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E Hunter Harrison and CN...

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Posted by Deggesty on Tuesday, July 14, 2009 5:20 PM

Paul_D_North_Jr

Sometimes, to get the mule's attention, first you have to hit him over the head with a 2 x 4 . . . Wink

Or else build a fire under him to get him to move. One family's mule was too smart for this--when he felt the heat of the fire, he moved far enough to get the wagon over the fire and, before anybody could do anything. the wagon began burning and could not be saved. Be careful; there may be unintended consequences of your program.

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Posted by Paul_D_North_Jr on Tuesday, July 14, 2009 5:42 PM

Paul_D_North_Jr
[many snips] Recently I've been reading several articles about the 1-mile long 2.3 % ''Slide'' at the top of the otherwise 1.8 % 12-mile EB descent from Gallitzin summit towards Horseshoe Curve and Altoona, PA.  For decades now the rule there has been 12 MPH max. [only 8 MPH for 'mineral' trains'] approaching the Slide - any more than that and Klaxon horns go off, the signals go to stop, and the train is supposed to stop - or a penalty brake application will occur - and be inspected until the problem is ascertained and corrected.  More important in this context Helpers are often assigned to EB downgrade trains simply to add their dynamic braking capability.  Interestingly, the January 1985 Trains article on that operation was authored by the same Fred Frailey, who quotes a RFE saying '' If you don't have your train fully under control when you start down The Slide, you may already have eaten your last meal'' [pg. 31], and the Superintendent saying ''Our people have to be aware that under no circumstances are they to deviate from instructions.  You just cannot play around with this mountain.  The rules are time-proven and they are law as far as I am concerned.''  Notably, that Allegheny Division was the first ConRail division to go 1 million hours of work without a reportable injury. [pp. 31 - 33; emphasis added - PDN] 

Alright - For those of you who might want to see what this operation looks like in real life from within the past couple of days, see the following thread with a link to a video by David J. Williams - ''NS 44G grain train at South Fork and Gallitzin, Pennsylvania.'' at -   http://cs.trains.com/trccs/forums/p/156922/1731175.aspx#1731175 - and specifically the 2nd video that's linked there.  I also added a post with the details of the grade per centages and summit vertical curve that is shown in the video - before ''The Slide''.

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Posted by Paul_D_North_Jr on Tuesday, July 14, 2009 9:19 PM

Deggesty

Paul_D_North_Jr
Sometimes, to get the mule's attention, first you have to hit him over the head with a 2 x 4 . . . Wink 

Or else build a fire under him to get him to move. One family's mule was too smart for this--when he felt the heat of the fire, he moved far enough to get the wagon over the fire and, before anybody could do anything. the wagon began burning and could not be saved. Be careful; there may be unintended consequences of your program.

Johnny

Laugh  Laugh  Good one, Johnny !  Bow  Of course, that leads us to the operational prerequisite that applies here - as explained to me once by a good friend who legitimately calls himself a 'Tennessee hillbilly' - while we were both trying to cope with a track foreman who was as helpless as that conductor 'Pops' in our now-'famous' story about the carload of mules who kicked some boards off the car they were in -

"First off, Paul - you gotta be smarter than the mule !"  Big Smile                    [Thanks for that one, Wally !]

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Posted by Paul_D_North_Jr on Wednesday, July 15, 2009 8:15 AM

clarkfork
[edited for brevity here - PDN]  When BCR ran this railroad only units equipped with dynamic brakes were used on this run.  When CNR took over the DB units were pulled and a non-DB unit was assigned.  DB is great; however, railroads have succesfully operated mountain grade without  DB for years.  In any event I really doubt it was Harrison who actually pulled the DB units off the mountain. 

One more thing I'd like to ask -

So what did CN want with those dynamic-brake equipped units elsewhere, anyway [Q]  Confused

CN is a notably 'flat' railroad otherwise [per Al Krug's ''Major Railroad Grades'' tabulation previously referenced above].  Sure, there are some significant grades and hills on the ex-WC that could benefit from DB locos, and I'm sure that there are others elsewhere on the CN system.  But none of the rest of CN is like the former SP or the UP with several mountain ranges to cross, and plenty of opportunities to use that capability.  If anything, it seems to me that a competent Motive Power management official would have left the DB locos where they were, so as to best fill that 'square hole' with a 'square peg', so to speak, and then looked at the rest of the system to assign the remaining locos.  Does anyone know where they were sent instead, and why  [Q] 

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Posted by lenzfamily on Wednesday, July 15, 2009 1:04 PM

Paul and RWM. 

