Former Harrison colleagues skeptical of UP operating plans

Veterans of 'Precision Scheduled Railroading' question UP's willingness to go 'all-in' on changes
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UP_North_Platte_Stephens
Covered hoppers roll down the eastbound hump at Union Pacific’s Bailey Yard in North Platte, Neb., in June 2018 as yard power idles in the foreground. Unlike other railroads that have adopted "Precision Scheduled Railroading," UP does not plan to idle any hump yards.
Bill Stephens
Carloads_2017

OMAHA, Neb. – People who worked closely with E. Hunter Harrison are skeptical about Union Pacific’s plans to implement his "Precision Scheduled Railroading" operating model.

“We think it’s mission impossible unless the entire organization embraces it,” one person said. “It’s a cultural change.”

Trains News Wire spoke with several of Harrison’s former colleagues, all of whom all spoke only on the condition that their names and specific railroads not be identified. UP declined to comment on their views.

The Precision Scheduled Railroading process itself is not a secret, Harrison’s former colleagues note. Harrison wrote two books explaining the philosophy while leading Canadian National.

The keys to success, they say, are execution, transforming all aspects of the company, and having a willingness to make disruptive changes like the hard-driving Harrison did at the helm at CN, Canadian Pacific, and CSX Transportation.

“If you have the resolve and the detailed planning, you can implement the new system at UP without an EHH at the throttle,” one person says. “But can you have that type of resolve without a hard-assed management team?”

Based on the details UP executives released during a conference call with investors and Wall Street analysts last week, Harrison’s former colleagues questioned elements of UP’s plans.

Their biggest concern? That UP was adopting a watered-down version of Precision Scheduled Railroading. “I think they won’t go all-in on it. And it won’t work,” one person says. “I think the UP can do elements of PSR, but unless they cut bureaucracy and layers, it will fail.”

“In my mind, you need to take a deep breath and make a clean break with the new system,” another former Harrison colleague says. “Love or loathe him, EHH ... had the damn-the-torpedoes mindset on scheduled railroading.”

UP CEO Lance Fritz assured investors and analysts that the railroad would apply lessons from its "Blend and Balance" pilot program, which shifted some unit-train traffic to the merchandise network and included daily departures in both directions.

“We learned a lot from that pilot and now believe that a more unconstrained implementation of those concepts, and other PSR principles, is warranted across our entire rail network,” Fritz says.

Nonetheless, some industry analysts said UP’s conference call — which was light on details — helped create a different impression.

“It has the whiff of going halfway, not being fully committed. They denied it, without specifics,” says independent analyst Anthony B. Hatch of ABH Consulting.

The specifics UP did provide also raised questions.

UP doesn’t anticipate idling the humps at any of its 14 classification yards or closing or consolidating any of its regional yards. And it will open its 15th hump yard, Brazos Yard in Texas, in early 2020 as planned to support the growth in Gulf Coast merchandise traffic.

This stunned one of Harrison’s former colleagues. “That’s a death knell from the get-go,” he says. Harrison idled four out of CP’s five humps and eight out of CSX’s dozen humps after making significant changes to each railroad’s operating plan and train blocking patterns.

But UP is not CN, CP, or CSX. It operates the largest merchandise network in the industry by far, which UP officials have said justifies its strategically placed network of classification yards.

“Humps are volume-related,” Hatch says. “UP has volume!”

Hatch also notes that converting hump yards to flat-switching facilities has typically been a byproduct of Precision Scheduled Railroading, rather than an initial maneuver.

Harrison’s former colleagues questioned why UP would roll out the new operating plan in phases over the next 15 months, beginning with the Mid-America Corridor linking Wisconsin, Chicago, and Texas.

“Significantly, I can’t see UP doing this as it plans: on a piecemeal basis, with the full implementation put off until 2020. You’ll end up with different parts of the UP system — as well as Class I and shortline interchange partners — hitting up against each other,” says one scheduled railroading veteran.

UP says it decided to implement the new operating plan in phases to minimize the potential for disruption. Service suffered at CN, CP, and CSX as Harrison rapidly rolled out systemwide operational changes. The service problems at each railroad prompted shipper complaints and regulatory scrutiny.

“UP is going this route because Wall Street is demanding it. I wouldn’t want to be a UP customer at this juncture,” a former Harrison colleague says. “With tight transportation markets in both rail and truck, there will be few alternatives to pick from if UP fouls up. And it will.”

The skepticism is a role reversal for advocates of Precision Scheduled Railroading.

Harrison developed and refined his operating model at Illinois Central. Critics contended that scheduled railroading would not work on a large Canadian railroad like CN. Then they said it wouldn’t work on CP’s mountainous railroad. And they said it would be unsuitable for a railroad like CSX, with its complicated route structure in the Eastern U.S.

Yet Harrison significantly improved the operations metrics and financial performance of each railroad, with dramatic reductions in operating ratio, the key measure of efficiency.  

And in 2016, when CP was pursuing a merger with Norfolk Southern, CP argued in a white paper that Precision Scheduled Railroading "is a set of non-discriminating principles that can be effectively applied to any railroad in the world. Geographic, network, and business-mix differences are irrelevant in the application of the underlying principles that guide day-to-day decisions.”

UP officials say they are implementing the principles of Precision Scheduled Railroading to improve service, cut costs, and boost profitability.

NEWSWIRETrains News Wire

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