Southbound intermodal Q118 streaks past two northbounds ready to leave the Chicago region at O’Hare Transfer on April 19, 2008. Canadian National CEO Hunter Harrison brought an intense focus on operations. Photo by W.M. Beecher Jr.
Canadian National today is the reflection of one man: Hunter Harrison. But this decisive leader will soon retire, and people are asking what the railroad will be like without him
EDITOR’S NOTE: This story originally appeared in the August 2009 issue of Trains Magazine. Since it was published, E. Hunter Harrison went on to become the CEO of Canadian Pacific and on March 7, 2017, was named the next CEO of CSX Transportation. Claude Mongeau succeeded Harrison as CEO of CN in January 2010 following his retirement. Mongeau subsequently stepped down as CEO in June 2016. Follow Trains News Wire for the latest developments.
Canadian National CEO Hunter Harrison
Hunter Harrison is frustrated. Canadian National Railway has just instituted a new operating plan on its busy corridor between Jackson, Miss., and Memphis. One expected byproduct, faster average train speeds, isn’t being achieved. The territory is as gummed up as before. The railroad’s president and chief executive officer decides to find out why. One night last autumn, on a computer at his home in southern Florida, Harrison calls up the same display of the territory that his train dispatcher sees in Homewood, Ill., phones the dispatcher, and announces: “I’ll do the dispatching tonight. Just stay on the phone and I’ll dictate the meets and set the priorities. Here’s what we want to do....”
This is not what railroad CEOs do. They give orders. They call meetings. They seek consensus. But Hunter Harrison has taken as his role to mold how people think about their jobs and their mission. If you want, call him CAC (change agent in chief) rather than CEO. John McPherson, his former operations chief at the Illinois Central Railroad, notes that Harrison is “better informed on the fundamentals of railroading than any chief executive other than perhaps Mike Haverty,” who runs Kansas City Southern. McPherson goes on: “Hunter knows how to operate a hump yard, how to run a flat yard, how to dispatch, the provisions of the Power Brake Law — you name it.” Plus, he loves the beauty of the details.
So one of the world’s most powerful railroaders does an all-nighter, and then some, as train dispatcher. Harrison tells the story: “I’m looking at the board and g--damn, here the light comes on, which means someone is on the main line. Who’s that in Yazoo City? I’m told it’s the Yazoo switcher. But Amtrak 59 is coming!” The local has just enough time to make Jackson on the hours of service. “G--damn, we’ve got the whole railroad tied up for a light engine. I said, why is it even out here at this time of night?” Afterwards, some changes get made. “We rescheduled that job,” he says. “We moved him to Greenwood, he’s not working that time of day, and I said, look, no surprises! You can’t do that to a dispatcher.”
This is vintage Hunter Harrison. He will do anything to get people to see railroading through his prism and to give 100 percent of themselves to their jobs. He writes books. He holds Hunter Camps. He calls the lowliest trainmaster in Saskatoon to ask why a car hasn’t moved in three days. He tells his vice presidents and civil engineers and other non-op supervisors that if they want to work for CN, they must qualify as conductors and engineers and know what it’s like to be in the middle of nowhere with all that responsibility. Not everyone likes it — people have quit rather than spend weekends running trains — but he doesn’t care. It’s Hunter’s way or the highway.
Canadian National is fine-tuned for efficiency — no other Class I comes even close. Its operating ratio (the share of operating revenues eaten by operating expenses) got below 60 briefly before the world economy began quaking, while most other railroads struggled to get or keep theirs below 80. And it has as CEO a transformational personality who calls to mind Bill Brosnan, the Southern Railway president who wrestled that railroad out of lethargy in the 1950s and early 1960s, with mixed results.
Canadian National chief financial officer Claude Mongeau
But now some fractures are showing. Too many employees are unhappy. Too many customers are really unhappy. Governments? Visiting Ottawa or Washington is “a waste of time,” he says, and there are ruffled feathers in those halls, too. To top it off, Harrison turns 65 this year and will be replaced at the start of 2010 by chief financial officer Claude Mongeau. That’s the biggest fracture of all. Hunter Harrison is Canadian National. The railroad could not have become what it is today without him. But take him away, and what have you?
