Harrison's legacy lives on as UP moves to implement his precision railroading model

He has been gone for nine months, but E. Hunter Harrison is still coming to the rescue of railroads in distress.

This time it is the Union Pacific Corp., the mighty western railroad, which said yesterday it will implement the "principles" of Precision Scheduled Railroading, the famous model pioneered decades ago by Harrison, who died last December at 73, to improve the fortunes of the Illinois Central Railroad, Canadian National Inc., Canadian Pacific Railway, and, at the time of his death, CSX Corp. The model is at the core of Omaha-based UP's "Unified Plan 2020," designed to slice 3 percentage points off its operating ratio over the next 2 years, and to lift the railroad out of a torpor that its head makes no effort to hide.

UP's strategy will launch Oct. 1 on its north-south corridor linking Wisconsin and Texas. The rollout will take shape in phases until it is operational across UP's 32,000-mile network spanning 23 states west of the Mississippi.

Eventually, UP expects to drive its operating ratio—the ratio of revenues to expenses—to 55 percent. Its ratio stood at 63 percent as of the end of the second quarter. In the near-term, however, Lance Fritz, UP's chairman, president, and CEO, is hoping to reverse the railroad's subpar performance. As of Sept. 7, train speeds across UP's network averaged 24.2 mph, down from 25.4 mph in the third quarter of 2017, according to data submitted by the railroad to the Association of American Railroads (AAR). Terminal dwell times—the amount of time a train sits at a scheduled point without moving—stood at 30.4 hours, up from 30 hours in the 2017 period, according to the data.

"We are not currently meeting customer expectations," said Fritz in a statement announcing the plan. "Unified Plan 2020 is our path forward to secure our place as the industry leader in safety, service and financial performance." Fritz made similar harsh comments last month when UP announced a high-level reshuffling that included then-COO Cameron Scott stepping away from the role.

In its simplest form, Precision Scheduled Railroading is designed to maximize equipment utilization and productivity by consistently monitoring the flow of every asset across the enterprise. For example, by running trains on rigid, pre-set schedules, then managing the network planning and rolling stock flows so the trains were always full, shippers would get their goods moved faster, more reliably, and cheaper because assets wouldn't always need to be kept at the ready to offset schedule variability that railroads have long been notorious for.

While other North American railroads rely on PSR's principles to some extent, it was only fully implemented at a railroad that Harrison was a part of, said Anthony B. Hatch, a veteran rail consultant.

In its statement, UP essentially summarized PSR's multiple benefits, which include shifting the focus from train to car utilization, minimizing car dwell and locomotive requirements, utilizing more general-purpose trains by combining train services, and balancing train movements to improve crew and asset utilization.

Implementing the model is probably more of a cultural challenge than an operational one, and it certainly may be the case at a railroad so steeped in traditional railroading as UP, which was founded in 1862 by President Abraham Lincoln when he signed legislation creating the nation's first transcontinental railroad. Howard Green, a Canadian journalist who spent many hours with Harrison for Green's recently released biography entitled "Railroader," said in an e-mail today that Harrison believed that changing a railroad's culture was "the hardest thing" to do, but that it was the most important mission he could accomplish.

The announcement comes on the heels of a UP investor conference in June when it announced a $20 billion share buyback. UP, whose share price jumped nearly $7 a share today, will hold a conference call tomorrow to explain today's move.