Without mentioning it by name, KC Southern chief looks askance at precision railroading

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In the rush to precision railroading, the president and CEO of the smallest if the class 1 railroads suggested that the industry may have lost some of its long-term focus.

At a Washington conference to discuss the often-conflicted relationship between railroads and shippers, entitled “Railroads+Shippers=Solutions,” Pat Ottensmeyer of Kansas City Southern (NYSE: KSU) expressed concern about current trends though he did not actually use the term “precision railroading.”

“One of the things that concerns me and concerns the (Surface Transportation) board is the focus that seems to be gaining momentum on cutting costs and cutting things that in the short run might produce some benefits in term of improvement in operating ratio,” Ottensmeyer  said in one of the conference’s keynote presentations. Such an emphasis, he said, is “not necessarily customer focused.”

He added that “is an understatement.”

Ottensmeyer described such thinking as “not really very strategic and forward-looking when you put them in the context of innovations.”

Kansas City Southern is the smallest of the class 1 railroads, describing itself as “the NAFTA railroad” for all of its business into Mexico.

The dilemma that a CEO faces in the current market, Ottensmeyer said, is that the technology benefits are in the future in a capital intensive business, “and it’s hard to spend money in this environment…when it might not have a clear short-term payoff. But in the long-term it could be useful and important.”

His analogy was to that of Sears Roebuck, which in 1969 was at the peak of its power and influence. It decided to build the Sears Tower, then the tallest building in the world, and it did so while one of the architects of its long slide since–Jeff Bezos–was just five years old.

Automation is one of the next big technological pushes, Ottensmeyer said, “but it is not about labor.” “It is about consistency, reliability and service,” he added. “Unleashing” technology for automation and other uses on the existing network could bring the needed capacity that is now provided by laying tracks or buying locomotives. “It’s a potential breakthrough,” Ottensmeyer said.

With the theme of the day tending to be toward friction and a lack of cooperation between railroads and shippers, Ottensmeyer said KC Southern is in a unique position. Because it is so relatively small compared to the other class 1 railroads, he said it needs to cooperate with other lines to produce a longer length of haul to serve its customers. Its own network is often inadequate.

“As a company, we don’t have the luxury of having two or three different options to go from Timbuktu to Constantinople,” Ottensmeyer said. “We work with other carriers to create those options.” That could result in the longest amount of mileage being moved on tracks other than those owned by Kansas City Southern, but Ottensmeyer said that is acceptable in the company’s strategic plan.

But Ottensmeyer’s talk of cooperation–he cited working with Union Pacific in the wake of Hurricane Harvey–was followed by a panel of shippers who described their own issues and frustrations. Thomas Giovinazzi, the director of rail services for Lafargeholcim, a supplier of building materials, wondered why railroads haven’t spent as much time trying to teach their customers about the ins-and-outs of the rail industry as they have on issues such as safety. “They have crossing accident educational videos for folks,” he said. “So what can we do to educate ourselves?” And when questions are posed to the railroads by shippers, they are always directed to sales and marketing, he said. Operations would be a better sector to help answer those questions.

Meanwhile, Herman Haksteen, CEO of the MHW Group, which offers refrigerated railcar leasing, grew so weary of customer complaints about rail service that he had no power to fix that he pulled together customers to deal with the issues as a group.

But there have been railroads that have rejected the group’s requests to meet with them, “and we’ve got one who retaliated” with larger-than-normal price increases. Haksteen would not identify the company.

“Just two (class 1 railroads) said they wanted to sit down and listen,” Haksteen said.


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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.