Enron Type Mentality in Today's Railroading

[Anonymous]

It seems to me that 34 years after the collapse of the Penn Central Railroad, along with the Lehigh Valley, today's top railroad executives still don't get the lessons still to be learned from the collapse of Penn Central. Just look at the service meltdowns that Union Pacific is once again beginning to experience. That railroad's top brass does not seem to have learned the lesson from what happened when they digested Southern Pacific, a largely single track railroad into the Union Pacific. Result was a service meltdown that made those suffered by Penn Central during its first year of operation, seem minor by comparison. Well, UP wasn't losing entire trains or individual carloads of freight throughout its system, but shippers were plenty mad and some still are. UP, as well as the other railroads have cut staffing so much that they have more trains to run than they have crews for.. It seems to me that railroading is a profession for railroaders who KNOW THE BUSINESS, not some Wall STreet types or fresh MBAs who think they know it all. It is still possible that hijinks with the books are still going on at at least some railroads and they have not yet got caught like Penn Central was. It is time for the railroads to be put back in the hands of professional railroaders who know both the operational as well as the business aspects of the profession, something today's railroad executives seem to be missing, with a few exceptions. The Bottom Line should not be the only thing that matters, the safety and reliability of the service, the well being of the crews, proper maintenance all should be part of the equation. Too much corner cutting as now seems to be done has a way of coming up and biting you on your you know what, usually in the form of a catastrophic accident. Railroad employees can best empower themselves by buying enough stock in their companies and giving the Wall sTreeters now in charge the boot and replace them with professional railroaders who know the business. Then and only then can the meltdowns at Union Pacific that are affecting other railroads be brought to an end. Part of it is the result of too much track being torn up. Also lines that have been reduced from double to single track should never have been single tracked to begin with, given the growing demands on the rail system. There are some lines from which track is now gone that should be restored to service so that the affected railroad has alternative routes to fall back on in case a primary route is blocked by a derailment. The goal should be to keep the passengers and freight moving rather than cutting corners and mileage that may be needed later.

[Anonymous]

QUOTE: Originally posted by rangerjim94

It is still possible that hijinks with the books are still going on at at least some railroads and they have not yet got caught like Penn Central was....
....Railroad employees can best empower themselves by buying enough stock in their companies.

Not sure that you are offering sound investing advice here. It was not service reductions that brought down Enron, it was illegal bookkeeping practices that covered up the looting of the company by company execs. You're title implies you have information concerning criminal action by executives in some railroad companies similar to that which brought down Enron. You might recall, Enron employees were also encouraged to purchase their stock, and as a result many lost their jobs, savings and retirement as a result.

I'd be interested in seeing some of the evidence of the illegal activities.

Wayne

[tree68]

Some railroad reading is in order. Pay particular attention to the Goulds, Fisks, and Vanderbilts.

Financial hijinks are hardly new to the railroad industry. Fortunes have been won and lost. Many a "little guy" lost a bunch of money in the early days because he invested in the growth industry of the day - railroads. Everyone wanted to build one, which ended up precipitating the huge amount of excess plant that actually did exist at one time.

Financial considerations ("Wall Street") have always driven the railroads. Blame today's "right now" culture for the instant ROI mindset.

As for "employee owned," I think we've discussed before who "owns" the railroads - you might be surprised to discover that a significant number of the stockholders aren't even US residents.... I don't think the employees have enough money to buy those folks out. And they are in in for the money. If they RR starts hemhoraging money, they'll bail...

[slotracer]

So much to discuss here, I'll throw out some insights derived from my experience in managemant and marketing at Uncle Pete. The things that go on inside would amaze you, I'll just throw out a few tidbits.

I somewhat have a hard time buying the BS that the railroads are revenue inadequate. I understand the profit margins they make on traffic and believe me, the margin on mediocre intermodal traffic, exceeds product lines we consider high profit in competitive industry. The railroads cry poor mouth, then a month later publi***hat they made record revenues and profits, it's enough to make one laugh....or drink.

