What is the ultimate management team among Class Is?

OK, I'll stick my neck out on this one . . . Norfolk Southern.  Why ? In rough order of priority/ importance:

- Safety culture - Gold Harriman Award many times over.

- Operating ratio is decent.

- Had sense enough to try to keep some people working through this last recession.

- Not afraid to march to a different drummer - the only Class I that hasn't centralized its dispatching offices. 

- Motive Power innovation - keeping the Juniata Back Shop open, the SD-40E rebuild programs from SD50's, the BP-4 999 battery electric, the road and yard slugs, track geometry and test cars, etc. 

- A culture that's not afraid to admit its mistakes, and try something new - e.g, the toilet 'baggie' fiasco, now buying AC locomotives.

- Aggressive PR campaign - the 'Lonely Gallon' TV ads and others, and now its own YouTube channel. 

- Long-term business outlook - committing to 3-year programs for capital improvements, such as the Heartland Corridor. 

- Innovative contractual arrangements, such as for the contractors on the tunnel enlargements on the Heartland Corridor.  I won't bore you with the details, but it wasn't a traditional 'design-bid-build' - a good portion of it was done 'on the fly'.  It was well-coordinated with the operating folks, too.

- The whole Corridor strategic initiative thing to expand its territory without the messiness of mergers - Patriot with Pan Am/ Guilford, Meridian Speedway with KCS, Heartland, Crescent, and the one with CN-IC.

- Public-Private Partnerships with the states and Feds for the Corridor Improvements and CREATE in Chicago.  Yes, I know that's playing with the Devil, but my money's on NS [see Charlie Daniels' ''Devil Went Down to Georgia'' . . . ].

- Passenger service with many agencies, most notably with NCDOT and the North Carolina Railroad, and the continual improvements there.  While others agonize and dither over the myriad of issues, NS is quietly going ahead and just getting it done, and working it all out as they go.

- Triple Crown Services and Roadrailers.

- The guts to fight the war and then buying 58 percent of ConRail.

- The alliance with the former Bethlehem Steel railroad in Bethlehem to open a new intermodal terminal there as a means to get as close to North Jersey as is likely possible. 

- Recent $250 million 100-year bond issue.  Who else could do that ?

Yeah, I own 100 shares.  Now I'm wondering why not more . . .

By the way - what Wall Street thinks in terms of share price or any other measure is irrelevant in my view, and maybe even a contra-indicator.  Those 'people' have now proven many times over that they're interested mainly in their own greed, not any form of reality, long-term improvement, investment, progress or success . . .

I reserve the right to add more if I think of it later. 

- Paul North.

P.S. - Donating $100,000 to the Railroad Engineering program at Penn State's Altoona Campus last year.

- The 'Green Business'/ sustainability program, now run by F. Blair Winbush;

- A woman - Deb Butler - as Exec. VP of Planning and Chief Information Officer.

- The revived steam locomotive program is also nice, but not a big factor in my ranking.

- PDN. 

Warren Buffet voted BNSF .... in a big way. $$$$$$

Paul_D_North_Jr

I reserve the right to add more if I think of it later.

- A woman - Deb Butler - as Exec. VP of Planning and Chief Information Officer.

Paul, what about Kathryn B. McQuade, Executive Vice-President and Chief Financial Officer of Canadian Pacific Railway? She came from NS.

nanaimo73

 

 

 

Paul, what about Kathryn B. McQuade, Executive Vice-President and Chief Financial Officer of Canadian Pacific Railway? She came from NS.

She was a good poach from the NS. At CP she has punched all the tickets, Chief Marketing, Chief Operating, and now Chief Financial Officer. I expect that when Fred Green retires in a few years, she will succeed him and become the first Woman to be a President of a major Class I railroad.

I would second Paul's nomination of NS, with BNSF second and CN third. CSX, CP, UP and KCS make up the pack.  I hold CN back in third in spite of their having the lowest operating ratio. Looking at the STB revenue adequacy rankings its clear that CN achieves its operating efficiencies mainly in Canada, something that they are doing up there doesn't seem to translate into their US subsidiaries. Hence my doubts.

nanaimo73

  Paul, what about Kathryn B. McQuade, Executive Vice-President and Chief Financial Officer of Canadian Pacific Railway? She came from NS. 

