Good PSR, bad PSR

When you strip away all the wrapping paper, Precision Scheduled Railroading is all about using assets smarter. A railroad’s assets include its tracks, locomotives, cars and of course its employees. If you make greater use of assets, you don’t need as many of any of them and your costs go down smartly, even dramatically. PSR is customer-neutral, in that its purpose is not to improve or degrade customer service. But at least in theory, a railroad that executes PSR well should find itself with lots of unused capacity and thus be able to run trains with less delay and become quite customer-friendly—after all, the customer wins every time a car clears a classification yard in nine hours instead of 29 or 39. That’s Good PSR. Unfortunately, until now that hasn’t been the case most of the time at places like Canadian National, Canadian Pacific and CSX Transportation. At CSX in particular, a terminally ill Hunter Harrison tried to accomplish a multi-year task in mere months and died with the railroad a complete mess, his customers up in arms and his reputation damaged. That’s Bad PSR. In the broadest terms, Good PSR benefits all the stakeholders. Investor are rewarded with higher stock prices, customers are rewarded with better service and employees are rewarded with more-secure jobs because the railroad is more cost-effective and competitive. As I said, we haven’t seen much Good PSR. But I think that Norfolk Southern—and maybe Union Pacific—will show us that side.

Norfolk Southern had its Investor Day in Atlanta Thursday. To my mind, the press release doesn’t do it justice; it’s all about operating ratios, revenues, dividend payouts and the like. Start with my colleague Bill Stephens' four stories on the Trains NewsWire beginning February 12. Then do a deep dive by reading the transcript of the presentations.

Consider that in 2015, when Harrison was at CP and pursuing a merger with NS, chief executive James Squires was dismissive of PSR, saying it would damage service levels and drive away highway-competitive traffic. Now he embraces Precision Scheduled Railroading because he says it works. A lot of what NS is doing is standard PSR stuff. For example, NS had optimized train services for each of the major business groups: intermodal, unit trains, autos and merchandise. Squires says this made sense for each of those groups, but not for the railroad as a whole, resulting in too much complexity. The new operating plan, TOP21, will be one network, not four. You may find an underfilled intermodal train hauling 50 stranded grain cars, in other words. Or to quote John Friedmann, VP of network operations: “By looking at Norfolk Southern as one network, things that were invisible to us in the past suddenly will become visible. Train 23G, going from Louisville, Ky., to Norfolk, Va., primarily hauls intermodal traffic. But now it carries coal as well. You see, in the Knoxville area, it took the small mines there almost a week to generate enough coal to fill out a unit train. And since train 23G was going through Knoxville anyway, it stops and picks up this coal, 15 cars at a time, saving locomotives and crews. And it gets the coal from Knoxville to Norfolk in less than 24 hours. This. . . is about finding efficiencies that were invisible to us when we operated four networks.”

An interesting change described by Mike Wheeler, the chief operations officer: Whereas train length used to be the focus, now it is train weight. The baseline is 6,400 tons, and NS plans to increase that number steadily, and this will help the railroad get more productivity out of its locomotives (something not accomplished by train length).

A lot of time was spent explaining something I knew nothing about, Clean Sheeting. What Norfolk Southern has done is look at every terminal and analyze what happens between car arrival and departure. Said Mike Farrell, the new senior VP of transportation: “The simpler we can make it, the easier it is for us to execute.” The goal, obviously, is to end up with an operating plan that is deliverable. And to find out if it is delivering, NS has a new Service Delivery Index, to measure how well the railroad is delivering on its commitments to shippers. And toward that end, each of the nine NS divisions now has a director of transportation services whose job is to find what’s not working well on the division, figure out why and fix it, by changing the TOP21 plan if necessary. The new mantra: Run trains on time, switch cars in six hours, put each car on the right train and in the right block and do it all safely. Farrell, a Harrison protégé who spent more than a year consulting at NS before getting his current gig, said this: “For 14 months, I told this organization to run trains on time. For 14 months they told me they had no power, had no crews. I said you have plenty of power, plenty of crews. It’s just how you’re managing the resources. Within 48 hours of my announcement to this position, we went from 40 percent on time train performance [departures] to 85 percent. What changed? The level of expectation.”

Getting back to Clean Sheeting: Floyd Hudson, super of the Pittsburgh Division, explained how the process worked for one big customer in Youngstown, Ohio. It was being switched three days a week, and NS had a backlog of 150 cars awaiting delivery, or half the capacity of the yard. Deliveries went to five days a week, reducing the backlog some but not enough, and then seven days, pretty much cleaning out the yard, meaning cars get in and out faster and fewer freight cars are needed. Hunter Harrison would applaud. Clean Sheeting in Allentown, Pa., resulted in the number of cars being humped twice (time consuming and expensive) going from 160 a day to almost none. My takeaway is that NS is systematically working to get the little things right, and that starts in the yards.

Let me add one more dollop that was barely alluded to in the Investor Day presentations. Going forward, every NS division will have marketing people assigned to it to search out new business. I like that. And the transportation officers—superintendents and trainmasters—will be assigned customers whose satisfaction will be their responsibility. What Norfolk Southern appears to be doing is tying everything together, promising efficient operations, better customer service and more accountability. Good PSR. Union Pacific has been less transparent thus far, but it appears to be headed the same way. Matt Rose of BNSF Railway was recently critical of Precision Scheduled Railroading in a Railway Age interview, for all the reasons that gave us Bad PSR. But he has also told his people to become experts on this style of railroading, to distinguish between what is steak and what is sizzle. From Norfolk Southern, we appear to be served ribeye done medium well.—Fred W. Frailey