One of the problems in the railroad industry is that it is mature and has somewhat limited growth potential. Some new bulk markets open up as others fade away and intermodal....the low profit margin buisness line is and will be in a great growth stage, but overall the railroad can' show growth rates that are attractive to wall street investment vs other hotter industries.

The railroads are more and more signaling each other price wise with increased use of public pricing and an unwilingness to transload or bid aggressively on traffic the competitor has. The realize that in many lanes, they have just one competitor and are tired of gaining 5% volume one year, then loosing 5% the next....just shifting traffic back and forth and constantly diminishing thier contribution. In my companies markets, we have "healthy competiton" where a number of competing products and competing producers are hungry, the customer gets the best value/service for the best price.

Tge railroads are still in the mindset that cost cutting is the saving grace. They realize there is limited opportunity for growth through mergers any longer and are not willing to aggresively grow business by getting it from a competitor, thus the cut cost beyonfd reason in many cases and either jack rates up as high as they can where they can, or they nickel and dime you with fees and charges.

UP, liike most other roads has cut costs by reducing the system (Track, locomotives, yards, crews, train starts etc) to the absolute minimum......they have a stellar service design department that makes a very complex beast run on the absolute minimum of assets. This is fine for normal demand and volume, but the economy has come back better and faster than most everyone anticipated and the surge capacity just is not there. UP also milked the lower labor costs obtained through a very large retirement exodus a bit over a year ago, and as they always do, tried to handle business surges with what they had, trying to make higher revenue with the same costs, and obviously they have not learned. It had to reach serious service difficulties and angry customers they could no longer BS with presentations and useless measurements to get them to hire crews and make other investments to handle the volume.

Again as they always do, they add assets too late and the shipping public suffers. The probelm with crews is that it takes a long spell to hire, train and qualify them so the service failings go on.

It's tough to oust entrenched RR management. At UP, almost everyone there refers to Davidson as a switchman in a suit. He was and probably still is not liked my most at the UP and the my way or the highway, and do it or else attitude is something that aids in getting UP in trouble, it was key in the meltdown 6 years ago. There was an attempted Coup to get Davidson out in the UP about 99 and the individuals involved were removed from the company. Customers warned UP up and down, that they bestter not have the kind of service issues with the SP merger that they experienced with the CNW debacle. Management assured them it would not repeat....it didn't...the SP merger meltdown was WORSE.

Railroads have always touted the benefits of single line service with the mega mergers, but in reality customers are willing to exchange a couple days cycle time and maybe an extra divison on a rate to have competitive options. The problem is the railroads cut deals to get shipper support for mergers or at least buy off shippers who protest to become nuetral. I realize that "bribing" support of nuetrality is illegal, but I saw loads of it when I worked with SP and UP after. It is very hard to prove, we were under instruction during the merger process to compete aggresively until the merger was approved, so who could say after the fact that a dal that was cut was not an aggressive move to compete, or was it a deal to buy support for the merger ?
The railroads are top notch in dividing the shipping public up, pitting factions against each other, nutralizing the effectiveness of shipper organizations and getting their way.

I think a large part of the problem si the rails have been allowed to merge too large, they are too hard to manage and they are run by wall street. Every year we went through a bottoms up forcast and reported to upper management what we felt our business lines were capable of performing for the comming year. They made their own promises to Wall street and told us what our budget lines really would be and they were a ridiculous stretch, for the most part, not a challenging goal but either a demoralizing outraegous stretch, or something that was virtually impossible.

And to top it all off, when they are behind in their financial performance in the begining of the third quarter UP used to (maybe still does) cut operating costs. This ussueally happened in an August to Sept timeframe, right when all your intermodal, coal, lumber and harvest traffic runs heavy. They would do it year after year and never learn from it. What's more they would deny doing it, even though it was apparent to shippers. We in marketing who knew operating personel, the the truth.

Want a funny story or two about irrational railroad decison making based on restrictive budgets and insane cost containment motives?