The overriding question coming to mind for me as a result of this thread has been the operating ratio and its relationship to the level of finance required to do effective maintenance of track and motive power assets and efficiently operate a railway as far flung and diverse as CN has now become. 

I understand from an investor's point of view that the lower the operating ratio, the more profit is generated for the company and its shareholders. This is, in my view, cutting off one's nose to spite their face.'

The question I have is 'At what point does efforts to lowering the operating ratio become a barrier to effective maintenance and operation considerations for management?'

I'm not even sure if I've asked the question correctly or if it's too general to admit of a ready answer. All I'm trying to discern is at what point is lowering the ratio simply going to translate into an 'asset squeezing process' as opposed to being an efficient use of income for the ongoing effective maintenance and upgrade of track and the equipment and the efficient operation of trains over the long term as several people more knowledgeable than I have pointed out. Is there a 'rule of thumb' or does current practice give any indication of where this point is located.

I ask this because as others have said here, no other North American railroad has been able to approach such an operating ratio as has CN. I know from my own power plant operating experience that management has to put sufficient money into effective preventive maintenance and asset upgrades to maintain the plant as an efficient and effective entity over the long term. This of course impacts the bottom line. 

Why is CN able to do this where others are not or has this thread already begun to address/answer this question?

Charlie

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Posted by Ulrich on Wednesday, July 15, 2009 2:51 PM

That's a good question, and shareholders aren't necessarily looking for the lowest operating ratio. In my own case..I am looking for long term viability. I won't retire for another 24 years, and I would prefer a less profitable CN that reinvests profits in upgrading infrastructure. I really don't care about profits NOW..and I don't really look for the dividend payments. What I do care about is share value in 24 years from now. And in order for that value to be maximized I'm most interested in making sure the plant is in good condition...that the company has a profitable and diverse customer base..that the Company has a relatively good relationship with all stakeholders...including the employees..and that in all other respects my shares will be sought after by other investors when I do sell in 24 years from now. So much for the theory that shareholders only care about profit...profit is the furthest thing from my mind right now. As an investor I care greatly about the longterm welfare of the Company.

About trading off operating ratio for reinvestment in the Company...I trust the professional railroaders who run CN to strike the right balance. I don't know why CN's OR is so much better than everyone else's...better management..more favorable long distance routes and a relatively simple route structure might be reasons.  

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Posted by henry6 on Wednesday, July 15, 2009 3:07 PM

That is a great question,  Charlie, and one that has answers that depend on what the leadership is aiming for...in railroading or anyother business for that matter.    Some leaders are working for the stockholders and will work to get a high dividend paid while others will realize that the whole shebang is going down the tube unless some maintenance is done so that the whole thing doesn't just run off the tracks.  A good leader will know how to maintain his business so that it operates as flawlessly as possible and yet give a decent return for investors, so good a return that the investors will understand and stand for a little less pocket change when some maintenance or new equipment must be purchased.  Few leaders can achieve such a balance; so in bad times maintenance and new things get pushed aside in hopes of attracting enough investors by paying dividends instead so that money can be raised to do the necessary stuff.  Those who go the route of fixing the plant and buying new engines often get booted.

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Posted by MP173 on Wednesday, July 15, 2009 5:50 PM

Ulrich:

I would think that you would be concerned about the profitability of a company which you own.  I know that is a big concern of mine.  For it is with those profits that a company can then re-invest into projects (and other railroads) without tapping into the fickle credit markets. 

You bring up an excellent subject....at what point does a company maximize profits instead of long term growth and other factors (safety is a major concern on this thread, rightfully so)?  CN generates considerable free cash flow, which is in many analysts eyes far more important than net profit.  Free cash flow is the difference between the cash generated by a company in the course of a period of time and the money invested in capital expenses.  It takes into consideration cash generation rather than net income (which can easiliy be manipulated).

