Past Challenges

Before Hunter Harrison, the prevailing view was more locomotives, more railcars, and more crews allow for the movement of more volume. But because track and yard capacity is finite, adding more equipment creates congestion and slows the system. While it is counterintuitive, reducing fleet size enables a road to move more volume by running fewer (longer) trains, faster. ‘Scheduled’ service results in better asset utilization and higher profits.

For example, CSX’s ‘operating ratio’ (its operating cost as a share of revenue, the industry’s leading benchmark for efficient operations) dropped to 58.7%, a third-quarter record, while third-quarter profit increased 106%.

CSX’s Revolution

The results CSX is delivering are pushing the remaining U.S. Class Ones to consider adopting similar strategies as North American railroad executives face investor pressure. By rigorously scheduling service and eliminating bottlenecks, ‘Precision Scheduled Railroading (“PSR”)’ transports the same or more freight with less capital in the form of railcars, locomotives, and classification yards. Classification yards are choke points that slow traffic.

After dropping out of Memphis State to work as a dispatcher in a rail switch tower, he said: “It was then I learned that how you arrange schedules and manage assets are the key.” In his eight months at CSX, Hunter Harrison converted no fewer than 7 of CSX’s 12 hump yards into ‘flat-switching’ (by a locomotive on yard tracks) facilities resulting in faster deliveries from origin to destination.

Hunter Harrison’s legacy? Root out schedule inefficiencies, minimize asynchronous traffic flows, reduce cost, and create opportunities for timely ‘scheduled’ delivery. Focusing on efficient network operations results in maximum use of existing equipment and ultimately will change how the industry invests.

A Locomotive Industry Shift

Union Pacific is moving to follow the same playbook. It has idled 625 locomotives, with plans for idling another 150 by the end of this year while removing 6,000 cars from its network with plans to cut an additional 10,000 railcars over the near term. Compare PSR to airline network operations. Aircraft fly on schedules with minimum time on the ground. The efficient use of aircraft results in less investment and improved yields. ‘Scheduling’ operations allows matching of staffing, asset levels, and work sequences accurately. CSX results demonstrate this.

As Class Ones effectively implement PSR, network and terminal velocities will improve. Improving service will grow market share, take traffic from the highway, and deliver enhanced financial results for both the Class Ones and shippers, thus enticing new private investment in rail assets.

The Goal? Right-sizing capacity while implementing efficient asset management techniques. The results? Timely deliveries, improved returns on invested capital, and satisfied customers. Rail equipment knowledge creates opportunities that unlock portfolio values in this environment. Interested? Call RESIDCO.

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