I didn't know that.  But that's only 1 aspect of my nomination - if this were a comparison of which railroad shows more actual performance of gender equality or 'blindness' in having women in the top ranks, then we'd have a good competition.  But the management team is more than just that, of course.

What it also says to me is a lot about the NS culture that brought Ms. McQuade along and qualified her to take those jobs at CP.  I'm much more interested in the management team that can do that for someone of either sex - even if the person then decides to move on elsewhere.  That's the bittersweet of success in mentoring - you've made them better than your organization can use or afford, etc.

A few more additional points: 

- The outfit is run by an engineering type, not an acccountant or lawyer - who seems to have taken to it just fine. 

- Said CEO has also said publicly that railroaders and management ought to be able to "have a life" outside of the railroad.  Imagine that - heresy in some circles in days gone by, and even now in some places.

That's all for tonight.

- Paul North.

beaulieu

 

I would second Paul's nomination of NS, with BNSF second and CN third. CSX, CP, UP and KCS make up the pack.

Wow. Looking at it from 40 years ago, hard to guess that three nearly collapsing roads entering into the BN merger and just about screwing that up, would someday exceed the mighty Union Pacific anywhere, anytime, anyhow. On the other hand, who would have predicted Drew Lewis, et. al. dragging down UP, or a trucker, Matt Rose, transforming BNSF?

Nobody thought in terms of CN or CP for anything.

The moral of the story: past is not prologue.

There were 4 roads that went into BN - Great Northern , Northern Pacific, Burlington (Chicago, Burlington & Quincy), and SP&S (Spokane, Portland & Seattle).  Which are the 3 that you had in mind ? 

And - not to alow this thread to be hijacked or diverted by this, but:  I think that "nearly collapsing" and "just about screwing that up" are exaggerations or insinuations at best [emphasis added], and at variance with the facts at worst, esp. when compared with the rest of the industry at the time.  [EDIT:  Compare PRR+NYC+NYNH&H = Penn Central, which was the epitome of what you describe - are you sure you didn't get those 2 mergers mixed-up in your mind ?    END EDIT]  I'll concede that NP wasn't the strongest railroad, and that SP&S mainly lived off traffic from parents NP and GN.  But were they actually collapsing, or not, and by what measures ?  Did they screw it up, or not ?  Sure, neither of those are measurable in 'black vs. white' terms, and no one is perfect all the time, but there ought to be some objective basis and events to be able to point to that support those assertions, and I'm not aware of those. 

The rest of your post I agree with. 

- Paul North. 

Paul_D_North_Jr

A few more additional points: 

- The outfit is run by an engineering type, not an acccountant or lawyer - who seems to have taken to it just fine. 

- Paul North.

Paul: That is a refreshing point*, but it still is tough to make any apples to apples comparison because of the different characteristics of each road and how they were put together. (hardly equal) If you took the management teams and switched roads, you couldn't possibly get the same outcomes - just because of the nature of the road itself.

*Shades of John Shedd Reid who was no slouch either and came up within the ranks. Still amusing to watch the faces of the business administration majors when they look at how their discipline was started. (courtesy of a mechanical engineer in a New England textile mill, another engineering enterprise)

A quite valid observation, MC.  However, the question on the table - as I understand it - is to rank the management teams only, independently of / divorced from the 'hand' (of cards) = nature of the railroad that they were dealt - in a vacuum, as it were. 

It occurs to me that at its essence, the railroad technology is mainly an engineeering enterprise, writ large.  They need the contributions of just about about every major engineering discipline to function with optimum efficiency.  So it obviously helps if the person in charge has an inherent good sense of that culture and its strong and weak points, and most of all, how to evaluate, 'design', coordinate and integrate the engineering and other business functions into a coherent, balanced, well-functioning system.  I know that engineers as a class are far from perfect, and not always the best at running a large business - I believe it was E.H. Harriman who said "I am tired of building [=spending money for] 'monuments' to engineers".  But its a rare lawyer, for example, who also brings that native ability or training to the table.

