Whatever happened to service?

Posted by Fred Frailey
on Monday, August 3, 2015


The quarterly earnings call with analysts in July was something of an embarrassment for David Starling, chief executive of Kansas City Southern Railway. I mean, what excuse matters when carloadings fall 6 percent versus a year earlier and you still have huge delays for lack of crews to move less traffic? The problem centered on KCS lines in Mexico, where hiring and qualification of new train service employees apparently fell far behind the attrition rate. Customers of high-value cargos fled the railroad for other means of moving their goods. What did KCS do about this crisis? Why, it instituted its first-ever share-buyback program, a $500 million rescue mission from its treasury to prop up the share price of the company and thereby ensure that Starling, who owns 172,706 shares, won’t suffer economically from this catastrophe on his own watch. I just wish I knew what this buyback will do to improve service for KCS customers.

Kansas City Southern isn’t in the customer service doghouse by itself. I drove alongside the Chicago-Los Angeles Transcon of BNSF Railway in June and was struck that high-priority Z-class trains were five, seven, nine hours behind their schedules—this before floods that severed the railroad in Missouri. During a recent week, 745 BNSF trains were held short of their destinations for six hours or longer, and 12,000 loaded cars had not moved in two to five days (the number of similarly stranded loads on CSX Transportation was more than 18,000). The only Class I companies that consistently move cars and trains along without undue delay appear to be Canadian National and Canadian Pacific, at least in their U.S. operations.

So what is customer service? My definition is simple: Doing what you say you will do when you say you will do it. Short line and regional railroads are good at this, and the big railroads ought to be good because they have the money and the tools. Every time a Class I railroad takes on a carload of freight, a trip plan is generated that says what connections the car will make at which locations and the day it will be delivered at its destination. But as you can see, that’s not happening. The cycle time of boxcars is so slow — a month between loadings — that building new boxcars is not economically justified. “It still takes weeks for a single car to traverse the network, and transit times are highly irregular,” says Edward Burkhardt, chief executive of Rail World, which owns railroads in the U.S., Canada, and overseas. He says service may be significantly worse than in the age of steam.

            Here’s what I think is happening. First of all, on any large railroad you’re always going to have issues: derailments, floods, blizzards, crew imbalances, bloated terminals. So perfection in doing what you say you will do is unachievable. Yet why can’t it at least improve? Any yard with an average freight car dwell time of more than 30 hours is missing many and perhaps most trip-plan connections. New business causes crew and locomotive shortages, meaning trains are held and get off schedule. Crews of local freights routinely run by setoff and pickup points in order to get to their destinations before their service time expires. The proliferation of unit trains is killing the schedules of general freight trains, which in theory have priority. However, terminals have few places to stash a long unit train so the crew that should run the scheduled general freight is put on the unit train to get rid of it.

And do you know any Class I road whose transportation people are held accountable for getting cars to customers when promised? I sure don’t. You have to wonder what would happen if the bonuses of operating officers, down to the level of division and terminal superintendent and maybe even trainmasters, were determined by the percentage of original trip plans successfully executed. I suspect you would find a lot of empty yards and happy customers.

I asked the president of one regional railroad how he would approach the problem of customer service if he were offered the job of running, say, CSX. His first answer was that he wouldn’t take the job. Then he smiled and continued: “I’d call in the chief financial officer, the chief transportation officer, and the chief marketing officer. I tell them that the four of us in coming weeks are going to go visit each of our 100 largest customers. We will ask them what we need to do to deserve more business. And whatever that is, all four of us will have to agree among ourselves to accomplish it. Unless we all buy in, very little will happen. But if we can do that, we’ll probably be satisfying the rest of our customers in the process.”

So much goes in to doing what you say you will do. You need adequate capacity in the right places, and that takes capital investment, which is often lacking in this era of share buybacks and dividend increases. You need to quickly flush out yards and get cars on their way. You need a scheduling plan that minimizes the handling of cars en route, which means more point-to-point freights that run right through terminals untouched. You need commitment to do these things up and down the chain of command. All this is so hard to accomplish that some railroads would probably prefer to be rid of much of their business that isn’t intermodal, automotive, or unit train. I have a better idea: If regional railroads can accomplish all these things, the big boys in this industry need to try harder.--Fred W. Frailey

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