Precision is not easy

Unless you're a rail shipper, you've probably paid little attention to recent charges concerning deteriorating service from the Jacksonville, Fla.-based railroad CSX Transportation. But the protests are about to become harder to ignore. Since early July, shippers have complained about increased transit times, unreliable switching operations, and inefficient car routings. And now they're taking their case to Washington.

To understand what's happening over at CSX, it helps to know a little bit about about the rail industry and E. Hunter Harrison, CSX Corp.'s new president and CEO. Harrison decamped to CSX in March, after nearly five years running Canadian Pacific (CP) and before that, Canadian National (CN). During his tenure at Canada's two top railroads, he earned a reputation as a turnaround artist, reviving both rails' flagging fortunes by implementing his "precision scheduled railroading" operating model. Since arriving at CSX, he has moved quickly to apply the same model. But this time, it's not going so well.

Exactly what is precision scheduled railroading? According to a CP white paper, it is a "philosophy of constant monitoring and optimization of every asset throughout the entire organization." It is built on five foundations: "improving customer service, controlling costs, optimizing asset utilization, operating safely, and valuing and developing employees." One of its hallmarks is scheduled train departures. In the past, railroads held their trains until they were completely full. Under the precision railroading model, trains leave at a scheduled time even if they still have capacity available. In that regard, the railroad is not unlike Amtrak or a scheduled airline.

At CP and CN, Harrison's model proved quite successful, yielding significant improvements in asset utilization, customer service, and financial performance. Between 2012 and 2016, CP's average train speed rose 31 percent, train length grew 21 percent, and fuel efficiency jumped 15 percent. Earnings per share skyrocketed 133 percent. There were similar improvements at CN.

With respect to assets and profitability, CSX appears to be on the same trajectory. The company has already eliminated 900 locomotives and 2,399 employees. Second-quarter earnings were up $65 million over the same quarter last year.

But changes of this magnitude can be painful, and this has been no exception. The job cuts have earned Harrison no friends among labor, and the conversion to precision railroading has sparked widespread criticism of what some have called a "take no prisoners" management style.

Then there's the deterioration in service experienced by many of CSX's customers. A coalition of shippers has filed a complaint with the Surface Transportation Board (STB), which, in turn, urged Congress to look into the matter. As an interim step, STB has insisted on weekly conference calls with CSX and has been looking to schedule a public listening session to learn more about the complaints. Unfortunately, right now, the STB is short two members, and the three who are in place are not considered to be overly sympathetic to the rail industry.

I can only imagine the difficulty in changing the way a railroad has operated for 100 years. And to be fair, the CSX network is a very different operation from CN's and CP's, presenting structural obstacles like shorter lengths of haul that will make the conversion particularly challenging. Nonetheless, the customer complaints must be addressed and corrected as soon as possible.

My hope is that the STB will not turn this into a regulatory circus, and will instead give Harrison and his management team the latitude they need to resolve service issues without having to abandon the precision scheduled railroading program. While more pain is probably yet to come, I am still optimistic about its prospects for long-term success.