Most railroad companies have implemented the PSR (precision scheduled railroading) system to optimize their assets and maintain a strict service plan. The PSR principle helps railroad companies reduce network complexities and improve operational efficiency.
The PSR principle was created by the late Hunter Harrison with a vision to generate incremental revenues by using fewer railcars and locomotives. Canadian National Railway (CNI) was the first beneficiary of the system. Harrison was the company’s CEO until 2009. The PSR system helped Canadian National Railway lower its operating and incident ratios.
Later, Harrison implemented the system in Canadian Pacific Railway (CP) after he became the CEO in 2012. CSX (CSX) also benefited from the PSR technique. Harrison was appointed as CSX’s CEO in 2017. Canadian National Railway, Canadian Pacific Railway, and CSX ended fiscal 2018 with operating ratios of 60.3%, 61.3%, and 61.6%, respectively.
More railroads joining the parade
More railroad companies are joining the PSR system bandwagon. In October, Union Pacific (UNP) and Norfolk Southern (NSC) announced that they would implement the principle to attain their sustainable long-term goals.
Union Pacific announced its “Unified plan 2020.” The company intends to reduce its operating ratio to 60% by 2020 and 55% in the long run. The company reduced its first-quarter operating ratio by 100 basis points to 63.6%.
On October 24, Norfolk Southern announced that it’s developing a new operating model. The new model will include some aspects of PSR. In February this year, the company outlined more details. Norfolk Southern mentioned bringing the operating ratio below 60% by 2021.
In January, Kansas City Southern (KSU) revealed that it adopted some aspects of the PSR system. The company hired Sameh Famhy in December to lead it in shifting to the PSR system. Famhy was the vice president of engineering, mechanical, and supply management at Canadian National Railway from 2006 to 2013.
Investors could consider the SPDR S&P Transportation ETF (XTN) to get an exposure in the railroad industry. XTN has invested 42.8% of its fund in the ground freight and logistics industry. XTN has returned 14.3% in 2019 and outperformed the Dow Jones’ gain of 10.4%.