Precision scheduled railroading (PSR) can’t succeed if the Class I railroads aren’t able to fold the shortline railroads into the new operating model, according to one of the early developers of the precision railroading model.
Class I railroads need the smaller freight railroads, called shortlines, because shortlines are often the companies that handle volumes at origination and destination before passing those volumes on at a Class I interchange. Their smaller size also helps them work more directly with customers.
Precision railroading is “very, very disruptive to shortlines because they have to figure out how to fit into that system,” said Gil Lamphere at the North East Association of Rail Shippers conference in Baltimore last week. Lamphere is considered by some to be the original financier of PSR because of his former role as the chairman of Illinois Central Railway, a freight railroad that championed PSR decades ago. He’s also a co-founder of MidSouth Rail, a former board member of Canadian National (NYSE: CNI) and Florida East Coast Railway and the current chairman of MidRail, a rail assets firm that seeks to make capital investments in the shortline sector.
While the debate on PSR, an operating model in which railcars are on a fixed schedule versus being dispatched on demand, has focused on the Class I railroads and shippers, the shortlines carry a great deal of freight traffic. Both the Class I railroads and shippers need shortlines to function effectively.
The shortlines that have been able to work with their Class I partners often have had to go to the lower levels of management to smooth out service issues, Lamphere said.
The American Short Line and Regional Railroad Association told FreightWaves after the conference that the shortline industry intends to be as engaged as possible in conversations surrounding PSR. The trade association said that while PSR has led to some improvements in service, the initial implementation has been disruptive for customers and shortlines alike.
“When PSR leads to running trains on schedule and more frequent and reliable service, that is a win for everybody and shortlines welcome that,” association president Chuck Baker said. “When PSR leads to walking away from any business, that’s a loss for everybody, and we will work to avoid those situations whenever possible.
“Shortlines are all about customizing service to our customers and growing rail traffic one carload and customer at a time. Shortlines are generally happy to do that work on our end and then deliver that traffic to our Class I partners, and when we’re all working together it’s a beautiful thing,” Baker said.
How PSR affected rail service
Executives on the conference’s shortline panel differed on how the industry grappled with implementing precision railroading.
Michael Bostwick, chief commercial officer for PanAm Railways, a shortline serving New England, said his company was able to negotiate service with CSX (NYSE: CSX) for a customer in part because of his company’s willnessess to adapt and roll with the operational changes at CSX.
“It’s a change of mentality that if you embrace, you’ll find benefits,” Bostwick said.
Eric Jakubowski, chief commercial officer with Anacostia Rail Holdings, a company that operates six shortlines throughout the U.S., warned that while PSR can lower a company’s operating ratio, making it potentially more attractive to investors, the railroads need to ensure that they stay reliable and consistent as they seek to cut costs.
“People believe [PSR] can drive benefits long-term, but there’s a challenge that if you focus on one strategic number, you quicken the pace” of rolling out the new operating model, Jakubowski said.
Canton Railroad president John Magness said because of his company’s proximity to CSX and Norfolk Southern (NYSE: NSC), any service changes following CSX and NSC’s transition to PSR were minimal. However, his company experienced changes when it came to equipment ordering, and it saw an early shift in traffic from CSX to NSC, which has since eased up.
Magness also said his company has had to work more closely with its customers to ensure their volumes navigate the new operating models efficiently.
“We have to do a better job than what we expect some of the Class I railroads to do. We have to fill in the blanks…Our customers have gotten better about filling in the blanks so that we give information to the Class I railroads beyond a carload’s origin, destination and commodity,” Magness said.
Can more data help?
As the freight rail industry transitions to precision railroading, having data along the supply chain could help all parties assess service needs.
PSR champion and former CNI, Canadian Pacific (NYSE: CP) and CSX chairman, the late “Hunter [Harrison] was a data mining freak and that’s what allows data to be effective today,” Jakubowski said. “The advantage is that you can make real-time decisions. But there are also some big gaps with data…[because] we’re handcuffed to this legacy technology and we need something revolutionary.”
The Class I railroads and their partners must share data, with the view that information isn’t proprietary, so that it can provide transparency along the supply chain, Jakubowski said.
Class I railroads are realizing that their partners’ attitudes towards data and transparency are shifting, and data availability can help all parties assess factors such as on-time performance and the availability of railcars, power units and crews.
“You want to treat everyone’s railcar movement as FedEx does for a package,” Magness said.