So Canadian National stands at a crossroads. The next couple of years will be telling. Without his decisive — some would say autocratic — hand on the throttle, will the changes that Hunter Harrison brought to Canadian National be long-lasting? Will the railroad hold together or fly apart? And just what is it that CN does that sets it apart from the crowd?
Most of CN’s U.S. lines are controlled from this regional headquarters building in Homewood, Ill., where the Yazoo Sub dispatcher received Harrison’s late-night call. Photo by Lance Wales
BRASH BOY FROM MEMPHIS
“Young man, what do you see out there?” W.F. (Bill) Thompson, senior vice president of operations for the St. Louis-San Francisco, stands in the yard tower at Memphis, looking out on an ocean of freight cars. “A lot of good business, Mr. Thompson,” chirps his young terminal trainmaster. The older man turns to his protégé. “What? Good business? See, that’s the difference, Hunter. I see a bunch of delayed cars, and you think it’s good business.”
Harrison has repeated this story untold times. Unquestionably, the person who most influenced his thinking and even his mannerisms was this gruff, burly Texan. Bill Thompson could be crude — his nickname is unprintable — but he had a shrewd business sense and total grasp of the fundamentals of railroading. From Thompson, Harrison learned about inventory control and asset utilization, although not by those names.
When Burlington Northern swallowed the Frisco in 1980, Thompson became chief operating officer of the combined railroad, and Harrison’s star rose alongside that of his boss as the “Dr. Fix-It” of dysfunctional terminals. Later, as No. 2 in BN’s Seattle Region, Harrison toyed with scheduling individual cars, including empties. But that wasn’t practical at the regional level. Ultimately he ran BN’s Chicago Region.
Depending upon who you talk to, Hunter Harrison was either tolerated at Burlington Northern or roundly disliked. And to hear Harrison tell it, the ambivalent feelings were mutual. BN, he says, was a company without a soul. In any event, Harrison says Gerald Grinstein came to see him in 1989 and said his career at BN was over. “You just don’t fit,” he quotes BN’s CEO as saying. But a call from New York soon changed everything. An investment firm was buying Illinois Central, a proud old company having hard times. Harrison became VP operations and was given a long leash by CEO Ed Moyers.
Now Harrison could create the fully scheduled railroad he had been envisioning. By the early 1990s, other than with intermodal trains, freight schedules on U.S. railroads had become goals, not promises. What Harrison did was commit IC to actually running trains on their schedules and making the connections. He did so by letting engineers and conductors bid on assignments for every regular freight train. (Unit trains and extras fell to “extra board” employees.) Then each assigned train in one direction was paired on every crew district with one going the other way. At the meeting point, the crews swapped trains and returned to their home terminals.
With assigned crews and paired trains, everything had to adhere closely to those schedules or the railroad would quickly become chaotic. But the plan worked. IC eliminated most away-from-home costs. Plus, with trains appearing at yards when they were supposed to, terminals could achieve maximum efficiency. About 1995, IC began scheduling each car, from the time it was received right to the time a switch engine delivered it to the customer or connecting railroad. Harrison was wringing layer upon layer of inefficiency out of IC’s operations. Its operating ratio plunged from a dangerously high 99 when he got there in 1989 to 62.3 in 1997.
It was a spectacular turnaround. Moyers went on to run Southern Pacific, where he didn’t distinguish himself. But better things were in store for Harrison, who replaced Moyers as IC’s president. In July 1999 Canadian National, which four years earlier had been privatized after almost 80 years of government ownership, took control of Illinois Central. CN wanted to expand its presence in the U.S., and its CEO at the time, a former government official named Paul Tellier, wanted Hunter Harrison to do for CN what he had just done for IC. Sixteen months before the merger was consummated, in March 1998, he signed on as CN’s chief operating officer. (Harrison became CEO in January 2003.)
An 87-car eastbound crosses the Prairie Creek bridge at Entrance, Alta., on the Jasper-Edmonton line in March 2009. Photo by Tim Stevens
SHOCK WAVES IN MONTREAL
The outspoken Tennessean spooked most CN employees. Leaving the government womb had been wrenching. And now this.