CN has typically used it's free cash flow to purchase it's own stock.  For instance, CN has reduced it's outstanding shares from 603million to 499million over the past 10 years.    Is this a wise use of cash?  Mature companies must face the decision on what to do with their cash.  If there are no investments available which give the rate of return desired, the prudent use is to return the funds to the shareholders.  This tends to drive earnings per share (which can be manipulated) higher, but also is much more tax efficient than paying dividends. 

Is CN slacking on safety and investment?  I cannot answer that.  Perhaps some statistical analysis can determine that, but the math would be fuzzy.  Accidents happen unfortunately.  I have been following a tragic accident in Bettendorf, Iowa which killed two young men.  You really feel for their families.  In an ideal world, there would be no accidents, no phone calls, no hurried trips to the hospital, no funerals.  We dont live in that world.  I am not attempting to downplay this at all.  One of the main goals of any company should be the safe working environment of their employees.  Not only physical safety, but also emotional safety and the ability for growth.

This thread has caused me to rethink my attitude towards CN...and other companies which I own.  How does one truly measure the value of those companies and whether or not management is working in the best interests of all concerned?  I dont have the answer.

ed

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Posted by Deggesty on Wednesday, July 15, 2009 6:11 PM

MP173
You bring up an excellent subject....at what point does a company maximize profits instead of long term growth and other factors (safety is a major concern on this thread, rightfully so)?

This makes me think of the English hedge fund's stated desire that CSX spend less on maintenance and improvement and distribute more to the stockholders. It seems to me that if the company does not maintain its property, it will not be able to maintin its earnings, and it will then have to reduce the dividends it pays.

Johnny

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Posted by Deggesty on Wednesday, July 15, 2009 6:16 PM

Paul_D_North_Jr

Of course, that leads us to the operational prerequisite that applies here - as explained to me once by a good friend who legitimately calls himself a 'Tennessee hillbilly' - while we were both trying to cope with a track foreman who was as helpless as that conductor 'Pops' in our now-'famous' story about the carload of mules who kicked some boards off the car they were in -

"First off, Paul - you gotta be smarter than the mule !"  Big Smile 

Paul, how did such a man make track foreman? Seniority, and lack of qualified personnel?

Johnny

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Posted by lenzfamily on Wednesday, July 15, 2009 6:35 PM

MP173

Like you I am an investor and for a number of years now I've been asking myself the same sorts of questions. In answer to your last question....

I have started in the past two years researching and investing in what are called ethical investments...those which are determined by the Jantzi Social Responsibility Scale (this may be a Canadian creature only) a tool that rates companies by the usual measures but also makes substantial enquiry into the company's corporate social responsibility practices (fair employment standards, nonuse of sweatshop produced, endangered source materials and the like)

My experience thus far is that many of them return at close to the same level as do the other investments I hold...a good sign which tells me they can generate a good return ethically and with a social conscience. At the moment CN would not make my list...high rate of return or not. Profit is important to me but by no means is it so at the expense of Public Social Responsibility. I realize it is yet another balancing act for corporate leadership to manage, but I see this trend only increasing over time given the global issues we face.

IMHO tax efficiency is an important issue (I do everything I can to legally manage my portfolio and reduce taxes paid too) but for me this is one objective among others and if a company such as CN is doing what it is doing solely in order to reduce its public exposure and benefit a lesser number of  shareholders...sorry....I believe a company in the marketplace, especially in these times but at any time, has a responsibility to its employees, its shareholders, its plant and to its future as well as to its self in the present.

I wonder if CN is starting to mortgage (and perhaps compromise) its future in these areas. This thread is leading me to wonder if that is not in fact starting to happen.

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Posted by Ulrich on Wednesday, July 15, 2009 8:46 PM

MP173

This thread has caused me to rethink my attitude towards CN...and other companies which I own.  How does one truly measure the value of those companies and whether or not management is working in the best interests of all concerned?  I dont have the answer.

ed

That's a very good question. I measure the value of my business (I own a freight business) by looking at it from my customers' standpoint. Any business exists and is viable to the extent that it creates value for the customers it serves. When people ask me about the value of my company I reply with the number I'm most proud of: my 100% customer retention rate. Followed by that number I offer some other numbers which closely correlate to performance..my on time pickup and delivery numbers...the time it takes my company to respond to  customer concerns or rate quotes.. how accurate my invoices are etc. I don't think in terms of profit that much because my customers don't care about how profitable I am; and in any case profit is only one metric (and far from the most important one) by which a company's value can be assessed.

