1. Introduction: The Efficiency Revolution and KCS's Strategic Choice
The North American rail industry has undergone an "efficiency revolution" driven by Precision Scheduled Railroading (PSR). This operational model focuses on streamlining processes, optimizing asset utilization, and strict adherence to schedules to reduce costs and improve service quality. While most major railroads have embraced PSR, Kansas City Southern (KCS) has adopted a more measured approach, carefully observing the transformation of its key interchange partner Union Pacific (UP) before determining how to implement PSR principles in its own operations.
2. The Rise of PSR: An Industry Transformation
Precision Scheduled Railroading, pioneered by the late Hunter Harrison, has become the dominant operational philosophy in North American railroads. Harrison successfully implemented PSR at both Canadian National (CN) and Canadian Pacific (CP) before bringing the model to CSX Transportation in 2017. Despite initial service disruptions, CSX's eventual success with PSR led to widespread adoption across the industry.
By late 2018, five of the seven Class I railroads in North America had either fully implemented or adopted principles of PSR. The model emphasizes:
- Process simplification
- Improved asset utilization
- Strict schedule adherence
- Centralized operations
- Cost control
3. KCS's Cautious Stance: Evaluation Before Implementation
KCS CEO Patrick Ottensmeyer has emphasized that while the company recognizes the value of certain PSR principles, it won't simply copy UP's approach. KCS's unique cross-border operations connecting the U.S., Mexico, and Canada through NAFTA corridors require careful consideration of how PSR elements might affect its specialized service model.
The railroad's leadership believes PSR isn't a universal solution and that its effectiveness depends on each railroad's specific characteristics and operating environment. KCS is particularly focused on:
- Maintaining service quality for cross-border customers
- Adapting to UP's operational changes as its primary interchange partner
- Preserving the flexibility needed for international operations
4. Learning from UP's Transformation
As KCS's largest interchange partner, UP's PSR implementation directly impacts KCS operations. Chief Operating Officer Jeffrey Songer noted that while UP's changes may require adjustments to KCS's scheduling, they also present opportunities for process improvements.
Ottensmeyer has stated that KCS must work closely with UP and in some cases "follow UP's lead" due to the significant volume of interchange traffic between the railroads. This relationship creates both challenges in adapting to UP's new operating model and opportunities to learn from UP's PSR experience.
5. Adopting Principles Without the Dogma
KCS has chosen to implement select PSR principles rather than adopting the full model. The company has already incorporated elements such as:
- Enhanced schedule precision
- Improved asset utilization
- Lean process improvements
This selective approach allows KCS to maintain its cross-border service advantages while still achieving operational efficiencies. The strategy reflects the company's belief that railroads must adapt PSR to their specific circumstances rather than applying it as a rigid template.
6. The BNSF Alternative: Service-Focused Operations
Burlington Northern Santa Fe (BNSF) represents an alternative approach, having maintained its service-focused model without fully adopting PSR. BNSF's success demonstrates that excellent operational performance can be achieved through different strategies.
Analysts note that BNSF's example proves PSR isn't the only solution to operational challenges. KCS appears to be taking lessons from both the PSR adopters and BNSF's service-oriented approach as it develops its own path forward.
7. Cross-Border Challenges: Growth and Congestion
KCS faces unique operational challenges in its Mexican cross-border operations, where rapid economic growth has led to network congestion. The company reported $7 million in additional costs during one quarter due to congestion-related equipment, labor, and overtime expenses.
Addressing these bottlenecks requires:
- Infrastructure investments
- Optimized scheduling
- Enhanced coordination with Mexican authorities
8. Conclusion: Measured Progress and Continuous Improvement
KCS has chosen a prudent path through the PSR revolution, carefully evaluating which elements to adopt while preserving its cross-border service advantages. The company continues to face challenges from UP's transformation and Mexican congestion, but its measured approach positions it to adapt effectively.
As Ottensmeyer acknowledged, "Our current service levels don't meet our own expectations or those of our customers, and our operational efficiency hasn't kept pace with business growth. We are committed to continuous improvement." This statement encapsulates KCS's balanced approach to navigating industry changes while serving its unique market position.