“We were going in Hunter’s direction, actually,” says Jim Foote, CN’s executive vice president, sales and marketing. “But Hunter wanted us to move twice as fast.” During his first week at CN, the story goes, Harrison visited Montreal’s huge Taschereau Yard, where the top manager explained to the new COO why U.S. operating methods wouldn’t work in Canada. That hapless man was gone almost immediately. “The news of his dismissal hit the network of Montreal railroaders like a bomb,” recalls a former Canadian Pacific officer.
On his first day in Montreal, Harrison summoned his top 100 operating people to a meeting at the Hilton Bonaventure and spoke for almost nine hours, without notes. His message was to forget the old ways of running the railroad. Recollects Harrison: “There was no red carpet when I walked in. People thought, this too shall pass. I knew I needed a winner — something that would convince that group that what we were doing was right. I decided locomotives would be my first example.”
Between 1998 and 2003, CN reduced the number of active locomotives from 1,965 to 1,179 — a 40 percent reduction — while handling more traffic. Locomotives were turned faster, or put to work as switchers or on a local while awaiting their turn. Many trains that had been purposefully overpowered in the event of a failure shed their extra unit. Bigger engines replaced smaller ones. Leveling out the day-by-day flow of traffic helped, too.
But locomotive efficiency is just one spoke of a bigger wheel. That goes to the question a lot of railroaders ask: How can Canadian National post such great numbers? The operating ratio is the most-used (but not the only) barometer of measuring a railroad’s efficiency. CN’s operating ratio the past five years has been in the low to mid 60s and dipped to 58 and 59 in the middle two quarters of 2006. Confesses Rob Krebs, who retired in 2000 as chief executive of Burlington Northern Santa Fe: “I spent my whole life cutting costs. I could never produce an OR that low.” No Class I really came close to matching CN’s operating ratio of 65.9 in 2008; most were in the mid- to high-70s.
The conventional wisdom goes like this: Canadian railroads don’t pay into an expensive retirement fund as U.S. rails do, and benefit from Canada’s containment of health-care costs. (So why is Canadian Pacific’s OR 11-14 points higher than that of CN every year?) The Canadian government gold-plated CN’s infrastructure before privatizing it. (Even if it were true in 1995, almost 15 years have passed.) CN is more oriented to carload than intermodal business, so its revenue per unit is higher. (Not so: BNSF, CP, CSX, and Union Pacific all report more revenue per unit than CN.)
Conventional wisdom cannot explain what Hunter Harrison accomplished. So consider this possibility: He simply runs a more-efficient railroad than anyone else.
A single SD70M-2 pulls 103 grain empties east along the Athabasca River at Park Gate, Alta., on Feb. 26, 2009. Photo by Jeff Robertson
INTENSE USE OF ASSETS
How Canadian National does what it does is no secret. Harrison laid it out in two books that CN published: “How We Work and Why” in 2005, and “Change, Leadership, Mud and Why” in 2008. At CN, precision scheduled railroading means that the cars, and not necessarily the trains, get where they’re going when the railroad says they will, within a two-hour margin of error. Certainly, running trains when you say you will helps efficiency. But all railroads now try to do this, and they schedule cars.
So it helps to look for ways that CN’s service differs from that of other railroads. The common thread is intense use of assets: locomotives, cars, people. For instance, Canadian National is more apt than others to run general-purpose trains. Yards get cleaned out faster that way. And a unit train that doesn’t immediately load and unload is a wasting asset. For example, intermodal train Q149, which runs between Montreal and Chicago, most afternoons picks up high-margin cars of aluminum ingots at Belleville, Ont., that are destined for an ARCO Aluminum plant in Russellville, Ky. Every week CN could build a unit train. But putting the cars on container train Q149 vastly increases the utilization of these special-purpose cars and gets the traffic to CSX in Chicago one to seven days sooner.
The railroad has also devoted an immense amount of energy into optimizing its major yards, particularly the hump yards in Toronto, Winnipeg, and Memphis. Each of these terminals uses proprietary software called SmartYard. Think of it as an organizer and an idea generator. It breaks the complexity of running a big terminal into smaller processes and defines how long each process should take. Because SmartYard knows all the traffic coming in, it might suggest that the yardmaster allocate classification tracks differently, or that smaller blocks of cars be combined into larger ones or the other way around.
