How Precision Scheduled Rail Led to One of the Worst Environmental Disasters in US History

Hunter Harrison and Precision Scheduled Rail

In its infancy, the concept that has come to be known as Precision Scheduled Rail (PSR), synonymous with rail industry titan Hunter Harrison and his acolytes, was aimed at serving customers, controlling costs, and utilizing assets as efficiently as possible — not getting anyone hurt and simultaneously recognizing and developing people.

However, in the aftermath of Norfolk Southern’s rail disaster in East Palestine, Ohio, we are left to wonder how several decades devoted to this concept have shed all but the value of controlling costs. Instead, PSR has transformed into a consolidated, hostile-to-labor, and frankly dangerous enterprise that routinely prompts events like East Palestine — events that will continue as trains get longer, profits remain the only measure of success, and labor is ignored, or worse yet, the target of hostility.

Meanwhile, administrations of all stripes have bullied the Railroad Workers United at the bargaining table, leaving them with little to no recourse. We now know that the industry’s drive to push down Operating Ratios (ORs) and the Wall Streetification of rail across North America has led us to this place we find ourselves in today, with an industry holding its customers and US taxpayers hostage as it wields monopoly powers unseen since the days of the robber barons.

This is a story of politics, capital versus labor, obscure topics like antitrust and shareholder return at the expense of everything else. It originates with the birth of one Ewing Hunter Harrison III, born on November 7, 1944, in Memphis, Tennessee. The son of a former baseball pitching prospect and World War II veteran tank operator who wasn’t winning any parent of the year awards, to be kind. 

Harrison was destined to work in the rail industry, following in the footsteps of his grandfather who worked for Illinois Central — the same company that Harrison would go on to lead as CEO some 40 years later. This was also the place where Harrison began his obsession with extracting more and more cash out of each mile of rail. 

At the Frisco Railway,^[1] Harrison started as a carman in December 1963, mentored by William “Pisser Bill” Thompson who fed his obsession with maximizing profits. Their shared fixation on the company’s Operating Ratio (OR), a company’s operating expenses as a percentage of revenue, started off as a good faith attempt to trim the fat. But, like many other sincere business efforts, it paved the way for corporate profit, greed, and shareholder return as the only measures of success.

According to Harrison’s biographer, Howard Green, Thompson didn’t just teach Harrison about the value of OR^[2] — he also imparted on the young carman the need for a management style that could only be described as “kick ass, take names, culture-of-fear.” Green speaks of one pivotal interaction between mentor and mentee, when they were looking out from the Memphis railyard tower and Thompson noted that the yard was so full “you could walk across the top.” While the young Harrison saw the yard being full as a sign of a thriving business, Thompson pointed to this as one of the primary reasons the freight business was down 7% that quarter. This perspective stuck with Harrison as he told Green, “If you want to be successful in the yard or the railroad, keep the car inventory down to avoid congestion.”

While Harrison was the head of Thompson fan club, many found the old man’s methods “repugnant” so much so that there were even threats on his life, prompting Thompson to brandish a gun in several meetings with Harrison and his colleagues. For this loyalty, Thompson took a shine to Harrison and served as his biggest advocate as the latter began climbing the industry ladder, moving from Illinois Central (IC) to Burlington Northern (BN), where Harrison immediately began to work wonders with the company’s OR.

At Burlington Northern, Harrison would meet two people that would go on to be at the vanguard of incorporating data into decision-making processes. Those people were Sue Rather and Phil Westine. They told Green that Harrison was the only c-suite executive he had encountered that “actually understood what the data meant. He was absolutely amazing… [and] smarter than anyone I knew on the railroad who went to college.” Meanwhile, Rathe was the member of the trio that scoured and synthesized the data Harrison intuitively knew was critical.

Harrison’s obsession with pushing down on OR would manifest in the now infamous Precision Scheduled Rail (PSR), a phenomenon that exemplifies Harrison’s reign over the industry for more than 30 years.^[3] PSR was originally designed to address the fundamental problem with rail efficiency — its measurement in days. Freight rail didn’t really run on a schedule, instead only departing when a customer’s load arrived. Harrison sought to measure service efficiency in hours rather than days, enabling more predictable service which would allow him to charge premium prices rather than the historical “commodity-like pricing that railroads had accepted for years.” Harrison was of a mind to “[C]ut out the nonsense and the things you don’t need to make your railroad more efficient and fluid.” This laser focus on the “things you don’t need,” efficiency, and expediency (i.e., velocity) would come back to bite Harrison and his PSR acolytes.

Within one quarter of having joined IC, Harrison had begun imposing his will, “Pisser Bill” Thompson style, on the company, offering a hint of how he would incorporate PSR. Along the way, he closed a “hump yard”^[4] on July 4th and another on August 3rd because he viewed them as luxuries that did nothing more than slow down the movement of trains. Here we see Harrison’s focus on speed, with his primary justification for closing hump yards being his insistence that the industry needed to move quickly from measuring arrival and departures times in days, to measuring them in hours and minutes.

The fat trimming would begin in earnest, and continues to this day in the form of increasingly longer trains, shorter inspection times, and condensed labor. Harrison insisted that the closure of hump yards would move trains faster from point A to point B, dramatically improving his ultimate indicator of success, OR. Many in the financial sector agreed, and continue to agree, that OR is the ultimate indicator of financial efficiency. From a general public’s point of view, however, it usually results in regulations ignored, corners cut, and jobs displaced.