1. A piece of Ag business competitve to a class one by direct access and a secoond class one by reciprocal switch access comes up. The buisness team for the carrier with direct access gets shot down on aquiring the new piece of business (60 carloads every 3rd day mini unit train business) as the operating department locally does not have it in their budget to switch the extra carloads in the originating terminal. Class one #2 bids on the business and is awarded same. The direct access carrier that walked away, still has to handle all teh cars on the local basis (the terminal who claimed it was not in theri budget) and the second class one gets all the lucrative line haul revenue from the move.

2. Operating budget cuts are forced on operating units in the 3rd quarter. One unit has no where to cut, so they show a reduction by reducing a switch job from two large engines to one small one and go from 7 day a week service to 5. On paper they report a theoretical reduction. In reality, the switch job that handles 35-40 heavy tank cars a day cannot manage the volume, so the local runs on 3 shifts instead of one, actually costing the carrier more in crew starts, fuel usage and overtime.

3. Abusiness manager turns in a reasonable forcast for the next year on a line of metals, it shows about 5% in growth, mostly from rate increases and some market shifts balanced with some mileage/linehaul increases. Executive comes back and demands a 12% increase on the budget. Market manager responds that the customers melters are running at nearly 100% of capacity and the traffic is captive to the railroad and pretty much 100% moves rial. Market manager asks executive if the customer should build additional smelters just so the railroad can make forcast.

[Anonymous]

I really do enjoy this Forum! One reason is the delicious irony so often evident. For example, this thread asserts that what the industry really needs in leadership are "railroaders who KNOW THE BUSINESS." Yet the most consistently vilified leader on this Forum seems, IMHO, to be a quintessential "railroader." His official biographical material from his railroad's web site follows. (I couldn't readily find the biography of a certain "railroader" who runs a system based in Omaha, but if my memory serves me, he came up through the ranks too.) I'm scratching my head, trying to think of the Class I CEO's who are "Wall sTreeters now in charge."

E. Hunter Harrison
President and Chief Executive Officer

E. Hunter Harrison became President and Chief Executive Officer of the Canadian National Railway Company on January 1, 2003. Before assuming that position, he had served as CN’s Executive Vice-President and Chief Operating Officer during the previous five years. He was appointed to the Company’s Board of Directors on December 6, 1999.

Prior to joining CN, Mr. Harrison had been President and Chief Executive Officer of the Illinois Central Corporation (IC) and the Illinois Central Railroad Company (ICRR), as well as a director of both IC and ICRR, from 1993 to 1998.

Mr. Harrison’s railroad career began in 1964 when he joined the Frisco (St. Louis-San Francisco) Railroad as a carman-oiler in Memphis while still attending school. He advanced through positions of increasing responsibility in the operations function, first with the Frisco, then with Burlington Northern (BN) after BN acquired the Frisco in 1980. Before moving to IC and ICRR in 1989, he served as BN’s Vice-President – Transportation and Vice-President – Services Design.

With IC and ICRR, Mr. Harrison first held the position of Vice-President and Chief Operating Officer, becoming Senior Vice-President – Transportation in 1991, Senior Vice-President – Operations in 1992, and President and Chief Executive Officer the following year. During his career with Illinois Central, he initiated the concept of scheduled service for freight shipments, maintaining a sharp focus on operational efficiency and asset utilization. By 1996, he had succeeded in driving the railroad’s operating ratio down by some 30 points to the low 60s – the best in the entire North American rail industry.

As CN’s Executive Vice-President and Chief Operating Officer, he applied the same philosophy and methods, implementing an aggressive operating plan and refining the railroad’s scheduled service to produce industry-leading operations ratio and on-time performance results.

Mr. Harrison was named North America’s Railroader of the Year by Railway Age magazine in 2002.

[Junctionfan]

What bogles me is how Hunter Harrison being a former railroad worker that likely had to take crap from Frisco management, he now turns around and does it to other hard working employees under his watch. He couldn't have liked it when others were mean to him so what makes it O.K that he can do it to others who don't necessarily deserve it. I have little respect for those who don't give a general respect for other human beings. You may think a person is a real moron but respect says you give the common courtasies to others because they are human beings. Hunter Harrison and others like him are the reason why the world has turned so cold and calculating.

