Ed Harris is among the rail industry’s most revered operating officers, having practiced his considerable skills at CN, CSX, Canadian Pacific and Illinois Central in a career that spans many decades. Following “retirement” (which many in our industry never really do, right?), he’s lent his talent and experience to companies like Duos Technologies, Wi-Tronix LLC and Omnitrax.
Recently, Harris, 74, agreed to help BNSF with its merchandise network—which, next to intermodal (with its relatively high operating ratio), offers perhaps the best means to grow the top line. But winning merchandise traffic back from trucks is a tough task for any railroad, large or small. Growing boxcar traffic may be the most promising path to growth, but that’s a story in itself.
The Wall Street Journal recently reported, “Freight railroad BNSF hires an expert on precision railroading, a strategy its rivals have embraced to streamline operations … [Warren Buffet’s] designated successor [at Berkshire Hathaway], Greg Abel, has been taking a more hands-on approach lately with … BNSF. Abel has openly discussed his dissatisfaction with the freight railroad’s profit, and BNSF recently tapped an outsider to rethink its operations. The railroad hired industry veteran Ed Harris, a proponent of precision scheduling, an operating model that is prized by investors and that executives at BNSF have resisted … Harris is a disciple of the late Hunter Harrison, the father of Precision Scheduled Railroading … Harris has told people that Abel recruited him as a consultant for BNSF, according to people familiar with the matter.”
The WSJ added, “Most railroads’ earnings shrank last year because of a freight recession. BNSF’s operating earnings fell 14% in 2023. Union Pacific, its direct competitor, reported an 8% decline in operating income over the same period. BNSF also scores poorly on a closely watched measure of how much of a railroad’s operating revenue is consumed by operating expenses. BNSF’s operating ratio in the second quarter was 68.2%, unchanged from a year ago, and the worst performance of the major railroads … In a letter to Berkshire Hathaway shareholders in February, Buffett said BNSF’s 2023 earnings declined more than expected, and that its profit margins had slipped relative to the five other major North American railroads. ‘I believe that our vast service territory is second to none and that therefore our margin comparisons can and should improve,’ the letter said. In May, in response to an investor’s question during Berkshire’s annual meeting, Abel said there is room for BNSF to be more efficient and to have higher margins. Abel said that when other railroads implemented PSR, they deliver certain performance metrics that BNSF should consider as well.”
Well … no! Not really. Looks like the hallowed (hollowed?) WSJ discombobulated the situation. Looks like this “Ed Harris thing” has been blown way out of proportion. You might infer from the story that he is running the railroad, dragging it kicking and screaming into the PSR rabbit hole. He has yet to even be on property, I’m told.
To be fair, the WSJ quoted BNSF Chief Operating Officer Matt Igoe as saying, “BNSF never was a PSR railroad and isn’t becoming one now. Many of the practices now broadly described as PSR were best practices that BNSF utilized long before the PSR moniker existed.”
Whether or not Greg Abel “recruited” Ed Harris (BNSF says that didn’t happen) isn’t all that relevant. I’ve confirmed with BNSF that Harris is indeed a consultant on the merchandise network. That’s what matters. That’s the real story.
“BNSF has long been the industry leader in intermodal and bulk shipments service and innovation, and our operating team has invested years in continuing to drive new levels of efficiency and service we provide to our customers,” Vice President Corporate Relations Zak Anderson told me. “Our operating team believes that while our merchandise network is different, many of the same lessons can be applied and have spent much of this year working through our merchandise terminals to optimize their performance.”
Here’s some detail, which I’m used to getting from the folks in Fort Worth:
“As the biggest intermodal operator by far, BNSF has recently been taking its expertise in intermodal terminals and applying that with more structure and rigor to its eight hump yards. Terminals and humps are somewhat different animals, but there are still lessons to be learned and applied, and operations management has been methodically working through the eight humps and seeing notable success. There are four IT systems that can have a material impact on yard productivity, and these systems have not only been evolving, but are increasingly better communicating and integrating with each other. BNSF recently brought the Service Design function under Transportation. This has materially accelerated the improvement cycle in terms of adjusting the operating plan to better mesh and evolve with yard operations.”
“Katie [Farmer] has known Ed for quite a while as they were COOs at the same time, and Matt Igoe, our current COO, thought it would be beneficial to have an outside perspective on our efforts from an industry practitioner with merchandise experience,” Anderson said. “That is something we have done across our history, reflecting our commitment to continuous improvement. Ed has deep experience in merchandise operations, and he has provided great insight on ways we can continue improving our merchandise customers’ service experience.”
Rod Case, a rail industry icon who recently retired from Oliver Wyman, commented on the WSJ article to a small circle of colleagues (of which I’m fortunate enough to be included): “All of you know me to be a tireless advocate of carload, but the crushing reality is market share continues to drop as curating carload is in vogue to counterbalance the high OR of intermodal. That business model is structured to shrink total volumes, not grow. The WSJ would be better served by elevating the debate around mid-60 OR targets engendering carload growth than this piece that argues that it is simply a cost problem at BNSF.”
