JACKSONVILLE, Fla. — Now that E. Hunter Harrison is calling the shots at CSX Transportation headquarters, he faces the same daunting problem that former CEO Michael Ward had to grapple with: How to replace nearly $2 billion in coal revenue that vanished over the past five years and is likely gone for good.
Ward’s answer was the CSX of Tomorrow strategy, which aimed to invest in the mainline and terminal projects necessary to boost efficiency, improve service, and attract new merchandise and intermodal traffic.
Harrison seems to agree with at least some elements of the strategy. And he acknowledges the need to convert truck traffic to the rails.
"We lost a lot of business to the highway. There's the possibility that that shift could be swinging back,” Harrison tells Reuters this week.
But Harrison’s primary answer, of course, is precision scheduled railroading. He used the system to turn Illinois Central, Canadian National, and Canadian Pacific into ultra-efficient and highly profitable railroads over the past three decades.
CP’s key operating metrics all improved dramatically during Harrison’s tenure. From 2012 through 2016, average train speed improved 31 percent; terminal dwell declined 11 percent; fuel efficiency improved 15 percent; and train length grew 21 percent, according to an investor presentation. These efficiency gains, combined with rate increases, helped to triple CP’s profit margin.
While CP was pursuing a merger with Norfolk Southern in 2015, Harrison said he would wring $1.2 billion in operational improvements out of NS. Parking a third of the NS locomotive fleet, cutting employment levels, and shutting some hump yards were included in Harrison’s plan for CSX’s eastern rival.
Harrison reduces costs largely through the productivity gains that come from streamlining operations and making the most of assets, from locomotives and cars to train crews and yards.
Precision railroading has seven service-design principles, Harrison wrote in his book, “How We Work and Why,” published in 2005 while he was CN’s CEO. They are:
Minimize car dwell time in yards. Since cars spend most of their time in yards, reducing dwell time is the most effective way to improve car velocity, or the number of miles they travel per day.
Minimize car classifications. Switching a car as few times as possible also reduces car cycle times, allowing the railroad to use fewer cars. Build large blocks of traffic or, in lower-density lanes, haul a block as close as possible to the destination to minimize handling at intermediate yards en route.
Use multiple traffic outlets. By having more than one way to get a block of cars to its destination, a railroad can balance traffic flows, improve transit times, and reduce the need for extra trains.
Run general-purpose trains. A unit train is more efficient only when loading and unloading times are 24 hours or less, the train shuttles between the same origin and destination, and operates seven days a week in each direction. Unless a train meets all three criteria, run the traffic in general-purpose trains.
Balance train movements by direction. Canceling trains on low-volume weekend days can leave locomotives and crews in the wrong places, resulting in deadhead moves that increase costs.
Minimize power requirements. Get the most out of every locomotive, the most expensive piece of rolling stock on the railroad. Limit hours spent idling and maximize available horsepower.
Strive for steady workflow. Avoid surges and lulls by leveling out work as much as possible across every location on the railroad.
These principles are Railroading 101. Add them all up, and a railroad can move the same amount of traffic with fewer locomotives, cars, yards, shops, and people. The CN of 2003, for example, moved more traffic with 40 percent fewer locomotives than it had in 1998.
But Harrison warns that implementing this plan is as much art as science.
“Due to the complex interconnectedness of rail operations, optimizing one doesn’t necessarily optimize the rest,” Harrison wrote of the seven service-design principles. “In fact, too great a focus on any one principle can have a negative impact on others. Balance is the key.”
Harrison has been able to strike the right balance, although his methods sometimes alienated customers at CN and CP, and rankled rail labor.
It’s not yet clear what, if anything, Harrison will adopt from the CSX of Tomorrow strategy. But some aspects of CSX of Tomorrow – such as running longer trains more reliably and on tighter schedules – align with Harrison’s operating principles.
Under Ward, CSX over the next couple of years planned to extend or add 27 sidings on its corridor linking Chicago and Florida, where trains have bumped against the current 6,500-foot siding length. It’s the only leg of the railroad’s high-density outer triangle that can’t handle long trains. CP and CN both lengthened sidings while Harrison was at the helm.
Like other Class I railroads, CSX faces economic threats from the long-term decline of coal, new regulations, and the potential for self-driving trucks.
“Cost cutting, the EHH specialty, cannot be the only answer,” says independent analyst Anthony B. Hatch. “The opportunities to grow are highly service oriented, and require capital, finesse, IT as well as productivity improvements – intermodal, particularly domestic, and merchandise.”
How much will Harrison blend precision railroading and CSX of Tomorrow? Stay tuned.