Communication key to successful transition to precision railroading

Precision scheduled railroading (PSR) could benefit customers and shippers, but its deployment pace and how shippers respond to changes will be key to its success, panelists said yesterday at the North East Association of Rail Shippers conference in Baltimore, Maryland.

PSR is an operational model in which railcars run on a fixed schedule. All the Class I railroads except BNSF (NYSE: BRK) have deployed it, with Kansas City Southern (NYSE: KSU), Norfolk Southern (NYSE: NSC) and Union Pacific (NYSE: UNP) being the latest railroads to adopt the model. Detractors say PSR is a way for the railroads to increase profitability by slashing costs, while proponents say the model is needed to keep up with a 24/7 business model.

Communication is a key factor in determining how well shippers adjust to the operational model, panelists said. That communication can occur at several levels. One is between the shipper and the Class I railroad.

“If the shipper doesn’t know what will happen, they’re going to buffer their supply chain to account for what might happen through measures such as padding extra days into their transit plans, said Ken Sherman, vice president and general manager for IntelliTrans, a Roper Technologies subsidiary that uses data to help clients make their supply chains more efficient.

While PSR has helped increase velocity and reduce dwell times during transit, the pain points seem to occur at the origins and destinations, Sherman said. Keeping track of where there are changes in switching schedules at the last mile near the destination point is one way that shippers can improve service.

Another level of communication is improving the coordination between Class I railroads as they each implement PSR, according to Kevin Acker, director of land transportation for the Americas for Chemours, a chemicals producer.

“I need the carriers to recognize that the network really is a network,” Acker said.

A third level of communication is between the shipper and the customer. Shippers have to manage customer service with customers who might not understand PSR, said Ross Corthell, director of transportation for Packaging Corporation of America (PCA), a cardboard and paper producer. In the more aggressive initial rollouts of precision railroading, PCA resorted to trucking to buck customers’ frustrations with transit delays.

While shippers can expect a continued focus on railroads’ seeking to lower their operating ratio as well potential rate increases and accessorial charges, PSR could also bring about more transparent interchanges and continued improvement in door-to-door service, Acker said.

PSR has also helped to reduce cycle times for shippers, resulting in shippers needing fewer cars and equipment, Corthell said. That reliability will benefit shippers in the long-term, he said.

But keeping the communication lines open and ensuring there is enough capacity on the network will be key going forward for all stakeholders.

“The caution that I throw out is not to make the cuts so deep,” Corthell said.