SmartYard can even tell you in which order to hump the tracks in the receiving yard to make up outbound trains. “The yardmaster may have five cuts in the receiving yard and must make up five trains,” says Keith Creel, executive vice president of operations. “He may want to hump tracks 1, 3, and 6 first. But the software will tell him that this sequence will cause X number of cars to miss their connections and suggest that the order should be tracks 1, 6, and 3.” Creel credits SmartYard with reducing the average time cars spend at MacMillan Yard in Toronto from 27 hours to 18 or 19. “To take eight or nine hours from the dwell of 2,700 cars every day — that’s powerful,” he says.
But the biggest difference between CN and the rest of the pack is a simple idea: balance. Perfect asset utilization requires perfect balance — not just in train movements by direction, but also by day of the week. “We build our railroad around it,” Creel remarks. “That’s unique to us.” Imagine the possibilities. Your physical assets are always working. You always have just enough crews, just enough locomotives. Adds Creel: “It’s a huge challenge, the balancing act. You’re always on the edge of your seat.”
Alas, the real world doesn’t want to be balanced. Manufacturers and distributors are largely idle on weekends. So railroads experience a business drought on Mondays and Tuesdays as their customers ramp up production and then are flooded with shipments on Thursdays and Fridays that trail off through the weekend. If you’re in pursuit of the ultimate in efficiency and asset utilization, as Harrison is, the weekly ebb and flow of traffic must be maddening: the locomotives standing idle, the people with little to do, the assets just sitting there.
Other railroads put up with imbalance. Not Canadian National. It’s determined to change how its customers do business. “Coal mines run seven days a week,” says Foote, the marketing chief. “You get a guy running a lumber mill in British Columbia — his people don’t want to work Saturday and Sunday. The grain elevator terminals in Vancouver that have historically paid triple and quadruple overtime for a guy to have to come in on Sunday are starting to figure it out. We can’t back up two or three days of trains in Fraser River Canyon waiting for the guys in Vancouver to come back from their union meeting. We can’t park all the log cars between Superior and Chicago because it’s deer hunting season, which has always been the practice.”
To get its way, CN appears to be using the carrot and the stick. The carrot is day-of-week pricing that favors customers who load and unload cars on the lightest days. The stick is punitive demurrage charges on cars that sit idle during weekends. This is a huge undertaking, made more difficult for CN because of a sinking North American economy. You won’t find other railroads jousting with their customers in this manner, and Creel admits the railroad is getting resistance. “It flies in the face of the traditional mindset,” he says, before getting back on message: “For this to work, you’ve got to take the peaks and valleys out.”
It’s not at all certain whether CN will win its way, either. The danger, of course, is that the railroad will go too far and drive away good business. Foote admits that customers think CN is arrogant. But the railroad succeeded in smoothing out the flow of intermodal business several years ago. Customers were letting their containers sit in terminals all weekend. CN slapped on demurrage charges of $100, $200, and even $500 per box a day, until habits began to change.
Efficient yards are key to efficient railroading. At Winnipeg’s Symington Yard, CN uses software to help yardmasters cut dwell times and ensure connections. Photo by A. Ross Harrison
WHAT WILL BE THE LEGACY?
The brain of Hunter Harrison is a marvelous creation. It is always working, churning, looking for inconsistencies, finding better ways to do things, setting higher goals. John McPherson, his former associate at IC, says Harrison would have made an outstanding college professor, because he loves to teach. In small groups, most CN managers have attended Hunter Camps, the two- or three-day indoctrination sessions he runs. One attendee describes Hunter Camp this way: “He gets up there and talks a whole day without notes and holds the room. It’s not because we’re scared of him, which we are, but because he has a commanding presence.”
This is Harrison’s way of institutionalizing the changes he has brought. “I wish that every employee understood what we’re trying to do and why — that they really understood the agenda,” Harrison says. “In each session, if I do my job, I develop four to eight disciples who really get it, who are enthusiastic, passionate. They go back and they convert some people.”
He pulls himself up from his office couch, until he’s eye to eye with you. “I want people to understand what I think, to understand the experience that I’ve gained and what I think works and what I think creates leverage and makes sense to railroads. With some degree of modesty, [my ideas] have worked.”
If all were perfect in this picture, you would expect three things to occur: employees would be on board, customers would be applauding, and other railroads would be aping CN practices. It’s not clear that any of these things are happening.