It also occurs to me that for the MBAs, dollars are essentially 'one-dimensional', and hence simple to evaluate and measure.  That works fine when almost everything can be reduced to that metric, and then the appropriate allocations and trade-offs made.  But the real world - esp. in the railroad context - is rarely that simple.  Engineers are more accustomed to dealing in the usual 3 dimensions, plus the next two, being Time and Money, and making choices and trade-offs between other prime criteria such as Safety, Simplicity, Reliability, etc. - but not necessarily Marketing, as an easy contra example. 

John S. Reed was another of that rare breed, as was J. Edgar Thompson of the PRR.  I thought there was a biography of Reed, but I can't find any references to it on-line ?  He graduated from Yale - not one of the traditional highly technically-oriented engineering schools - but one that does seem to teach its students to think broadly and 'holistically', to consider the 'intangibles' as well as the usual objective criteria, and with an emphasis on the 'public service', societal, and political aspects of matters.

Good discussion - reminds me of a line I heard last week:  "I write so that I can find out what I think".

- Paul North. 

beaulieu

I hold CN back in third in spite of their having the lowest operating ratio. Looking at the STB revenue adequacy rankings its clear that CN achieves its operating efficiencies mainly in Canada, something that they are doing up there doesn't seem to translate into their US subsidiaries.

Newspaper articles up here attribute the discrepancy to health care. In Canada health care is paid by governments and the people, while in the United States it is paid by businesses.

CN would never make my list, they have one of the worst management teams among Class 1's.

Paul_D_North_Jr

There were 4 roads that went into BN - Great Northern , Northern Pacific, Burlington (Chicago, Burlington & Quincy), and SP&S (Spokane, Portland & Seattle).  Which are the 3 that you had in mind ? 

And - not to alow this thread to be hijacked or diverted by this, but:  I think that "nearly collapsing" and "just about screwing that up" are exaggerations or insinuations at best [emphasis added], and at variance with the facts at worst, esp. when compared with the rest of the industry at the time.

With the alternating GN/NP presidencies, the SP&S was little more than a nameplate; just as the OWR&N was a "name" that survived for many years, still had offices you could visit in Portland, but was really the Union Pacific Railroad in all but name.

For the other point, I guess you had to be there.

Had any of the three continued normalized MOW expenditures at the level of the 1950s, they would have shown huge continuous losses after 1960. Big. Continuous. Losses.  Both NP and GN, in order to remain profitable at all, had to cut MOW by half; the Q by 2/3ds. And those are not ventures of opinion, those are actual facts from the statistical record; a record confirmed for me nearly every day during those years. What you might consider "the facts" may be based on something else.

At those levels, that's not railroading, that's putting your railroad company on temporary life support. It can't go on.

At the time of the merger, the engineering team assigned to do a system-wide review was shocked by what they found. Of course, it was a combined GN/NP/CBQ group, and the NP guys, for instance, knew their own problems well, but assumed things had been going better at GN and Q; The Q guys thought that the NP and GN had been doing just fine, etc.. Each had assumptions about the condition of the others that proved quite a surprise all the way around when they did their joint system assessment. The reality didn't match the PR. It was a railroad in trouble and they knew it.

I don't know what you are basing your assessment on, but going into the 1970s, upon the record of the 1960s MOW expenditures, you had a railroad in serious structural trouble and then they piled some real poor pricing decisions on top of it. And it got worse. By 1978, BN's operating ratio was something like 97%. How do you explain it?

Yes, that is why I used words like "nearly collapsing" and "just about screwing up" because management had been bleeding/forced to bleed --however you want to phrase it -- the three roads for nearly a decade of necessary capital investment. It was a perilously close call, and that is one reason that the ICC quickly changed its mind about the merger in 1968 -- it had been issued a dire warning that without it those roads were headed for the rocks, and sooner rather than later.As I said, you kind of had to be there to understand what was happening.

I suppose, however, that offers a lesson on "ultimate management teams." The BN management was juggling the effects of a decade or more of significant capital starvation. They didn't look too good at it because of decisions made years before. Then they made their own screw-ups,  some big ones, and frankly, I don't know what else to call them. The Operating Ratio, however, measured it specifically and succinctly without any exaggeration or insinuation required.

