Pictured above, left to right: Glenn Smith, Wayne Farms; John Schmitter, KEP; Todd Tranausky, FTR)
A shipper and a consultant talking about how precision railroading’s implementation has affected them both had a distinctly middle of the road–or maybe middle of the tracks–conclusion.
John Schmitter, president of KEP Llc and Glenn Smith, the director of feed integrated procurement for Wayne Farms, which describes itself on its website as the sixth-largest vertically-integrated poultry producer in the U.S., both told a session of the FTR conference in Indianapolis that while precision railroading (PSR) had been much anticipated and in some cases feared, the impact on operations that they’ve seen has not been massive. But that doesn’t mean it hasn’t been significant and created worries for impacts in the future.
“When PSR first came in through CSX, it was the speed at which it was implemented,” Smith said. “That was a challenge for everybody.” CSX was the first of the U.S.-based railroads to implement PSR, following its hiring of the late Hunter Harrison, who implemented it at the Canadian Class 1 railroads.
Schmitter said the PSTR rollout from the Class 1 railroads has been a “mixed bag” for his group of clients. “Once they got over some of the startup issues, it has improved reliability,” he conceded.
But he added–and it was a theme that Smith came back to as well–that the longer-term concern is that assets have been tightened so much by railroads implementing PSR that there isn’t a lot of flexibility in the system. It has created uncertainty over whether a shipper’s growth plans might be stymied by a lack of rail capacity to handle that growth.
PSR practice is to “squeeze the assets,” Schmitter said, “and bring capacity to exactly where the railroad thinks demand is going to be.” The problem that both Schmitter and Smith referred to is that growth becomes difficult to plan for under PSR–will the capacity be there to handle the growth?–and the fluctuations even in the short term to medium term can be volatile. “”Do you know what the line is going to have if you want to ship another million tons next year?” Schmitter asked.
Smith, almost sounding like a union official, said of PSR: “It’s all about the stock price. It’s not about helping the customer.”
However, he also noted that Wayne Farms recently opened up a new mill, “and we were taken special care of.”
Smith acknowledged that railroads can demonstrate to its customers that they are moving more rapidly and that dwell times are down under PSR. “It looks good and it sounds good, but it does not affect my business,” he said. “That is not better customer service for us.”
The railroads, of course, would argue that customer service is better if train times are accelerating (they are) and dwell time is down (it is).
And the session was not just filled with negative outlooks, though inevitably when a topic is about a radical change like PSR, the changes that aren’t working all that well will tend to be highlighted. Schmitter said most service is better but he also noted that PSR has the advantage in 2019 of being implemented into a market where volumes are down. “That always improves fluidity and the level of service in the short term,” he said.
In the same vein, Schmitter had an observation about the level of customer service if you’re a rail customer. Under PSR, “for some clients, they have gotten better performance.” But then he added: “It is still at a level for which you would fire a trucking company.”
There was no indication from either Schmitter or Smith that visibility of assets on the rails has improved. As Smith said, “Some days you have three cars at a destination and then you look up the next day and you’ve got 20.” That creates demurrage issues, he added.
Schmitter said the one metric that matters is compliance with the trip plan for a load. “You say seven days, just do it,” Schmitter said. And if the trip plan is followed, he added, the issue of demurrage of cars at a customer’s facility should be diminished.
The day-to-day operations are fine, for the most part, according to both speakers. But it’s when things blow up that both Schmitter and Smith expressed concern about the reduction in all parts of the railroad’s assets: locomotives, cars and crews.
“You don’t know how far out you are from the next meltdown,” Schmitter said.
Smith, who operates mostly on the East Coast and has Norfolk Southern (NYSE: NSC) and CSX (NYSE: CSX) as its two primary railroads, talked about the prospect of an ice storm hitting his company’s region. He said he is concerned about the railroads having “less power, less operators and less crews” to react to an event like that than in the past. “I would think the reaction time would be less than you would have in the past,” Smith said.
The question also came up whether PSR is better for some types of rail customers than others. Smith said he did not think any one shipper has an advantage over another. But Schmitter said he thinks that manifest trains–pulling different types of cars from multiple shippers–can particularly benefit from PSR.
One principal of PSR is a tighter adherence to schedules, not just for the railroad but also for the customers. The nature of a manifest train means there are more pickups, more customers and more “touches.”
“Any time you can reduce touches, it’s one less thing that can go wrong,” Schmitter said. Since a manifest train by definition has more touches because it has more different types of cars and more owners of those cars, it’s in the best position to benefit from PSR, Schmitter said.
“Those trains are the ones that have had the biggest problems over the years,” he added.