard altogether (Chattanooga) last year.  They took that one on the chin, with delays that basically shutdown the Western part of the old Southern Railway.  They finally are getting it fixed, where operations from Atlanta to Meridian and New Orleans is getting back to normal:  They're running some on the old Central of Georgia and DeButts Yard is back open.  Yet the investment bankers still call for the implementation of PSR, with the  question "Why can't Norfolk Southern be more like CSX?"  Flat switching is being tested before bulldozing the hump yard completely.  So NS is taking a measured approach to PSR and not going blindly, following Harrison (although now gone) again back down that rabbit hole.  They're knuckling under, somewhat to the investment bankers.  They're probably just buying time,  However there are always operational improvements to be made, that will positively affect the bottom line. 

• The thing that no one wants to admit is that Precision Scheduled Railroading worked great on the Illinois Central.  Why?  Because it is essentially a straight line conveyor system, with ends at Chicago (a marketing center) and New Orleans (a port).  Harrison designed his system around that particular stretch of railroad.  Just because it is optimized and worked for IC doesn't mean that it will work anywhere else that has different operating characteristics.
• So, it worked less well on the Canadian National with the addition of the Illinois Central, Wisconsin Central Duluth Missabe & Iron Range and Elgin Joliet & Eastern Railroads, as the system became a "T," with the CN connecting through the EJ&E, WC and DM&IR.  If Harrison hadn't gotten his hands on the EJ&E, he would have been screwed.  But Harrison had to run customers off to make PSR with the new CN-IC work the way it did on the IC alone.  CN-IC is trying to win those customers back.
• It barely works on the CP, as Chicago is still a pinch point.  Yes, CP could run trains to two different market centers.  But they need to do Hundreds of Millions of Dollars on Trackage Infrastructure, to make the railroad fluid when hauling Seasonal Grain Trains and Oil Trains that are based on Cyclical Demand, based on Crude Oil Cost for Oil Sands and Frac'ed Shale Oil being lower than the cost of Mid-East Crude oil Shipped by Tankers..  Yeah, the CP can run the North Shore of Lake Superior to get to Mississauga and Toronto, but the curves and grades require a lot of power and that mainline generates few originating loads.  I believe the Editors at Trains had it right when they said Harrison wanted either CSX or NS to gain access to the Indiana Harbor Belt Railroad.  NS was the first choice because (1) they own that pesky little 6 mile stretch of track that CP needs to get from IHB to CP trackage just East of Chicago and (2) With the completion of NS' new yard, CP could sell the yard in Bensenville, Illinois, next to O'Hare Airport, and add to their industrial park just outside of that yard.Chicago through Detroit and Windsor to Mississauga and Toronto is table top flat in comparison to the North Shore.  And as long as CP has a contentious relationship with the NS, they aren't going to get  to use that route enough to rebuild the Tunnel under the Detroit River to be able to run Double Stack Intermodal cars to their eastern markets efficiently.  When they couldn't convince NS to merge or let Harrison take over shortly after Jim Squires had been made CEO, they went after CSX, when Michael Ward announced that he was retiring.
• The ONLY REASON THAT PSR could EVER WORK ON CSX is that Michael Ward and his team (including the VERY TALENTED Cindy Sanborn) had been working on "semi double-tracking" the "Iron Triangle" from Jacksonville, FL to Chicago, Illinois (By way of Birmingham, AL and Nashville, TN), Chicago to New York City (via Cleveland Ohio, Erie, PA, and Albany, NY)  and New York to Jacksonville, (via Baltimore, MD and Florence, SC).  I guess Jim Foote and his Leadership team believe they can make enough money hauling to these 3 feeder points and that what's left that's been relegated to feeder status, with reduced maintenance will not have traffic dry up.

Focusing on the Iron Triangle alone, CSX accidentally told everyone that they were willing to sell off the B&O mainline from Northwestern Ohio to Baltimore, a Mainline they'd just spent Hundreds of Millions on to Daylight Tunnels and Raise clearances for Double Stacked Containers.  They quickly walked that idea back.  They even floated the idea of dismantling the Northwest Ohio Intermodal Terminal and making it a Block Swapping yard.  Truthfully, doing these two things would have given the Wheeling & Lake Erie the perfect opportunity to buy the old B&O and get trackage rights into the Northwest Ohio terminal and yard turning it into a great Regional Railroad that would directly compete with CSX for automobile traffic from Metro Detroit-Toledo (a manufacturing center) to the Port of Baltimore.  (This would allow Wheeling and Lake Erie to Implement Precision Scheduled Railroading!). You'd have thought that CSX would have picked up on that fact BEFORE talking about selling the B&O.  Now BNSF is partnering to run double stacked intermodal trains from the West Coast into North Baltimore, probably saving the Northwest Ohio Intermodal Terminal.  As I said in this blog post, now all CSX has to do is wait for a year or so until the customers that needed the service is to see how reliable it is.  Then it can spring its own service as a lower cost alternative.

We will have to wait to see what the limited non-disruptive implementation of PRS will bring.  If UP's Implementation works anything like Norfolk Southern's, the Houston Texas "log jamb" that occurred after UP absorbed the Southern Pacific will look like a blip.  Kansas City Southern's Houston Area trackage rights won't mean a thing since traffic will stopped on the UP.  And if the Host Railroad can't get its trains over the railroad, there's no way that the railroad with trackage rights will get there trains across that section of railroad.