Penn State professor questions long term effectiveness of Precision Scheduled Railroading

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BURLINGTON, Vt. — Precision Scheduled Railroading favors stockholders over shippers, has not improved service, and could ultimately lead to some form of re-regulation of the railroad industry, a Penn State University logistics professor contends.

“As an outsider, I’ve been looking at PSR and trying to figure out what it is, what it does, and what it means for the future,” Peter Swan, associate professor of logistics and operations management at Penn State Harrisburg, told the North East Association of Rail Shippers on Thursday.

Swan says PSR is an effort to eliminate unnecessary assets and work; strives to schedule trains to reduce the need for locomotives, crews, and freight cars; aims to smooth peaks and valleys in traffic by demanding that customers level-load their requests for service; and maximizes return on investment by cutting costs and assets while increasing revenue.

PSR is not, Swan says, a system to offer precise transit time from pull to placement; does not schedule cars on specific trains; does not maximize value for customers; and does not recognize stakeholders other than stockholders.

“This is a system for short-term gain for shareholders,” Swan says.

That could change, he says, and some railroads are taking the needs of customers more into account than others as they implement Precision Scheduled Railroading.

“But in reality, most of the railroads that have implemented Precision Scheduled Railroading have seen serious complaints from shippers regarding service,” Swan says. “It’s between this mismatch between what the railroad can provide with its asset-management efforts and what the customer expects.”

The lean approach to locomotives, crews, and cars means PSR railroads simply don’t have the capacity to grow or respond to increased demand from shippers, Swan says.

The PSR railroads say the operating model championed by the late E. Hunter Harrison creates capacity by moving tonnage on fewer but longer trains. Fewer trains means less congestion on main lines as well as getting in and out of yards, they say. And that translates into faster, more reliable service, they say.

Swan disagrees, saying that long trains destroy a railroad’s ability to run on schedule and that those trains wind up eating terminal capacity because they won’t fit into most yards. And local yards no longer have the capacity necessary to absorb volume swings, he says.

Swan also was critical of railroads’ more restrictive demurrage and accessorial charges, which are designed to encourage shippers to load and unload freight cars more quickly so fewer cars are needed.

The rules were changed so quickly, Swan says, that many customers were unable to adapt their facilities or production schedules and face a choice of rising rail costs or shifting traffic to more expensive trucks.

Swan left the audience of shippers and railroaders with several questions.

Among them: How can railroads grow or even maintain existing traffic with less capacity? What about surge capacity? How can railroads dodge their common-carrier responsibilities? And how long can federal regulators “permit the fleecing and betrayal of the shipping public to continue?”

Independent analyst Anthony B. Hatch told Swan he disagreed with almost every point in his presentation.

PSR does not reduce capacity, Hatch says, it reduces assets. The Canadian railways have boosted capital spending under PSR, Hatch notes, and are outgrowing their American counterparts.

Swan was asked about the inability of pre-PSR railroads to handle surges in demand, such as BNSF Railway on its Northern Transcon in 2013 to 2014, Union Pacific in the Gulf Coast in 2017 to 2018, and Norfolk Southern in the Southeast in 2017 to 2018.

In each case, the railroads ran short of crews and power and coagulated under the strain of increased traffic. How were they any different than a PSR railroad?

The answer, Swan says, is that BNSF, UP, and NS were all trying PSR-like tactics to keep their costs down.

Canadian National has learned a lesson, Swan says, from underinvesting in capacity expansion on its key western corridor between Edmonton and Winnipeg in 2016 to 2017. Traffic came on faster than expected and CN lines became bogged down in Western Canada amid a shortage of crews, power, and track.

CN has since invested around $400 million in each of the past two years to add power, crews, and mainline and terminal capacity to handle its growing intermodal, petrochemical, and agricultural traffic in Western Canada.
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