Let’s start with employees. Some love it, but an awful lot of managers hate to devote their weekends to learning how to be conductors and engineers. On this, Harrison is unbending. “People need to understand what railroading is about. I’ve never liked [railroad] offices downtown. Railroaders ought to look outside the window and see a railroad and not forget what they are doing and what this business is about. It is about those two pieces of iron. When some of the prima donnas go out there and switch boxcars and work in snow this deep, they start to appreciate the switchmen and engineers.”
As for the rank and file, you can judge its attitude only anecdotally. The Web site Glassdoor.com contains reviews by employees of more than 21,000 companies, and last spring CN wasn’t faring well. Of 16 posted reviews, 14 were decidedly negative. Check out these sound bites: “Culture of fear,” “CN promotes bullying,” “CN can do better than this,” “Disarray at its finest,” and “Counting my days to the end of my relationship with this den of thieves.” A recurring theme is lack of respect by lower-level managers for their unionized employees. It brings to mind a thousand younger Hunter Harrisons without Harrison’s power to inspire. Only a signal maintainer in Memphis and an employee in Fort Saskatchewan, Alta., were decidedly upbeat. Harrison’s approval rating on Glassdoor? Try 13 percent.
You could ignore what is said of CN on Glassdoor if employees of other railroads roast their employers the same way. But they do not. Wick Moorman and Jim Young were approved by two-thirds of the Norfolk Southern and Union Pacific reviewers and Matt Rose by half of the BNSF Railway reviewers.
Customers do not appear happy, either. Claude Mongeau, CN’s chief financial officer, says customers are upset by the railroad’s insistence upon seven-day shipping. But Morgan Stanley analyst William Greene tells a different story. In his last two customer-satisfaction surveys, Canadian National ranked last and next-to-last, respectively, among the seven Class Is in the “delivery when expected” category — astonishing for a railroad that prides itself on scheduling. (CN will not say what percentage of its carloads get to customers by the time originally scheduled.)
Marketer Foote insists the railroad is doing the right things. “The more we improve velocity, asset utilization, and efficiency,” he says, “the better product we can sell customers. Without those things, I’m just a commodity, like Canadian Pacific but with a different logo, and I’m back doing an auction for my services, my business model falls apart, and we’re back to where we were in 1980.”
Balance that against this damning indictment by the top traffic officer of one of the world’s biggest railway shippers: “CN’s service was probably the best in the industry. It worked so well as they took out costs that they became internally focused and in love with their model and lost sight of what the customer needed. It’s really impossible now to do business with them in a lot of lanes. Even where we use CN, it’s the worst performer of any North American railroad.” Asked how CN has performed lately, he replies that in its best week so far in 2009, CN’s on-time score was only 60 percent.
McPherson left Illinois Central at the time of the CN merger to run the Florida East Coast Railway and adopted virtually the entire Hunter Harrison playbook, with great success. It’s hard to find Harrison’s imprint elsewhere. A top operating vice president for one of the Class Is says his railroad has nothing to learn from CN. “He went in and did basic, basic things — Railroading 101 stuff.”
It’s hard to swap crews on the road, as CN still does on its former Illinois Central property, when you run 50 or 75 trains a day. CN’s message to customers is: Here’s our service; take it or leave it. Most other railroads are more customer-focused, even at the cost of lost efficiency. Can you imagine BNSF or CSX trying to tell ubercustomer United Parcel Service that it needs to ship from its terminals seven days a week?
But in almost a dozen interviews with people from other railroads, a lot of admiration for Harrison seeps through. This from a senior VP for an Eastern Class I: “Here’s a guy who, for all his faults, understands what his role is. It’s not to run the railroad. His job is to communicate the culture of the place and what it should be to people in the company.” And this from a Western railroad VIP who knows him well: “I give Hunter credit for being a real visionary. He and Paul Tellier had a strategy, one part of which was to make sure that CN was not marginalized by what happened in the North American rail industry. They did a good job. Obviously he’s got a very good sense of what it takes to run a successful railroad today. He’s aggressive, unafraid to take anyone or anything on. That has played very well for him.”