Then the Frisco bunch came on board, and it is difficult to really appreciate good management until you have watched something like that bunch in action.

Similarly, the NYC was well-thought of in the 1960s. Big net, good dividends, declining debt, new facilities; a prima facie turnaround from the low point that  Robert Young found after his takeover. Could the disaster of 1970 have reasonably been predicted in 1965? I think people would have said, "good management". "That Perlman, he's sharp." The divergence between perception and reality is often breathtaking -- but you have to get to know the reality first. That seems to be the tough thing to do. And I'm not being cynical about Perlman or the NYC; but it is still, 40 years later, a little difficult to swallow either the hype or the results -- something still just doesn't add up.

Railroad is so much a "value-added" enterprise, the exercise  of assessing ultimate management teams seems difficult at best. Things can look pretty good when everything is in first class shape -- because of investment decisions made 5, 10 or even 20 years before., for better or for worse. Who gets the real credit or blame? That's always been the big question.

I happen to think everybody looks pretty good in the modern era. It's almost hard not to. I would look to management quality under adverse conditions as a better measure.

Paul_D_North_Jr

It occurs to me that at its essence, the railroad technology is mainly an engineeering enterprise, writ large.  They need the contributions of just about about every major engineering discipline to function with optimum efficiency.  So it obviously helps if the person in charge has an inherent good sense of that culture and its strong and weak points, and most of all, how to evaluate, 'design', coordinate and integrate the engineering and other business functions into a coherent, balanced, well-functioning system.  I know that engineers as a class are far from perfect, and not always the best at running a large business - I believe it was E.H. Harriman who said "I am tired of building [=spending money for] 'monuments' to engineers".  But its a rare lawyer, for example, who also brings that native ability or training to the table.

In my experience, engineering attracts "problem solvers" because ultimately that is what engineering is specifically all about. Its the kind of mind that, at age 18, has already made an important decision about how he or she wants to look at life.

My comfort zone is with engineers; I get short of breath in the company of accountants and lawyers. But, that comfort zone is because of the "way" engineers look at things. However, the important caveat is that training and education is no substitute for the elusive quality of "judgment," and that particular quality seems to strike fairly randomly among the various professions and experiences.

IC Land - No, I wasn't there, and didn't see it first-hand - I was on the East Coast and about 17 at the time - though I did hang onto my NP/ BN stock until around 1980 or so when Bressler was in charge and it seemed that the railroad was becoming an orphan child' of  the natural resources company . . .   So in the absence of better data, I have to respect and defer to your experiences, understanding, and statement of the 'facts' above, and therefore apologize if my critical comments regarding your post were offensive. 

The result of the system-wide joint engineering condition review as you recount it are kind of funny, in a cynical way - a modern and large case of ''the emperor's new clothes''.

Since this thread isn't drawing a whole lot of other attention, I'll point out a possible hole in your argument, and see what you think about it - the 1950's vs. 1960's MOW expenditures.  Industry-wide, that was the era of system-wide mechanization, the advent of large-scale 'production' tie and surfacing and rail replacement gangs, and elimination of the 'section gangs' every 6 or 10 miles, etc.  So at least some of that expense reduction should have been the result of and reflected those improvements - else, why do them ?  But I gather despite that, the long-term replacements were not keeping up with the accumulated annual wear-and-tear ?  And that was happening not just on the granger branch lines - which were not long for this world by then anyway - but the main lines that would be principal arteries of the merged railroad ?

I don't recall the OR's from the 1970's, but 1978 wasn't a banner year, as I remember it.  It was before the worst of the Carter 'stag-flation' and the recession of the early Reagan years.  With the benefit of your insights, it would be interesting to look at the data for several years around then and see what trends could be discerned . . .

Your comment about ''looking to management quality under adverse conditions as a better measure'' strikes a chord with me.  That's the essence of the response I was going to post to BaltACD's comment about BNSF vs. NS.  Warren Buffett identified the company that had the greatest profit potential - but that's quite different from the best management team.  Consider that NS has to cope with the potential decreases of its largest single traffic source - coal, and doesn't seem too terrified of that.  There's something about humans that occasionally either brings out the best - or attracts the best - in people when the situation they're facing is more challenging or desperate [unrelated example: Israel surviving for over 60 years now, despite being surrounded by openly hostile countries most of that time, and the performance of its intelligence and security services, Mossad and Shin Bet, towards that end - or maybe that's just a myth/ 'urban legend', too].  But that kind of characteristic seems to occur from time to time in the railroad context as well. 

