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American Shipper

CSX’s bumpy ride implementing ‘precision railroading’ model

At its core, new CEO E. Hunter Harrison’s precision scheduled railroading system is all about efficiency, but implementation efforts have caused significant service disruptions, according to CSX customers and U.S. rail regulators.

   To say that E. Hunter Harrison’s first six months on the job as president and chief executive officer of Jacksonville, Fla.-based Class I railroad CSX have been interesting would be a grand understatement.
   Harrison is revered by many in the railroad industry as a savior, having been responsible for remarkable turnarounds at the helm of Canada’s largest freight railroads, Canadian National Railway (CN) and Canadian Pacific Railway (CP). But his tenure at CSX has been filled with moments of high drama, both internally and in terms of disruptions for the railroad’s shipper customers. Even before the his official appointment to the position on March 7, there was a contentious and highly public negotiation that involved a reported $84 million in benefits and equity awards he forfeited by leaving CP six months ahead of schedule.
   Since then, however, Harrison has done what he always has, namely implementing his so-called “precision scheduled railroading” philosophy, which Harrison wrote about in his 2005 book, How We Work and Why.
   At its core, the precision railroading system is about efficiency. It consists of seven principles that, in theory, allow a railroad to move the same amount of cargo with fewer trains, equipment and personnel: minimizing car dwell times in yards, reducing car classifications, using multiple traffic outlets, running general-purpose trains, balancing train movements by direction, minimizing power requirements, and striving for steady workflow.

Imprecise Implementation. Under Harrison, CSX in the past six months has begun consolidating inefficient unit trains, which the company says allows it to optimize train length and reduce the total number of trains while increasing the frequency of service to customers at the same time. The railroad has also transitioned hump facilities in seven cities into flat switching operations to reduce freight handlings and transit times for traffic processed at those terminals.
   But in implementing Harrison’s precision scheduled railroading and other efficiency measures, CSX has hit some major stumbling blocks. During the second quarter of the year, customers began complaining of a significant deterioration in service. According to complaints made by rail shippers to the U.S. Department of Transportation’s Surface Transportation Board, problems ranged from unpredictable transit times, gateway congestion, unreliable switching operations and poor customer service.
   The uproar became so loud that the STB sent a letter to CSX in late July, warning the railroad that it needed to correct its service deficiencies—and soon. Some shippers, according to the letter, were forced to “curtail production, temporarily halt operations, and/or utilize other transportation options that have added additional expense and inefficiencies to their operations.”
   But the complaints didn’t stop there. In August, the Rail Customer Coalition (RCC), consisting of more than 40 trade groups across America that depend on railroads, sent a letter to the U.S. Senate Committee on Commerce, Science and Transportation regarding what it termed “serious and disruptive” problems that it said had upended CSX’s rail network.
   “This [disruption] has put rail dependent business operations throughout the U.S. at risk of shutting down, caused severe bottlenecks in the delivery of key goods and services, and has put the health of our nation’s economy in jeopardy,” the RCC wrote.
   Never one to shy away from a fight, Harrison then sent a reply to the STB rebuking the RCC’s claims, adding that the group never reached out to CSX to discuss the issues before sending its letter to the Senate committee. Harrison also predicted that the various changes to the railroad’s workforce, routes and hubs would eventually “deliver measurable improvements in key service metrics, resulting in our customers’ freight moving more consistently, reliably and cost efficiently across the CSX network.”
   In the weeks leading up to the publication of this article, Harrison and CSX declined repeated requests by American Shipper to answer questions about his tenure so far and his plans for the future of the company. Instead, CSX sent answers in the form of various comments and statements Harrison had already made publicly over the past few months.
   Asked what organizational changes Harrison plans to make within the next six months to a year, for example, CSX referenced an Aug. 24 letter to the STB, in which Harrison gave some specifics regarding CSX’s plans to restore efficient service.
   “Going forward, we expect our hard work on terminal efficiency, traffic flow adjustment, and transit time to bring about enhanced service,” Harrison wrote at the time, adding that during the remainder of 2017, CSX plans to work on five key areas: improving safety, strengthening service, better network fluidity, optimization of asset utilization and solid financial performance.
   Harrison also indicated in the same letter that CSX would continue remapping its service area.
   “We have and will continue to evaluate opportunities to run current unit train service in a more efficient and scheduled manner,” he said. “Traffic flows through critical interchanges will continue to be adjusted as needed in pursuit of the most efficient transfer of freight.”
   According to the letter, CSX also plans to continue “fine tuning” operations at select locations where changes have already been implemented in an effort to improve fluidity.
   CSX spokesman Rob Doolittle told American Shipper the company’s transition to precision scheduled railroading will be its primary focus through the end of 2017.