[oltmannd]

I've often wondered if part of the UP's problems aren't precisely because *** Davidson is a "railroader" and not more business oriented. To me, it's inexcusible that UP could miss forecasting their crew needs so badly.

Planning is a more technical and challenging task that "reacting", but old-time railroaders seem to get a bigger kick out of reacting to problems as if it's a measure of their toughness or manliness or their worth as a person. I remember early in my career that some guys would talk of going out wrecking on derailments with much glee, as if it were a Boy Scout camping trip....

[BaltACD]

The only thing the railroads have to fear is prosperity and increasing levels of business.

[jeaton]

Mark & ***

Me too. We should add Mr. Davidson's bio to that post and keep it handy every time some one says "real" railroaders would solve the xxxxxx mess.

Many of us members are quick to want to hang the CEO with every problem that ever comes up. Sure, the buck might stop there, but to say every mistake ever made must be attributable to the CEO is just nonsense. That would assume that every employee in the organazition is in a mental lock step with the boss. Even our military leaders don't get that.

I have worked for many companies and have had bosses ranging from great to terrible. Even the best companies will have some that just can't function in a manner that is 100% for the good of the company.

In fact I never encountered the perfect boss until I started my own "sole proprietership" business. Good thing, I have to hang with him 24/7.

Jay

[railman]

They're being run today the same way they have for 100 years; money money money. Only now they've manage to cut off all their excess (branch lines, section gangs, etc.) so when anything happens, (storm, etc.) the railroad shuts down. Who ever heard of passenger trains shutting down due to the "threat" of a bad storm?- it's because they don't have the people anymore to keep things going in bad times. They can't summon an army to repair the road- because they don't have the army anymore.

This all reminds me of the old deffered maitenence (pretty sure I spelled one or both of those words wrong, sorry.) program, where the track was run into the ground with minimal to none service, subsequentely abandoned because it would "cost to much" to restore back to good condition when it got so bad it wasn't usable.

[MP57313]

QUOTE: Originally posted by railman
Who ever heard of passenger trains shutting down due to the "threat" of a bad storm?- it's because they don't have the people anymore to keep things going in bad times.

Somewhere (Trains?) it was also mentioned that there's a greater threat of litigation these days, so RRs are a lot more cautious about running trains during and immediately after storms. RRs are not described as the "all weather mode" as much as they used to be.

[Anonymous]

Union Pacific IS an Enron!

[Anonymous]

QUOTE: Originally posted by BNSF SD70MAC

Union Pacific IS an Enron!

Oh? In what way?

Wayne

[ericsp]

Here is the page for UP executives' profiles. Richard K. Davidson started out as a conductor/brakeman in 1960.

http://www.uprr.com/aboutup/exec/index.shtml

[Anonymous]

Just curious--has Hemphill worked for UP or any other railroad in the past? He sure seems to blatantly defend them all the time.

Have to agree with the SD70MAC guy--UP may be an Enron--they just havn't been officially "caught" yet!! And you can't spell stUPid without a UP!!!

[Overmod]

Just curious -- has pltbranch worked for UP or any other railroad in the past?

And just exactly what about UP makes them an "Enron"? Be specific. We're waiting.

[Junctionfan]

QUOTE: Originally posted by M.W. Hemphill

Pltbranch: As soon as you list your real name in your profile, I'll gladly answer your question. I'm not going to respond to ad hominem attacks by someone who cloaks themself behind a pseudonym.

Unless you have evidence, your comments about UP could be construed as libel. If you have no evidence of a crime, you can't legally or ethically accuse someone of it.

Yeah I have to agree with you on this. When I bad mouth CN, it is based on information that is true and than I form an opinion on it. Most of the critism of CN is has legal political overtones to it but I have never may any comments that could get me in court. If I say CN sucks or Hunter Harrison sucks, than that is an opinion but if I were to say that they were criminals and gave a type of crime they supposidly did with out proof, they would have justification to haul me into court for slander.