The importance of profit is also very much in the eye of the beholder. Look at my ownership in  CN for example. I don't care much about the dividends that I receive...I care greatly about how valuable my shares will be in 24 years from now. Therefore I would be much happier to see lower profits and more investment in infrastructure. Someone else, on the other hand, might care more about dividends today and could care less about share value in 24 years from now.

So why the emphasis on OR? I believe it has alot to do with the dumbing down of our society in general. We live in a world where even seemingly intelligent people want everything presented in five or fewer items in a power point presentation. The OR works well because everyone understands $$$ profit $$$ and therefore frazzled executives throw out that number  to the unwashed masses who expect short term results in a clear format that even a simpleton can understand in 30 seconds. 

And further to that last point about the unwashed masses.. my next point. Looking at my own business again. If I were to sell shares to someone i..e if I were to sell part of my business to someone else.. would it be advisable to screen the people I would consider selling those shares to? Well of course it would be. After all..I wouldn't want to be in busines with a drunk or a criminal or someone who has no interest at all in the business or its success. Yet...anyone can buy shares in a publicly traded company like CN.. So what we end up with is a bunch of uneducated shareholders who for the most part wouldn't invest an hour of their time to gain an understanding of what they've invested in. This is why I believe some companies are so fixated on OR..it is a simple number that is thrown out like a bone to a stupid dog..but which in and of itself means very little.

If you want to gauge the true value of a company you really need to go its customer base..and that's as true of CN as it is of your local corner store. Does the company have repeat sales? Is customer turnover high? Do customers view the business as a commodity business or do they see it as a well branded entity that provides expertise? The answers to those questions and others along those lines ultimately define how the business is viewed through the customers' eyes and by extension the value of the business and its longterm viability.

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Posted by MP173 on Wednesday, July 15, 2009 9:22 PM

Ulrich:

The majority of CN stock held is by institutional investors.  They are not concerned with OR, but rather ROE, ROIC, and FCF (free cash flow).  The OR has always been used by railroaders to measure the efficiencies of a line.  For a real interesting look at financials, take a look at old Moody's Transportation Guides at the local university library.  I have several on my bookshelves and they give really detailed (but dry) analysis of railroads in the past.

Railroads are just beginning to have decent returns on invested capital.  It has taken years for this to occur.  Capital and investment will flow to those companies which will provide high (and safe returns) to the owners.  As much as you might love trucking, you are probably in it for the investment.  I sell to the trucking industry, including a very large Canadian company and owners often are very frustrated by their returns.  It is a difficult business, as is railroading.

Earlier in the thread, there was much discussion on the culture of CN moving from a nationalized company to private.  There were thousands of jobs eliminated.   This caused a high level of conflict.  No doubt there are vast differences here in the states between the US Postal Service and UPS or FedEX. 

I live less than a mile from the CN mainline to Chicago from Toronto (ex GTW).  I can tell you they run a pretty good operation (I listen on scanner daily).  They have problems, particularly near Chicago.  The tracks and signals are pretty good, they do seem to have problems with their motive power from time to time.  Perhaps that is due to integrating IC, WC, and other units into their system.

This line sees very few intermodal trains (2 daily).  The majority of the 30+ trains daily are merchandise, auto, and coal (from BNSF and UP).  They handle high paying freight (as opposed to intermodal).  Much of the freight is chemical from the former IC and from the UP.  Their trains are long, often 100 - 150 cars in length. 

During this recession, they have tweaked their operations.  Old symbols are gone, replaced with new. I dont know what their origin/destinations are, but the trains are still pretty big.  They figured out a manner in which to maximize revenue on these trains and still maintain schedules. 

Ulrich, I appreciate your standing as a business owner.  You understand the difficulties of running a business and depending on others to perform, while establishing your own high standards.  I am not sure how much CN could invest in their business at this time, based on it being a mature company with slow growth.  Nor am I inclined to believe they should be running smaller trains, unless there are compelling reasons.

The safety issues do concern me.  Each railroad deals with it.  A couple of years ago NS experienced a terrible accident in SC in which a switch was left open, killing a number of people.  This is from a company which preaches safety to the point many Conrail employees refused to work for NS.  It is a fine line which must be walked.