- Paul North. 

1)  KCS.  This outfit shouldn't be alive and under a less capable, less agressive, management they wouldn't be.  Instead they've taken prudent risks and managed to become an important part of an important transcontinental route.  A route that also provides NS with access to the Texas market.  They've also positioned themselves to be a major international route linking the US and Mexican economies.  (Hopefully, Mexico will pull itself together.)  For making a silk purse out of a pig's ear, KCS management is number one on my list.

2)  NS.  No, I don't like their "Public/Private Partnerships" as I'm convinced they misallocate economic resources and will come back to bite the railroad.  But aside from that thy're doing a very good job developing what they've got to work with   They don't have the long hauls of a BNSF or UP so they have to make things work at shorter distances where truckers have more of an advantage.  NS doesn't flinch, they make the shorter hauls work.  Doing that takes managerial knowledge, ability and guts.  They've also adopted an intermodal pricing system that basically treats a trucker as a partner.  They don't charge a flat terminal to terminal price.  Instead they vary the charge based on the relative costs of the truck and rail portions of the through movement.  This is an important key to making intermodal work on shorter distances.  Which is where most of the freight revenue is.

3)  BNSF.  These guys pioneered the IM pricing concept now used by the NS.  They're also constantly stalking the huge west coast perishable market.  Their problem is that they've got an operating culture and not a marketing culture.  But they manage a very good, efficient railroad.  But also, they consistantly run their trains past potentially lucrative traffic that doesn't move the length of the railroad due to the operating culture that doesn't like complexity.   They're seduced by the long haul. They leave money on the table by doing this.  If they fix that they'd move up on my list.

4) CN.  Operating efficiency in spades.  Unfortunately Hunter Harrison made the management risk adverse.  Speak up and he'd fire you if he didn't agree.  They also leave money on the table by not taking prudent risks.  But they understand the IM pricing thing.  We'll see how things develop in the post Hunter era.

5)  UP.  Good operations.  No marketing or market development.  Show up with a trainload of freight and they'll talk.   Want a pick up, they're going to think long and hard about doing it.

6)  CP.  Pretty much asleep.

7)  CSX.  Good TV commercials, but they still haven't figured out what they do for a living. 

oh yeah!

That's a question for customers to answer. They don't care about routes, corporate cultures, length of hauls, or any of the internal workings of the railroad.. All they care about is gettig their loads moved in accordance with what they define as good service at reasonable prices, and whoever does the best at that has the best management.

So we can rule out BNSF and CN right off the bat...

I'd like to offer a few comments.  Comments, corrections or additional info welcomed.

Motive power innovation: Yes, but NS is the last Class I (AFAIK) to buy AC locomotives and I believe was the last one to buy safety cabs.  When it comes to production locomotives, they seem to buy the new features well after the "bleeding edge" issues are addressed and when the price of the new style is close to the same as the older style.

The corridor strategic initiative: Why buy the whole cow when all you want is the prime rib, and by buying only the prime rib you don't have to spend so much or deal with all that bone and gristle?  The only other part of KCS that would do NS any good is the Chemical Coast traffic, and I would think KCS would guard that like a mama tiger guards her cubs.  NS needs KCS's line across the Ozarks (between Hope, AR and Poteau, OK) like it needs another hole in its head.  I'm not as familiar with Pan Am/Guilford, but suspect NS got a part of the only thing that was of any use to it whatsoever.  Don't get me wrong, NS had a great idea, but (other than KCS's Chemical Coast) the rest of both railroads is no prize.

Buying 58 percent of Conrail: Something I read made it sound like NS viewed getting part of Conrail as a matter of survival.  They would have paid whatever they had to, short of bankrupting the railroad, to get part of Conrail.  It's like being in a burning house with a mean dog standing in the door - when the situation is critical enough, you do what you have to do.

Just my two cents worth.