PSR in all its Glory

Posted by George Hamlin
on Friday, September 17, 2021

That’s “Precision Scheduled Railroading”, in the odd case that you’re wondering what the acronym stands for.  So, what do we see in the picture above, of Norfolk Southern train 202 passing by the former N&W depot in Boyce, Virginia (now privately owned) on the NS H-line, on September 3, 2021?

The key point, the train’s overall length, is not visible within the relatively constrained view shown here, but some of its contributing implications are.  The mid-train DPU is one; even more interesting is that this train’s consist comprises both intermodal and manifest freight equipment, something rarely seen on a significant scale in recent times prior to PSR.

The primary game here is to reduce the number of trains, and more importantly, the number of operating crew starts versus previous conditions.  Until recently, there were two manifests between Hagerstown, Maryland and Roanoke, Virginia and a single intermodal in each direction.  Now, the second manifest has been melded into the intermodal, as can be seen here.

Logical questions spring to mind as a result, including “won’t that slow the intermodal down”, and “how do you fit a train that’s now often over 7,000 feet in length into passing sidings that are typically five to six thousand feet long”?

In reality, one answer trumps these, and virtually any other questions posed on this account.  Doing this lowers expenses, and hence improves the operating ratio, that is, expenses divided by revenues.  This has now been turned into a number with something approaching the status of almighty in the railroad industry, and there is continuing pressure for further reductions.

This, of course, raises the issue of whether a business can save its way into prosperity.  Yes, it’s nice to control costs and eliminate unnecessary expenses, but how do you balance that with the need to attract more, and especially, more profitable business going forward?

After all, the operating ratio is nothing more than what its name implies: a mathematical relationship between a railroad’s revenues and costs.  For that matter, the OR can be improved (i.e. lowered) both by either reducing costs or by increasing revenues.  And it’s possible to improve OR by increasing operating costs … if operating revenues increase more.

For example, if revenues were $100 million, and operating costs were $70 million, the operating ratio would be 70 percent.  If the production of an additional $15 million in revenues could be accomplished via an addition of $10 million in operating costs, the operating ratio would be 67 percent.  New business often produces additional costs, but if done prudently, this has the possibility of improving this metric even with an increase in overall operating costs!

No, this isn’t easy, or “everybody would be doing it” (although that also seems to be the rationale for PSR, with the exception of the BNSF…).  However, where there is available capacity, the possibility exists.  For that matter, improved service, along with better crew utilization, might actually produce efficiencies that cause expenses to go down, not up.  Even if that does not occur, there are certainly times when a modest increase in cost can leverage a greater increase in revenues.

An example of this in another mode is provided by Delta Airlines.  Following its emergence from bankruptcy in 2007, a new top management team sought to change the carrier’s culture to create a premium product that customers would choose to pay for.  A key change was assuring operational reliability, by adding more spare aircraft to the airline’s schedules.  This, of course, produced an increase, not a reduction, in operating costs.

By 2014, the Delta was named Airline of the Year by a respected trade journal, and the CEO was named one of the World’s Best CEOs by Barron’s magazine.  I suspect that more than a few of you reading this will be surprised to learn that this was during Richard Anderson’s tenure as Delta CEO.

At the end of the day, operating ratio is a single statistical measure, not a strategy, nor a definitive indicator of whether a company will survive, much less prosper, in the long term.

Photo by George W. Hamlin

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