I do hand it to CN, they are addressing the Chicago issue on their own dime.  The EJE buyout was bitter and contentious.  It will be interesting to see how they handle it.

Charles...what would be your determining factors for deeming CN unethical?  Not for the point of argument, but for discussion.

ed

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Posted by MP173 on Wednesday, July 15, 2009 9:34 PM

Charlie:

Ethical investing is not just limited to Canada.  There are a number of mutual funds in the US which also are socially responsible. 

But, the lines always are blurred.  Take gun manufactures for example....socially irresponsible?

The Canadian Neil Young (also a railfan of sorts) addressed the issue of guns brilliantly in his song Powderfinger over 30 years ago.  Which is it?  The powder (gunpowder) or the finger (trigger finger) which causes the damage done?  In the case of the violated, does it matter? 

ed

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Posted by lenzfamily on Wednesday, July 15, 2009 10:05 PM

Mp173

I rather thought that ethical investment existed in the US as well. What I was not sure about was whether the Jantzi Index was used or not by US institutions. Glad to hear it is.

I don't think the blurring is quite as confusing as you suggest.... 

From an ethical point of view, the trigger finger is the primary issue as far as I'm concerned. However, the problem also remains that the production of gunpowder, guns etc is, whether you like it or not, equally an ethical issue. Think of the concerns the First Amendment (the right to bear arms) has raised over the last ten years in your country for instance. You cannot separate these two issues, however much you and Mr Young might wish to do so. That is what Public Social Responsibility points of view entail. They are rarely easy to discern and yet they are fundamental to the quality of our existence as North American countries. That's where concern for the violated, at its deepest level exists and is addressed.

Similarly the question for the investor surfaces.  Just switch the context. Plug in CN. Do the thinking. Welcome to my world.

I didn't mean to get into an ethics discussion; however your question to me didn't leave much other option for response.

Charlie

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Posted by Railway Man on Wednesday, July 15, 2009 10:14 PM

Gentlemen:

When you have a sample size of only seven (the 7 Class 1s), and you want to compare a dependent variable (operating ratio) that is presumably related to an independent variable (management quality), moreover an independent variable to which you are assigning scores that are qualitative instead of quantitative, the chance that the relationship between management quality and operating ratio that you think you see, is actually due only to random chance is pretty good.  In other words, you have to know a great deal of information about a given Class 1, much of which is not very transparent to outsiders, and have to do a lot of independent financial modeling, to have any rational, scientific confidence that one Class 1 is any better of an investment than any other Class 1.  Moreover, because railroading is a network business with intertwined traffic, marketing, pricing, market basis, customers, shippers, receivers, union contracts, suppliers, ad nauseum, the fortunes of each are rather closely harnessed to the fortunes of all the others. 

I do not understand the obsession with operating ratios as an investment guide.  I think the operating ratio is at best only the vaguest of guides to management quality and long-term outlook.  Railway infrastructure and railway traffic patterns are too long-lived to punish the management team that decides to starve the plant to make the operating ratio look good, or conversely to reward the management team that chooses to build up the plant.  It is not at all difficult to chisel in all sorts of areas that the outsider can not easily see, and make no outwardly visible impact on the apparent long-term viability of the plant for 25 years.  Some people know enough to ask about rail and tie replacement rates, but very few are knowledgable enough to also observe a railway's real reinvestment in bridge rehabilitation, tunnel rehab, signal system replacement, ditching, undercutting, ballast cleaning, subgrade improvement, etc.  But physical plant is just one place to stiff.  The railway that does not also meticulously understand its traffic, build mutually beneficial partnerships with its customers, develop close and cordial relationships with the communities, politicians, and governments in its territory, and nurture the development of its employees, will burn through its traffic base and its internal resources, and find its territory sterile and its cupboards bare.  Eventually the devil will collect his due, and the railway will fall off a cliff, but the team that did the dirty deed will be long gone by then.  Similarly, a management team can make some boneheaded investment and staffing decisions and no one will be the wiser for 25 years.  D.J. Russell, for example, looked like a genius in 1960 but 25 years later the SP was a dead man walking, and you can trace every bit of it back to Russell. 

