Ten90 Solutions LLC

As for knees, like most people, I have two of them, and as for jerks, I’ve been one, on occasion.  

Knee-jerks are part of the business, one of the risks in doing business.  I remember my own knee-jerk after 1996 and FRA’s announcement that it would develop crash-worthiness standards for locomotives.  “Waste of money,” I knee-jerked, “Use the cash to develop crash-prevention systems,” which of course was undercut in 2008 when PTC was mandated and the industry knee-jerked “unfunded mandate.” 

Knee-jerks are just that, reflex responses, formed an informed by habit, by prejudice, and by vested interest.  Before they are allowed to become policy they need vetting.  We need to be certain that we have identified a real issue, and a realistic response.

Which gets me to….where, exactly?  CSX, exactly.  Over the last several months, Hunter Harrison,  described by some as a railroaders’ railroader, and by others as a  hedge fund’s railroader, has roiled the waters, rattled the cages, and shaken, not stirred, things up over on CSX where he was brought in to work that old Hunter Harrison magic.  

Magic doesn’t come cheap in this business, and I’ve seen estimates of the compensation awarded to Harrison ranging from $72 million to $300 million. 

Too rich for my blood, that’s for sure.  And besides, I don’t believe in magic

Better railroading was, and is, grunt work, based on fundamental principles of safe train operations, driven forward by applying simple math to the problems of distance, time, velocity, available space.  Those calculations give us the relations and the totality that make up capacity.

Hunter Harrison steps in at CSX and  he closes down a significant number of hump yards, maybe 8 of 12 across the system, in favor of flat switching, and with predictable results.  Elapsed time, the yard dwell time of cars on the system soars.  Overall network velocity declines. And, no magic to this, customers complain and seek relief.

OK, Hunter Harrison has been through this before, “transition pains”—schedules are altered, customers don’t like change, etc. etc. but Hunter Harrison has the vision—a vision where trains are built precisely, blocked at the originating point precisely for the final destination of the cars in the train.    

No magic there, it’s just the application of the first principle of good railroading. “Don’t make me handle the car twice!”

There are limits to the above.  Has anybody ever worked a switching yard, flat or hump, anywhere, anytime and not “adiosed” a car short of its assigned destination?  Maybe in the former Soviet Union, but look what happened to them.

If you get traffic in interchange, you might have to negotiate some special arrangement to share the benefit that will be derived from the extra work you’ve just sloughed off onto to your interchange partner.  That’s not magic.  

Certain policies Hunter Harrison instituted seem to speak more of knee-jerks than vision.   

CSX recently decided to abolish the policy that authorized road crews to request, and be allowed, naps as long as certain requirements were met.  Now the napping policy is relatively new by railroad standards, much newer than the no-sleeping policy.  Still over the last 20 years railroads have allowed it, refined it, and specified the conditions under which it is permitted with no noticeable ill-effects. 

Maybe Hunter Harrison did away with that policy to demonstrate to train dispatchers, supervisors, and the employees, that the default condition of the railroad is the movement of trains, not the non-movement of trains, but that's a knee-jerk response.  Naps were never allowed when it might interfere with the movement of that crew’s train, or another train’s movement.  

Under actual operating conditions, over significant sections of single track territory where trains have to operate or remain in a siding to meet or pass another train; over other sections of track where trains cannot follow each other into the same block, there is no degradation of system operations, of network velocity, by allowing crews to formally request and receive permission for a 30 or 45 minute nap. 

Harrison's former railroad, Canadian Pacific, is a member of the group of railroads adopting and abiding by GCOR, the General Code of Operating Rules.  Those operating rules include the following:  

1.11.1 Napping is permitted by train crews, except crews in passenger, commuter or yard service under the following conditions    

…followed by the double handful reasonable conditions and restrictions for providing crew members to take rest while on duty.  Did Canadian Pacific have a special instruction in its employee timetable stating that rule 1.11.1 did not apply to employees of the CP railroad, or other railroads while performing service on the Canadian Pacific, when Harrison ran the railroad? 

