Canadian Pacific's Creel: Customers will become fans of PSR, Class I mergers

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CP CEO Keith Creel
Canadian Pacific
BOSTON — Shippers will eventually rally behind Precision Scheduled Railroading, Canadian Pacific CEO Keith Creel says, which could one day lead to a merger of two like-minded Class I systems.

“Right now there’s pushback with PSR because customers don’t understand it. Change is always scary. Some railroads have done it very aggressively, and I’ve been part of those aggressive marches myself in my career,” Creel told an investor conference on Tuesday.

Creel worked at Illinois Central, Canadian National, and CP, where E. Hunter Harrison implemented PSR. Harrison went on to become chief executive of CSX Transportation in 2017, where his quick operational changes initially led to disruption, shipper complaints, and increased regulatory scrutiny.

But after CSX righted its ship and reaped the financial rewards of PSR, the industry took notice. Union Pacific, Norfolk Southern, and Kansas City Southern last year began adopting their own versions of PSR but are treading carefully as federal regulators are watching closely.

Eventually, shippers come around and realize they can cut the size of their private car fleets and save money in the process, Creel says.

“I’ve been with customers that would have fought me tooth and nail three years ago,” he explains. “Customers that left us three years ago because they didn’t want to go through the pain and suffering of PSR on the railroad, that now are coming back and they’re trusted partners.”

CP has regained some market share in intermodal, automotive, and merchandise traffic over the past two years.

“And they’re like, you know, ‘We just didn’t want to be here for the fallout. And now that you’ve got the capacity, we want the service, we want the reliability,’ ” Creel says. “We can grow in the market because we’re more reliable for our customers. You can grow together. That’s a beautiful thing … It’s an evolution. It does not happen overnight.”

With the backing of shippers, Creel says two Class I railroads could at some point approach the U.S. Surface Transportation Board with a merger application that meets the tougher standards that require any combination to boost competition and improve service.

“Once customers understand they can trust it, and they experience the value in it, then you get to the point down the line where I think two like-minded railroads will see the customer value in creating a longer network that has more capacity, less handoffs, better service offering,” Creel says. “And then you get to a discussion where you can talk about pro-competition. You can talk about pro-service. You can go to the STB with a compelling value proposition and I think you come to a world … where customers will be proponents, not opponents.”

Creel, who spoke at the Bank of America Merrill Lynch 2019 Transportation Conference, says it’s unlikely railroads would look to merge anytime in the next five years.

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