I notice that many people here are enamored by tough guys and superhero leaders.  I am not.  The world is a big place and while one person can throw his weight around for a little while, the people that are squashed or squeezed take note and look long and hard for payback.  I am sometimes dumbstruck by the tone-deafness of a railway as I watch it flick away a century of good-will and civic stewardship in one arrogant fit of pique, and create a lasting legacy of bitterness it will never undo.  As example, in a recent negotiation with a state government, I was told by a cabinet official in that government that "we don't like or trust your railway ever since you did "X" to us."  I replied, "You know, "X" occured more than 100 years ago."  "And we're still mad about it!" replied this secretary sharply.  At my story you can scoff, you can badmouth polititicians, you can get on your high horse, you can stick your head in the sand, be my guest.  The fact is, the state WAS still mad at the railway, and standing behind that secretary were most of the state legislators and most of the voters, and as a result of that distrust, a deal that would have been of great benefit to the state was not consummated.

RWM

 

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Posted by lenzfamily on Wednesday, July 15, 2009 10:18 PM

MP173

With respect to your remarks in para 7 cited above. If you are looking at the long term of a business either as an owner or an investor, I would suggest that even in these times if your ROI is 30-40% expressed as an operating ratio, then you do have significant and varied options as far as dealing with your net cash position is concerned. I don't happen to know what the CN's net is...however that is calculated...however I do expect that they are in a profitable enough position to address employee and infrastructure issues rather better than they are doing..

See Ulrich and other's posts above. I believe they outline at least some of the  specifics.

Charlie

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Posted by lenzfamily on Wednesday, July 15, 2009 10:32 PM

RWM

 

With reference to your para 3 above...

That's why I used the mortgage metaphor with reference to CN. There is too much short term thinking going on within the company and its investors IMHO. This is a scenario which will play out in the long term as you said in your para 2 above. Payback can and, I expect, will come. Yes...memories and associated responses are long....as you illustrate.

Charlie

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Posted by Railway Man on Wednesday, July 15, 2009 10:46 PM

Charlie -- thank you for reading my little monograph.  I want to be clear that nothing I write should be inferred as commentary about any specific modern-day railway company.  I of course have opinions (I am human) but my opinions are of no value.  I do not claim to be knowledgable enough about the internal workings of any railway to have certititude about its investment quality, its management quality, or its long-term prospects (in fact the opposite, there are so many obvious differences pertinent to each railway that I find it difficult to even know how to score each attribute, much less add them all up). 

Most of what I see of comparisons among specific, modern-day railways in this forum is far too strident for my taste.  I don't think most of the assessments that pronounce Railway A better than Railway B have much basis in fact.  My goal instead is to encourage people to learn more about railways as an industry and as individual companies, but the only tools I have to offer are some analysis pathways. 

Returning to operating ratios for a moment, all I am saying is that whether it's low or high this year or that year might not mean very much.  I think you really have to take a very long-range point of view with this particular industry.

RWM

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Posted by lenzfamily on Wednesday, July 15, 2009 11:17 PM

RWM



Thank you for your response. I appreciate its generosity. Your 'little' monographs...although they really aren't quite long enough to qualify as such in the technical sense...I have always found valuable. IMHO you stick to the facts and you obviously have a significant and well placed background within the railway industry.  Not everybody has the benefit of your perspective.....and yes, I agree...a long range viewpoint with regard to railroading is essential.

I hope I'm not strident...learning long ago that it's a whole lot better 'to get more flies with honey than with vinegar' as the saying goes. Commentary, as you describe it, has a particular status and defiinition, and I do not construe your input as commentary. You'd be sticking your neck out unprofessionally I'd think and what I've seen of you doesn't lend itself to being unprofessional. 

I believe what we do here, when we do it well, is to share opinions based on our experience. I'm no expert as I've said before, but I have enough years of real life experience in several different professional/trade areas, along with a lifetime love of railroading, genetic or otherwise, to be able to comment with what I hope is some thoughtfulness and also with respect for the viewpoint and opinion of others.

If I was looking for investment advice, I'd say so. I'd not do so here, although I would consider carefully some of what I read in these threads as I did so.

Charlie

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Posted by Paul_D_North_Jr on Thursday, July 16, 2009 4:42 AM

Excellent, thoughtful discussion, which covers a lot of territory.  I don't have anything to add at the moment - no numbers to 'crunch' that I can see here  Smile,Wink, & Grin  - but the insights are great, and the mutual respect is palpable.  Thanks to all who have participated and contributed.  I'll see if I can think of and find some analysis and conclusions that I can add from my perspective sometime.  Meanwhile, thanks again.