An ex-WC GP40 switches Neenah Paper at Munising, Mich., on Aug. 13, 2007. Can CN change shippers’ habits? Photo by Andy Cummings
CN WITHOUT HUNTER
Were he 10 years younger, it’s almost certain that Harrison would precipitate the next and possibly final round of railroad mergers. He believes they are overdue. “What you have now are two duopolies” in the U.S., he says. “What Norfolk Southern does in the East doesn’t do anything for customers in the West. And what the UP and BNSF do in the West doesn’t have any effect on NS and CSX — they’re a duopoly in the East. So if you let them merge, you’re going to have two railroads and you’re going to have more competition and not less.” He’d even be willing to give shippers open access to railroads they cannot see eye to eye with.
Another bit of unfinished business is Prince Rupert, CN’s new deepwater container port on the coast of northern British Columbia. Rupert’s trump card is that it is two sailing days closer to Shanghai than Los Angeles and Long Beach. To put it another way: If you draw a straight line between Shanghai and Chicago following the curvature of the earth, it passes through Prince Rupert. Not surprisingly, most of the containers passing through Prince Rupert are destined for Chicago and other points in the Midwest, as far south as Memphis.
Far from its original rails, BC Rail C40-8M No. 4623 leads 132-car merchandise freight M308 (Toronto-Moncton, N.B.) east at Lac Baker, N.B., on Dec. 29, 2008. Photo by Tim Stevens
The main thing wrong with Prince Rupert is timing. It opened mere months before the world economy began to contract. Thus far only two ships per week call, and just 60 percent of the present capacity is being used. But possibilities are tantalizing. “When the economy comes back and we expand our intermodal facilities in Chicago,” says Jim Foote, “we’ll get this back where it should be. We’re looking at Chicago, Memphis, Detroit, and Columbus [Ohio] as destinations, and can expand the port to four times its present size.”
But these won’t be Harrison’s calls to make. He’ll be succeeded at the start of 2010 by Quebecer Claude (pronounced Clode) Mongeau. CN’s affable, 47-year-old chief financial officer is in some respects the anti-Harrison, in that he brings a completely different set of strengths to the railroad. A tough negotiator, he executed CN’s growth strategy the past decade, which consisted of gobbling up feeder and connector lines (see page 40 and the map on the following pages). The most important of these were the purchase of Wisconsin Central, a former Soo Line property, in 2001, giving CN a direct route to Chicago from Western Canada, and the purchase earlier this year of Elgin, Joliet & Eastern, which provides a path from the WC route to CN’s Chicago hub that largely avoids that city’s infamous congestion.
Foote says of Harrison’s successor that he “shouldn’t try to be Hunter,” because nobody plays that game better. Mongeau fits that definition comfortably. Says one Canadian familiar with the transition: “If you believe that operationally they’ve become excellent, the new challenge will be strategic: Should there be more acquisitions, more cooperation with CP? That’s Claude’s world. The concerns of the board are depth of talent and the increased presence of the government. Those kinds of things are increasingly topical for CN. That’s where a French-Canadian CEO shines. Claude would be extremely effective dealing with the government.” You have to wonder, for instance, how much smoother the EJ&E purchase would have been, had Mongeau called the shots.
In addition to its container port, Prince Rupert, B.C., is the south end of the AquaTrain, a rail barge from the Alaska Railroad at Whittier. With tides at the right level, a wide-nosed SD40-2 prepares to pull cars from the AquaTrain at Prince Rupert on April 18, 2002. Photo by Jeff Robertson
In all likelihood, the changes wrought by Harrison will endure. He has driven his vision deep into the fabric of the company, and one of his young disciples from the Illinois Central, operations chief Keith Creel, is a true believer. And imagine this: With Harrison not around to taunt his fellow CEOs, it’s possible that other railroads will begin to look a bit more like Canadian National than the other way around.
Let’s return to the comparison between Harrison and Southern Railway’s Bill Brosnan. The mercurial Brosnan fired (and then rehired) people with machine gun-like frequency more than four decades ago in his lust to shake up the culture of that sleepy company. His impact was enormous. Some even credit Brosnan with breaking the Interstate Commerce Commission’s regulatory stronghold on railroads. But Brosnan couldn’t build a team and cement the revolution he began. It took his successor, the more conciliatory Graham Claytor, to finish what Brosnan started on the Southern. That is Claude Mongeau’s challenge: to be Canadian National’s Graham Claytor.
FRED W. FRAILEY is a monthly columnist and special correspondent for Trains.