Pitbranch, careful you don't get sued with what you say. If UP is doing something illegal forget talking about it here and talk to the F.B.I.

Andrew a.ka Junctionfan

[Anonymous]

Settle down, Mr. Hemphill--this question was by NO MEANS an attack on you--I just was simply curious if you had affiliation with a RR in the past--that's it. No harm intended. Personally, I do have 16 years RR experience. Thanks.

[Overmod]

But where's the detail about UP and Enron?

Personally, I think it's possible to equate UP with Enron in a very different respect from corporate fraud or massive sudden failure. Enron contributed to massive problems in utility provision and cost connected with deregulation, in the name of expedience and short-term profitability. I'd be interested in seeing discussions of how UP (and other modern railroad organizations) might be contributing in similar ways. There need be nothing actually or potentially libelous in those discussions.

[Anonymous]

JMHO but aren't many of UP's problems related to greatly increased traffic to and from the 'NAFTA plants' in Mexico combined with taking over a railroad that wasn't in the best shape to handle it? I saw something on CNN about the trans-border truck traffic being all bottlenecked as well, even pre 9/11. Imports from China have also exploded. I wonder how many parts and sub-assemblies come from China, go to Mexico, and finally return as finished goods to the U.S.? Could the pre-merger S.P. done any better with all this traffic?

Enron created artificial demand by sham-trading, I don't think that's the case here. Besides how does U.P. profit from the bottlenecks?

[Junctionfan]

QUOTE: Originally posted by M.W. Hemphill

Apology accepted. You can read my biography on this very website -- even though I resigned from Trains over 60 days ago, they've not updated it:

http://www.trains.com/Content/Dynamic/Articles/000/000/003/175login.asp

I have never worked for UP. I'd be delighted to know your background, too.

Since you are probably the best person to ask, what kind of traffic does KCS have?

[Junctionfan]

Here is my biography. In case anybody is interested when they read my threads.

I was born in St. Catharines on September 9, 1979. I attended school where I developed my love for music. By age 9, I had already composed a piano concerto and had sketched out a rough idea of an opera at 13 that I have yet to complete. I play the piano and harpsichord mostly but I also can play the violin. I have composed over 400 pieces for so far that are not yet on paper but will be soon. I am studing to be concert worthy on the piano and harpsichord. My piano teacher had to start me at grade 6 in piano. I plan to study to be a conductor of a symphony orchestra so I can conduct my own pieces.

For railroading, I do much of my research through ex CN and current CN employees including a current CN engineer, retired dispatcher and a retired track inspector. I also have a number of people in my club who know friends in "high places" including people at Transport Canada. One of our members works for the Ontario Ministry of Transportation. I am very interested in politics and will likely run at some point later on in my life when I get my music done.

[Valleyline]

As a railfan who several years ago put my money where my mouth is and bought stock in a major RR, I find it interesting that many of today's railfans have no appreciation for the fact that railroads will not survive if they're not profitable (well, maybe Amtrak is an exception). Earnings, or the prospects for them,are what attract investment. Hence, many of us claim that Wall St. is running the railroads. To the extent that the railroads won't run without investment, that's true. It may also surprise some that railroads must compete with every other business in the world for the money (capital) to expand their physical assets to meet service demands. I'm not sure that whining over non productive facilities, branch lines, and back-up routes is very productive to our interests unless backed up by some hard facts about where the capital is going to come from to support wish lists that do nothing for eanings.

[Junctionfan]

I was looking on BNSF website and curious to know how much it would cost to put a 53 foot trailer on their Priemium Service trains which means it has priority on the system and few delays. The destination was from Chicago to Los Angelas. The price was about $1500 U.S . That is not unreasonable considering it would cost more to pay a driver of a truck to drive it there, gas, oil, maintainace, and you have a chance of an accident because LA highways are crap and so is Chicago's because I have friends who work for Schneider and TST Overland and told me that. Not to metion it takes longer by truck than by rail. Now if it wasn't premium service the price would have been cheaper. I don't know why more industries don't ship by rail.