- Paul North.

"This Fascinating Railroad Business" (title of 1943 book by Robert Selph Henry of the AAR)
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Posted by MP173 on Thursday, July 16, 2009 6:45 AM

This is turning into quite a discussion.

RWM, I view OR as a very quick look at a company.  Very quick.  Other information is much more important. 

One thing that is becoming very obvious is that I dont have the ability to make a strong statement about CN at this time.  The resources are not there for me to make the decision, such as access to shippers, employees, etc.  All that can be analyzed is the financial records, and those are a bit different as it is a Canadian company rather than a US based company.

Got a lot here to digest.  The point about Southern Pacific is very interesting.  There was an excellent article on SP's problems several years ago in Trains, which I need to dust off and re-read. 

Charlie, you are much closer to the situation in BC than I am.  Perhaps CN made the same mistake that UP made with buying out SP...and that is not retaining the local management. 

One thing I find interesting is Harrison's attempt to change shipper's method of business...charging for weekend demurrage.  That is a real ballsey move.  Not sure about that.

Gotta run the boy to basketball...let me think about some of this.

ed

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Posted by Ulrich on Thursday, July 16, 2009 7:14 AM

MP173

One thing I find interesting is Harrison's attempt to change shipper's method of business...charging for weekend demurrage.  That is a real ballsey move.  Not sure about that.

I like it...and his attempt to do that shows great leadership. My only concern is with how its done. If it is done properly his customers will have bought into WHY CN needs to recover those costs, and shippers will be more receptive to changing how they do business to minimize demurrage. I say it's about time..

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Posted by Railway Man on Thursday, July 16, 2009 7:18 AM

MP173

Charlie, you are much closer to the situation in BC than I am.  Perhaps CN made the same mistake that UP made with buying out SP...and that is not retaining the local management. 

That was a mistake?

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Posted by gabe on Thursday, July 16, 2009 7:47 AM

MP173

The point about Southern Pacific is very interesting.  There was an excellent article on SP's problems several years ago in Trains, which I need to dust off and re-read. 

ed

Best Trains article I have ever read.  I actually bought two books because of that article to learn more about it.  If the recession goes on for much longer, my schedule might loosen up enough to read it.

Gabe

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Posted by Paul_D_North_Jr on Thursday, July 16, 2009 7:53 AM

Railway Man

MP173

Charlie, you are much closer to the situation in BC than I am.  Perhaps CN made the same mistake that UP made with buying out SP...and that is not retaining the local management. 

That was a mistake?

In this context - what's 'local' ?  Not system-wide top management, sure - but what about regional - divisional level - terminal / yard levels ? 

Also, I believe there's a perception that it wasn't so much that UP got rid of the local management, as that UP didn't listen to what they had to say about how their local operations were run.  Not having been there or otherwise involved at the time, all that is 'hearsay' to me, and so I don't vouch for its accuracy.  However, with the operational 'meltdown' occurring shortly afterwards, clearly something went wrong . . . the question is, what ?

Illustrated here too is the 'tightrope act' that most acquiring railroads have to performthe balance between retaining the operations that work for it; changing the ones that don't - at least for the different, larger new system [even though the operation may have worked just fine for the older, smaller system] - including the 'culture' and often the personnel, too; and then - most importantly - having the wisdom to know the difference.

- Paul North.

"This Fascinating Railroad Business" (title of 1943 book by Robert Selph Henry of the AAR)
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Posted by henry6 on Thursday, July 16, 2009 8:51 AM

Since the Operation Ratio has always been the financial bellweather for ROI for railroads, why and how should it be ignored or changed now?  Just changing the name to ROI does nothing but change the spelling and pronounciation and anything else throws the whole financial guage out the window and you are left with nothing an investor wants and needs to know.  How much money is left at the end of the day after all reciepts are in and all bills paid is the only way.  Or am I missing something?

