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The late E.
Hunter Harrison,
who ran four of North America’s major railroads, is credited with transforming the railroad industry by spreading a philosophy of aggressive cost-cutting.
But criticism of that philosophy, known as precision-scheduled railroading, or PSR, has grown since the February derailment of a
Norfolk Southern Corp.
train that released hazardous chemicals in East Palestine, Ohio.
Members of Congress, unions and rail-safety officials have all expressed concerns that PSR has made the entire railroad industry less safe.
“PSR is the plague which endangers both employees and the public as we have seen recently,” said Clyde Whitaker, Ohio state legislative director for SMART, one of the nation’s biggest unions representing railroad workers.
The goal of PSR is to boost service and profit by running trains more efficiently. Following Mr. Harrison’s lead, railroads have closed facilities, retired locomotives and railcars and cut workers to lower costs. They now run longer trains—some stretching nearly 3 miles long—on set schedules.
Union leader Clyde Whitaker has criticized PSR as a danger to employees and the public.
Photo:
Manuel Balce Ceneta/Associated Press
Even though Mr. Harrison was the leading evangelist of the strategy, PSR is a term he didn’t use himself.
“PSR—what is that?” an irascible Mr. Harrison once asked his biographer, Howard Green, before adding, “I don’t care what you call it, as long as you do it.”
At the time, in late 2017, an ailing 73-year-old Mr. Harrison was the CEO of
CSX Corp.
Shortly after, he died and his legacy as the maverick railroad executive—with a take-no-prisoners style and a genius for turnaround—was cemented.
Precision railroading—the term Mr. Harrison used—grew out of his early experience in rail yards, which began in 1963 when he was 19, working as a laborer squirting oil under train carriages for the St. Louis-San Francisco Railway.
A decade later, as a railroad superintendent in Memphis, he had an epiphany: a yard full of railcars meant delays, which meant lost revenue.
It was in the railyard tower putting trains together all night—a process he referred to as “high-speed checkers”—with a bottle of Tums and a couple packs of cigarettes beside him, where Mr. Harrison’s abilities were first noticed, according to Mr. Green.
After a stint at the Burlington Northern Railroad in the 1980s, Mr. Harrison moved to the Illinois Central Railroad, where he took on his first CEO role in 1993.
acquired that railroad in 1998 and made Mr. Harrison chief operating officer, before naming him CEO in 2003.
Even early on, Mr. Harrison had detractors among colleagues who wanted to invest in new technologies and opposed his focus on cost control.
E. Hunter Harrison’s strategy boosted Canadian Pacific’s earnings.
Photo:
todd korol/Reuters
Signage outside the Canadian Pacific Railway E. Hunter Harrison Campus in Calgary, Alberta, pays homage to the former CEO.
Photo:
Alex Ramadan/Bloomberg News
Steve Ditmeyer, a former head of research and development at the Federal Railroad Administration who worked with Mr. Harrison at Burlington Northern, said he wanted to invest in technology to improve the tracking of trains, which he believed could improve service and safety.
He said Mr. Harrison was more interested in removing hundreds of miles of track. “He was a tearer-upper,” Mr. Ditmeyer said. “Quite frankly, he was my nemesis. He said, ‘Ditmeyer, we don’t need technology to run the railroad any better.’ ”
Unions and some safety advocates say Mr. Harrison’s emphasis on running lean operations has led to pressures industrywide, adding risks from shorter inspection times and longer, heavier trains, among other things.
Throughout his career, Mr. Harrison said that he had zero tolerance for unsafe practices. “There are simply too many accidents in this industry, too much pain and suffering that could be avoided if we’d just follow the rules,” he wrote in “How We Work and Why,” a book outlining his management system.
Mr. Harrison’s success at Canadian National was undeniable. The railroad carried more freight with fewer locomotives, and net income quadrupled from 1998 to 2001.
He did it again at
after he became CEO in 2012 following a proxy battle led by shareholder activist
Bill Ackman
of Pershing Square Capital Management LP.
E. Hunter Harrison continued working despite health problems.
Photo:
Howard Green
He took 400 locomotives and 12,500 railcars out of service and cut 4,700 jobs. He shut unused sidings and hump yards, where trains are broken down and reassembled. Earnings soared, along with gains for shareholders.
A single metric, a company’s operating ratio, revealed how well the plan was working—and it became the number to chase across the industry. The ratio is calculated by dividing operating expenses by operating revenues.
Before Mr. Harrison took over at Canadian Pacific, the company had an operating ratio of 81%, a higher figure than many competitors had, indicating higher costs per revenue. By the end of 2016, the railroad’s figure had fallen to 56.2%, among the lowest in the industry.
After Mr. Harrison was hired as CEO of CSX in March of 2017, he held “Hunter Camps”— retreats where he taught managers how to make the railroad run more efficiently—even when he required an oxygen tank and knew he had little time left to live.
Norfolk Southern and Union Pacific Corp. adopted their own versions of PSR. One indication of his influence is that the seven largest freight railroads in North America shed about 28% of their employees between 2011 and 2021.
When the pandemic struck, railroads faced a test and failed. They had become so lean that they couldn’t handle the sudden demand for freight when the economy rebounded. Many workers who had been furloughed decided not to return to work, and regulators have scrutinized service interruptions under PSR.
Shippers have complained that service deteriorated before the pandemic as railroads adopted Mr. Harrison’s approach. Since last May, the four major U.S. freight railroads have had average on-time percentages of about 60% to 73%, according to data the railroads submit to the Surface Transportation Board.
“It continues to be a big problem for our member companies and for other shippers as well,” said Scott Jensen, a spokesman for the American Chemistry Council. “We have not seen benefits to customers out of PSR.”
Railroads now say they will have to hire more workers, bring some locomotives back and reopen hump yards, among other changes. Executives say the moves are needed to improve service and compete with the trucking industry.
“They’ve wrung out all the inefficiency that they can, and it’s starting to bite now,” said Gerard McCullough, an emeritus professor of applied economics at University of Minnesota.
Norfolk Southern said it would retrain workers rather than furlough them.
Photo:
Gene J. Puskar/Associated Press
Some industry analysts said railroads had been ripe for streamlining after the industry was deregulated in the 1980s, and they compared PSR to other trends such as lean manufacturing that have swept through other industries and ultimately come up against limits.
Railroads have been reluctant to back off the strategy because they would be punished by investors, according to analysts and others. Today, railroad executives are trying to balance those expectations with pressures to improve service.
In December, Norfolk Southern CEO
Alan Shaw
said the company would abandon its traditional practice of furloughing workers during downturns. Instead, it will use those periods to retrain them.
“Reducing operating ratio is not our singular focus,” Mr. Shaw said.
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But he indicated that PSR is part of the company’s DNA. “I assure you that PSR muscle memory and discipline is there throughout Norfolk Southern,” he said.
Rick Paterson, a managing director with Loop Capital Markets, said Mr. Harrison would be pleased that railroads won’t abandon PSR: “It’s a genie they cannot put back in the bottle.”
Write to Kris Maher at Kris.Maher@wsj.com
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