Harrison was immediately hailed as the industry’s savior as he managed to cut IC’s OR to a then unheard of 59%, while the industry standard at the time was 83%. Wall Street analysts were tripping over themselves in praising Harrison, including one James Valentine at Morgan Stanley, who Green quoted as writing in 2005, “We consider Hunter Harrison one of a kind, an industry maverick blazing the trail to a 60 per cent (or lower) operating ratio…” The cult of personality was real and growing exponentially, with very little attention paid to the neglect and impending issues that would come with Harrison’s strict focus on efficiency and speed. In the wake of this OR miracle, Harrison was named the CEO of IC four short years later. It was then that he began to preach the pillars of PSR, “what train velocity does for efficiency, what longer trains mean for efficiency, and on and on.” In this he instituted an increasingly hostile relationship with labor, refusing to tolerate any resistance to his methods, and preferring to convert people to his PSR religion or cut them from the company rather than permit their dissent.

Harrison would take his PSR SWAT team to Kansas City Southern Railway (KCS) to “drive efficiencies” in advance of an IC-KCS  merger. However, the much anticipated unification met its demise in October of 1994, prompting Harrison to look northward to Canadian Northern for a partner that would prevent IC from being “consumed by all [the] mega mergers” of the mid 1990s. This led to the behemoths we know today, including Norfolk Southern (NS),^[5] CSX in the East and Union Pacific (UP), and Burlington Northern Santa Fe (BNSF) in the West. The Big Four are not the only Class I’s remaining,  with smaller regional players like Canadian Pacific (CP), Canadian National (CN), KCS, and IC still hanging on for dear life in an age when monopolies are encouraged and the Federal Trade Commission is reticent to use its antitrust powers.

Harrison went kicking and screaming to CN, becoming its Chief Operating Officer in February of 1998, following its acquisition of IC. This purchase transformed CN from an East to West rail to more of a Y-shaped network, enabling its access to the Gulf of Mexico and New Orleans. This took place as NAFTA began to reshape the North American economy, and the extremely profitable petrochemicals industry continued to exhibit massive growth. 

Shortly after taking over CN, Harrison would implement a massive program designed to increase train velocity and length as the primary ways to improve market share and OR. The new COO would cut the number of locomotives by 600, or 35%, within the first year and half of his tenure, and another 186 by 2003, allowing for cost-cutting in the form of reduced fuel charges, parts, and mechanics. In all fairness to Harrison, he was correct in pointing out that the rail industry’s primary competition — the trucking industry — had an unfair advantage. The roads the latter industry rely upon were maintained by US taxpayers while rail was constructed and maintained by an industry that used it to the tune of $189 per foot of track. This resulted in the trucking industry spending only 40 cents per $1.00 of revenue vs. the rail industry’s spending of $2.50 for every dollar of revenue.

Harrison went an even more radical, and eventually dangerous, step further in 1999 when he decided that individual car inspections should be measured in seconds rather than minutes — a change that many rail workers are confident contributed to the East Palestine disaster.

Harrison believed that delivery times needed to be measured in hours, not days, and that the  addition and subtraction of days in estimated delivery times had to stop. For example, Harrison believed that Edmonton to Chicago should no longer take seven to nine days, but rather seven days and 10 hours. This would only be possible with longer trains, less locomotives, fewer hump yards, and less time spent inspecting inventory, all resulting in further and further declines in his beloved ORs.

This all culminated in the period between 1999 and 2003 when Harrison became the CEO of CN. Under his leadership, faster inspections led to faster trains and “better service,” resulting in massive increases in market share for CN. Harrison was laser-focused on optimizing efficiencies at the expense of nearly everything else, resulting in those much-ballyhooed ORs, fewer assets, and significantly smaller headcounts throughout the industry. However, the real implication of Harrison’s location at the helm of CN was that he was able to deploy PSR at a continental scale, rather than the regional routes traveled by IC trains.

Eventually, Harrison would move on to industry back of the packer, Canadian Pacific (CP), as their president and CEO in 2012. Recruited by hedge fund billionaire and infamous activist investor Bill Ackman,^[6] the two teamed up to implement PSR on steroids, and at a dizzying pace, in order to lower the company’s Operating Ratio of 81, the highest in the industry, to 66% within 18 months. According to Harrison’s biographer, industry analysts took to calling the turnaround of CP “the greatest corporate turnaround in corporate history.”

Harrison would end his career in the rail industry as the head of CSX. There, he removed safety crews from the PSR manual, preferring instead to leave safety practices to the discretion of supervisors. On its face, this was one of the final steps in maximizing revenue. Underneath, though, Harrison and his flock were yet again sacrificing safety for profitability.

Harrison took medical leave from CSX two days prior to his passing in December of 2017. He left behind an unsurpassed track record of profit margins, a huge stable of acolytes, and a legacy of pushing all manner of long-term environmental, social, and economic externalities aside for the sake of Operating Ratios, stock buybacks, and Wall Street praise. Precision Scheduled Rail continues to play an influential part in an aging, monopolistic, and — as we saw in East Palestine over a year ago — dangerous industry where frontline workers’ concerns and needs are subservient to those of shareholders. In the next section, we will outline those concerns with the help of several conversations I have had since the East Palestine derailment with former rail worker, Paul Lindsey.