While there is something to say about new ideas, thinking outside the box, fresh apporach, outsiders being bringing a different perspective, all that is no good unless one knows the present workings in both history and application.  If you don't understand the whys and the wherefores of a situation or practice, then how can you throw it away or ignore it out of hand. Here is where Harrison's concept of having managers do real railroad work before managing and changing makes one thousand percent sense.  Too often outsiders come into management positions at all levels with lots of book learnen'n but no practice; theory and practice very often don't go hand in hand.  In railroading or in a lot of other applications.  For instance in radio engineering, the old FCC tests were based on a lot of theories which did not work as is but had to be adapted and changed to specific situations: if the engineer didn't understand that his license was virtually worthless because he could not realistically perform.  Likewise in railorading, just because there is a theory or formula that says something gets done "this way" when in reality one must make adjustments here and there to make it work:  which works best on grade X, six four axel units rated at 2000 hp each or four six axel units at 3000 hp each or three six axel units at 4000 hp each?  If you're supervising that grade, those trains, those unit combinations, you better know how and why each combination is a different 12,000 hp and what can and cannot be done in making changes and why.   Know your theories but also know how they apply and how they have to be altered to be applied.  Knowing the job at hand, no matter how much book learning you've had, or other "experience" you've had, is the way the job gets done best.  Harrison is right on that matter.

RIDEWITHMEHENRY is the name for our almost monthly day of riding trains and transit in either the NYCity or Philadelphia areas including all commuter lines, Amtrak, subways, light rail and trolleys, bus and ferries when warranted. No fees, just let us know you want to join the ride and pay your fares. Ask to be on our email list or find us on FB as RIDEWITHMEHENRY (all caps) to get descriptions of each outing.

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Posted by Ulrich on Thursday, July 16, 2009 9:00 AM

That's so true...managers who understand the business from the ground up are in short supply in almost every industry. I understand that most railroads have management trainee programs, but I don't know how much practical experience trainees get. Also...can someone who starts as a conductor or carman today really aspire to a management position without also having the formal education like an MBA? I don't know.

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Posted by henry6 on Thursday, July 16, 2009 9:23 AM

With the virtual elimination of the Libera Arts programs we have lost sight of what a college education is really supposed to be and to do.  I never thought of it as an actual vocational education as much as an opportunity to teach one to observe, learn, ask, and think about a given topic.  But today we have colleges that turn out high school level vocational training in narrow subjects, practices, and disciplines at great expense to the student and dissapointment to the work place.

 (And before I go any further, I do have a 1965 B.S. in Radio and TV which encompassed  half the study in courses and disciplines outside of the industry.  I have spoken and dealt with a lot of new graduates whose education has so finely honed them to one or two aspects of the industry and no history, drama, economics, english, psychology, sociology or political sciences to allow one to understand the whole picture of the business and how they can or cannot appy what is taught.  With high hopes of becoming a top executive in the industry, they don't want or [ somewhat because of today's industry practices] cannot take the time to take menial, entry level jobs to learn how it really works.  Specialties like degrees in radio programming are not effective unless one has been involved with radio programming: get a lot of drama, english, literature, political science, psycololgy, sociology, et al, then practice the application before becoming vice president of programming! )

I have seen and heard railroad managers who come fresh from college get dumped in the field by the rank and file not out of spite or anything untoward, but out of not understanding how the theories learned in the classroom get applied to real world railroading.  I guess what I want to say most is that a college education should set you up to learn more when you get out in the field  and not to know everything that might or might not be.

RIDEWITHMEHENRY is the name for our almost monthly day of riding trains and transit in either the NYCity or Philadelphia areas including all commuter lines, Amtrak, subways, light rail and trolleys, bus and ferries when warranted. No fees, just let us know you want to join the ride and pay your fares. Ask to be on our email list or find us on FB as RIDEWITHMEHENRY (all caps) to get descriptions of each outing.

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Posted by MP173 on Thursday, July 16, 2009 9:32 AM

Railway Man

MP173

Charlie, you are much closer to the situation in BC than I am.  Perhaps CN made the same mistake that UP made with buying out SP...and that is not retaining the local management. 

That was a mistake?

Everything I read was that UP's problems in Houston had to do with eliminating SP's local management, which lead to a big meltdown. 

What led to the elimination of dynamic braking engines on the ex BC?  Perhaps it was to do with eliminating local management.

That was my point.

When you buy a company you can insert management as you see fit.  Sometimes the previous management understand the local conditions.

ed

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