What is Precision Scheduled Railroading?

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As the demand to transport goods faster and more efficiently grows, all transportation sectors are looking for ways to optimize their operations. Rail transport is no exception, and Class I railroads across the US are implementing strategies to meet this demand. Precision Scheduled Railroading (PSR) is one such strategy. Created by the late Hunter Harrison, the goal of PSR is to transport the same, or an incremental amount of freight with fewer rail cars and locomotives using a more simplified, direct line of transport across their network.

What is Precision Scheduled Railroading (PSR)?

Precision scheduled railroading (PSR) is a railroad strategy that uses departure schedules and point-to-point delivery methods to achieve low operating ratios and consolidate railroad networks.

PSR has grown in popularity, already being implemented by Canadian National Railway (CN), Canadian Pacific Railway Limited (CP), and more recently CSX Corporation, while other railways such as Norfolk Southern Corporation (NS) and Union Pacific Corporation (UP) follow close behind.

Prior to the large adoption of PSR, most railways used a “hub-and-spoke system.”  Hub-and-spoke systems typically occur in a “hump yard” and allow many rail cars to enter a hub or terminal to be reshuffled to different trains, often requiring numerous redirects before finding ultimate destinations.

Hunter Harrison transformed the rail industry by shifting from the hub-and-spoke system to PSR, helping to achieve historically low operating ratios and consolidate railroad networks.

Point-to-Point Delivery Method

The point-to-point method simply hauls freight directly from its origin to its destination—no redirecting or reshuffling involved. This allows products to move to market quicker, eliminating the time-consuming nature of switching rail cars in hump yards.  The point-to-point method enables longer trains, faster speeds, and less time in terminals.

Departure schedules require trains to leave on-time, whether the customer’s freight is present on the train or not.  In concert with the direct nature of point-to-point, railways can maximize the time their trains are spent hauling freight to achieve the lowest operating ratio possible.

line graph illustrating CSX and NS quarterly average train speed from 2017 through 2019 YTD
The greyed out section indicates when NS implemented PSR optimization strategies.

 

Consolidating Rail Networks

Because of PSR, most railroads ultimately eliminate shorter, less efficient lanes in favor of high-volume—and highly lucrative—lanes. This strategy to only service and focus on profitable lanes satisfies the investors and stakeholders of a railway, however, it has also received the most contestation from customers, shippers, and intermodal carriers (IMCs). Regardless of the railroad’s benefit, this consolidation can come as a temporary detriment to rail users due to changing run schedules and poor service in the interim as changes continually take shape.

For example, CSX is experiencing service issues after eliminating nearly 40 percent of their lanes. This elimination has major effects on their operating ratio and service network, however, when looking at the impact it has on individual shippers, the impact is more muted. Despite the large amount of lane closures by number, the lanes identified were relatively low volume.  The elimination only effected 5 to 7 percent of overall Breakthrough shippers’ intermodal volume.  Ideally eliminating less-viable lanes will result in better efficiency in the long-term, though the short-term effects may disrupt daily operations for shippers.

Importance of Lowering Operating Ratio

At the end of the day, consolidating networks, and eliminating less efficient lanes is all in the name of decreasing operating ratios (OR). The operating ratio is the most common metric used to measure the success rate by a railway’s stakeholders. The operating ratio represents how much a company needs to spend to make a dollar.  In other words, if a railway’s operating ratio is 60—a maximum level most railways implementing PSR aim to achieve—the company would make 40 cents for every 60 cents spent.  A variety of strategies can decrease OR like decreasing the workforce costs, removing older trains or railcars from the fleet, and implementing newer more efficient equipment and technology. PSR is also one of the more popular and lucrative means of decreasing OR.

History of Precision Scheduled Railroading Implementations

Hunter Harrison successfully implemented the first PSR strategy at Illinois Central, a small railway connecting Chicago, IL to New Orleans, LA and Mobile, AL—he decreased their OR from 98 percent to 60 percent. When Illinois Central was later acquired by Canadian National Railway (CN), Harrison had the opportunity to incorporate PSR on a larger scale, growing the scope of his PSR strategy’s impact.  At the end of his tenure, CN’s OR dropped by 11 percent.

Harrison continued his success when joined Canadian Pacific Railway (CP) and he took OR from over 80 percent in 2012 down to 58.6 percent in 2017, then went on to do the same at CSX. Although Harrison’s tenure at CSX was short, he successfully lowered OR and the company has seen lower OR as the company continued to implement Harrison’s PSR strategy.  At all four railways, Harrison faced scrutiny and push-back from clients due to service issues and schedule changes.

Harrison’s history of success has bled into other areas of the industry, including implementing PSR at new railways on new lanes. The impact of his innovative approach is transforming the bottom lines of railroad companies. His ideas have, however, come with a myriad of new challenges to surmount on the shipper and carrier side. Breakthrough’s team is committed to keeping up with the latest news and research on these ever-evolving strategies so that our clients fully understand how these technologies will affect their holistic transportation network.

For further insights on the impact of PSR on transportation supply chains and any other transportation trends, contact us.

 

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