CSX now allows employees to get on and off moving freight cars in the performance of their duties.  CSX has decided to break with the long-standing SOFA (Switching Operations Fatality Analysis) recommendations for “3 point protection” (brake applied, reverser centered or removed, and generator field off) before going between cars to align couplers, connect air hoses, etc. 

Eliminating 3 point protection is not going to reduced elapsed yard dwell time when the yards themselves are buried in cars that formerly went to those 8 shuttered hump yards.  

Eliminating 3 point protection is not going to improve system velocity by .001 of a mile per hour when main line is backed up with trains waiting to enter yards.   

These changes appear to be knee-jerks, twitches that by-pass the rational decision-making processes and organs of a railroad.

The industry has continued to improve its safety performance over the past ten years.  Between 2007 and 2016, the rate of total train accidents per million freight train miles declined 30 percent.  The number of accidents attributed to human factors (employee errors) declined 40 percent.  (see chart 1.12 FRA safety data at fra.dot.gov/Safety/Default.aspx)  

For yard and switching railroads, the overall rate of accidents per million freight train miles declined 40 percent, with non-fatal employee on duty injuries declining 27 percent, despite an increase in employee working hours of approximately 7 percent over the period.

It’s difficult to prove that the SOFA recommendations are the cause for this improvement.  I don’t know how many of the injuries that did occur are the result of “non-compliance” with SOFA recommendations, or if they occurred despite the proper execution of all the recommendations. 

We can’t knee-jerk a “yes” or “no” here.  However, we can draw warranted conclusions based on correlations, and correlations establish themselves in the trend—in the overall level of, and changes in, performance that give us an idea of the direction things are going.  So I think we have to give credit to the SOFA recommendations, to the heightened awareness and vigilance as expressed in the requirement for 3 point protection.

Total train accidents on yard tracks for the entire industry have shown a pronounced downward trend, so much so that the number of such accidents between 2008 and 2016 declined some 34 percent (from 1383 to 915).  

Between 2008 and 2012, CSX total accidents on yard track trended downward. However from 2013 on, that trend reverses.  The number of yard accidents moved significantly upward in 2014 and 2015 to the point that even after a decline in 2016, the total number of these accidents is almost at the 2009, 2010 marks (see chart 1.03 on FRA safety data site)

The rate of yard switching accidents (per million miles), declined significantly to 2012, but has trended upward through 2016 (chart 1.03)

The total number of train accidents per million train miles declined steadily to 2013, only to reverse direction and trend upward through 2016 (chart 1.03).

CSX was on the wrong side before Hunter Harrison arrived, but the recent changes don’t indicate that CSX has recognized that, and is acting to stop that trend.

Maybe it is part of the vision Hunter Harrison has for the railroad, and maybe it’s part of the vision the hedge funds have for railroads.  Harrison has proclaimed, that “coal is dead” and if that’s truly the case, network velocity isn’t going to be a problem at all. 

Coal accounts for 34 percent of car loadings on the Class 1s—up from last year’s dismal 30 percent, but down from the long-established ratio of 40 percent.  The revenue contribution is less than the traffic ratio, but it’s still significant. If coal is dead, then railroads have a lot of excess locomotives, excess employees, excess track, excess track slots, excess equipment, excess yards, and excess railroad on their hands.

One solution to wringing that excess capacity out of the system requires end-to-end, transcontinental merger. 

Hedge funds don’t generally play a “long game” built on expanding the asset base of the business, and using that expanded asset base to achieve economies of scale, and increased revenue.  They take positions, and they position themselves for the big payout.  The big payouts are not derived from the accumulation of new customers, or increased volumes.  The big payouts are dependent (usually) on merger, acquisition, takeover, and…liquidation.  

Harrison went for the “big payout” when he was at Canadian Pacific, attempting an end-to-end with CSX and then NS, only to be rebuffed.  

Closing yards, furloughing personnel, devaluing assets,  may make CSX a tempting target for takeover, to the benefit of the big institutional shareholders, hedge funds etc.  But no one should doubt the devastating impact it will have on an economy that has experienced the weakest recovery from the deepest recession in the post World War 2 period. 

And no one should confuse knee-jerks with “vision,” or hedge funds with good railroading. 

 David Schanoes  

September 3, 2017

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