Customer Communication. When it comes to the customer service component, Harrison’s comments in the August letter to the STB seem to fly in the face of the current climate around the company. Despite CSX being criticized by the RCC for imposing major service changes with little advance notice and what it referred to as a “woefully inadequate” response to customer complaints, Harrison said that CSX has begun creating a stronger bond with customers.
   “We’ll continue what we’ve started in 2017 to further a culture of customer advocacy—a mentality of ‘they win, we win,’” he said. “We’re placing a particular emphasis on our local operating teams as we instill a habit of proactive communication and problem solving with our customers. We want to be easy to do business with, and we want every interaction with the customer to be a good interaction.”
   CSX also declined to comment how the railroad plans to solve all of the various service issues that have been plaguing it the past several months, referencing more of Harrison’s comments from the abovementioned letter to the STB, but providing few specifics.
   “CSX is in constant communication with our customers and we work hard to win their business, earn their trust, meet their needs, address concerns and bring legitimate issues expeditiously to resolution,” Harrison wrote. “Since early August, we’ve placed commercial personnel at challenged field locations to bridge communication gaps and target concerns at the local level.”
   As of late August, Harrison and Acting STB Chair Ann Begeman were reportedly having direct conversations about the deterioration in CSX’s service, and all three members of the STB had written to the company to express their concerns and request information about CSX’s service recovery plans. In addition, the STB says some of its staff members are holding weekly calls with CSX senior management and receiving weekly service metrics from railroad.
   The STB even went as far as to schedule a public listening session for Sept. 12 in order to allow customers and other service providers that work with CSX to voice their concerns, but postponed the session due to Hurricane Irma, which made landfall in South Florida just a few days prior. The storm caused flooding throughout the state, leaving thousands of residents and businesses without power.
   “The board understands that CSX and many rail shippers are currently focused on hurricane preparedness efforts in areas that could be affected by the storm,” the STB said in a statement as the massive, then-category 5 hurricane swept through the Caribbean. “The board does not want to divert attention or resources from those necessary activities, nor does the board believe that it would be appropriate to require CSX’s senior management team to be in Washington, D.C., and away from its Jacksonville, Fla. headquarters should a potentially catastrophic hurricane make landfall.”
   Most of Harrison’s outreach to customers to smooth things over has taken place behind the scenes, but one example came to light in early September. After JCI Jones Chemicals sent a letter to CSX and Harrison detailing specific service issues, Harrison reached out to the company to offer his apologies and to describe the steps CSX was taking to quickly address those issues. At the same time, CSX service representatives contacted each JCI Jones branch in an effort to understand what the chemical company required and to ensure that the railroad would be able to meet those requirements.
   As a result, JCI Jones rescinded a previous request to participate in and testify during the STB listening session.
   “JCI has been in recent communication with CSX’s executive leadership on this matter and is confident that they fully understand and are addressing our specific concerns and issues,” JCI Jones Chemicals Executive Vice President Timothy Gaffney said in a Sept. 5 letter to the STB, a copy of which was obtained by American Shipper.
   Others, however, haven’t been so easily satisfied.
   John Risch, a spokesman for the transportation division of the International Association of Sheet Metal, Air, Rail and Transportation Workers (SMART) union, which represents CSX operations employees, has been openly critical of Harrison, squarely placing the blame on his shoulders for the railroad’s service disruptions and the dramatic changes that have come with precision railroading.
   And in late August, an opinion piece in logistics publication DC Velocity openly speculated as to whether taking on the CSX role would be Harrison’s “Waterloo,” a reference to the battle that proved to be Napoleon Bonaparte’s final defeat.

No Time To Waste. Perhaps the largest elephant in the room when it came to Harrison’s takeover of CSX, however, was the longtime railway executive’s age and health.
   Now 72 years old, Harrison has had a more than 50-year career in railroading, but after being spotted using a portable oxygen machine, some analysts questioned whether he could handle the physical demands of running a Fortune 500 company.
   “My doctors have cleared me to work, and that’s good enough for me,” Harrison said at the company’s annual shareholder meeting in June.
   Harrison’s most relevant experience includes his previously mentioned stints as CEO of Canadian National from 2003 to 2009 and as head of Canadian Pacific from June 2012 to January 2017, but he also served as CEO of Illinois Central Railroad for five years prior to it being acquired by CN.
   In response to an American Shipper question about the differences between running an American railroad and one north of the border, CSX pointed to comments Harrison made about structural obstacles during a July Q2 analyst call.
   “When I went to Canada, CN had made some pretty bold changes, mostly around science and engineering and taken lots of people out,” he said. “One of their statements was, ‘Don’t ever expect a Canadian railroad to be able to compete with U.S. numbers. It’s just not structurally in the cards.’ Except, when CN became the lowest operating ratio, the U.S. railroads said, ‘We are going to improve in the U.S., but don’t ever expect us to get to CN Canadian standards. It’s just not in the cards.’
   “So I don’t think there’s any structural issues,” he said. “I think we got a playing field that if we do our job, we’ve got plenty of opportunity.”
   But this begs the question: is there still time to capitalize on that opportunity? Harrison’s health aside, an Aug. 1 report from financial services firm Cowen & Co. said more than 80 percent of shippers surveyed had experienced problems with CSX and nearly 40 percent had already switched some shipments to rival Norfolk Southern, while 67 percent have transferred freight to a trucking company.
   Despite the setbacks, Harrison struck an optimistic tone in a Sept. 6 statement, intimating that sunnier days are just around the bend.
   “The railroad is now returning to a normal operating rhythm, and our performance metrics are improving,” he said. “Fluidity in our terminals largely has been restored, and we are appropriately resourced to continue making progress. Car dwell has improved from week to week for the last five weeks, and system-wide velocity is increasing.
   “I am confident that as CSX continues to implement the Precision Scheduled Railroading model, it will provide profound and lasting benefits to customers, employees and shareholders.”
   Whether those remarks are an accurate prediction or mere public relations bluster should become evident as the remainder of the year unfolds. Harrison’s track record as a railroad executive has earned him the benefit of the doubt, but that will only go so far with shippers if service quality isn’t restored in short order.

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