[Randy Stahl]

Enron & tyco were run into the ground by common criminals who profited handsomly from thier companys treasurys. I will not try to hide the fact that I do not like the class one RRs however I cannot believe or will accept that Hunter Harrison is any thing like former Enron or Tyco execs. If he were , the SEC would nail him to the wall.
Randy

[Junctionfan]

3,000 dollars isn't unreasonable. Don't the trucking industries have to pay the drivers more than 3, 000 for gas, wages, tolls etc.

[Anonymous]

YOU CAN POSTULATE ALL YOU WANT ABOUT THE COST OF DOING BUSINESS BUT THE OVERALL FACT ISTHAT WALL STREET AND ALL EXECUTIVES ONLY WANT AS MUCH MONEY IN THEIR POCKET AS POSSIBLE .THEIR MOTTO IS IDONT CARE HOW YOU GET IT JUST GET ITAND IF YOU GET COUGHT DOING SOMETHING WRONG THATS TOUGH FOR YOU

[Junctionfan]

I wouldn't. Most people have a set of moral standards that is difficult to break unless your moral standards were so low that it was not difficult to break ethics. Money to me isn't everything. Sucess is more important to me than wealth because it is easier to be successful than wealthy.

I will say this. Acording to Donald Trump, the reason why he doesn't operate for money alone; his passion is building things and innovating from them. Because he loves it so much and puts a tremendous amount of effort into his ventures, he is a billionaire. He advocates that people shouldn't do things that they don't want to do even though it might pay well, there are plenty of other things they could do that could end up achieving the level of success he does but don't knock your head of the wall if it doesn't work-do something else than. I would rather end up well off and comfortable than trying to be some greedy S.O.B who is more interested in money than achieving social grace. People like that usually end up alone in life and as bitter as lemons.

Now can you imagine how big the railroads could be if Donald Trump was a CEO/Railfan?

[rich747us]

Granted, it's evident that UP management has made some poor decisions in operations, but let's not forget a certian former CEO (*coughs while saying 'John Snow', lol!*) of a certian east coast class 1 railroad (*coughs while saying 'CSX'*, lol!) who not only left said east coast class 1 railroad in shambles, he got the ball rolling on the slaughter of my favorite railroad....CONRAIL! (R.I.P.)[xx(] [:(] (play taps here).

[Anonymous]

QUOTE: Originally posted by M.W. Hemphill

UP829:

UP's traffic to and from Mexico is almost entirely carried on former Missouri Pacific lines at least as far as Dallas-Fort Worth, and then on the former Katy to Kansas City, or on former MP lines as far as Longview, Texas-Shreveport, Louisiana, and then paired with SSW lines. SP is not an issue here. Moreover, the traffic growth on these lines plateaued several years ago and hasn't changed much since since for UP. Traffic growth on UP in the last three years has been almost entirely on the former Sunset Route from Los Angeles east, splitting three ways at El Paso to Kansas City, Fort Worth, and Houston. The two biggest choke points on UP at present are the endpoints, Los Angeles and El Paso, but Houston has been a choke point for nigh on 30 years now, all on its own.

When you use the term "bottleneck" I assume you're talking about profiting from artificial constraints on supply, which is what Enron and other energy traders did. UP can't do this despite what some people think.

There's also such as thing as "bottleneck rates," which is not a congestion issue but is definitely a monopoly issue

I was thinking of the plants along the California & Arizona borders. The tie-ups I saw on CNN was for truck traffic down to Ensenada. Looking at the Trains UP map, there isn't that much going down there, so maybe it's all truck or not UP territory.

By bottleneck I was refering to tying up the railroad with trains waiting for replacement crews, not delievering on-time, and refusing service to additional customers. That's not very good for business or profits. To do an Enron, I suppose UP could run empty trains around in circles toy train style, then claim they have to raise rates because of congestion [:)] Don't think so [:D] [:D] [8D]

Interesting comments on rates. Maybe what's needed is for carriers to only quote door-to-door rates and work out the details internally. When Fed-Ex flies shipments on commercial airlines, the shipper still only deals with Fed-Ex and gets one bill.