September 16, 2019 BARRON’S 25
road investor meeting. That is true even for War-
ren Buffett’s railroad, Burlington Northern Santa
Fe, which was bought byBerkshire Hathaway
(BRK.B) in 2009.
The giant Western railway has been reluctant
to worship at the altar of precision railroading, ar-
guing that PSR’s service changes would antagonize
BNSF customers. The railroad has grown revenue
nicely—its top line rose 11.5% in 2018—but at
Berkshire’s latest annual meeting in Omaha, Neb.,
investors asked Buffett why BNSF’s operating ra-
tio was 67%, compared with less than 63% at West-
ern rival Union Pacific.
Buffett conceded that there might be something
to learn from precision scheduled railroading. He
then turned to his longtime partner, Charlie
Munger. “Well, I doubt that anybody is very inter-
ested in imprecision in railroading,” Munger said.
Others are more enthusiastic about the cost-
cutting doctrine. In January, Union Pacific an-
nounced the hiring of precision railroading expert
Jim Vena as its chief operating officer. The news
lifted Union Pacific stock 9% in a day and added $9
billion to the company’s market cap.
The mantra of precision railroading continues
to be the talk of the industry. According to statis-
tics from research service Sentieo, the phrase
came up 23 times during a recent Union Pacific
presentation, 34 times at a Kansas City Southern
conference, and 47 times at Norfolk Southern’s lat-
E. Hunter
Harrison
The late
Canadian
National CEO
was the father
of precision
scheduled
railroading,
transforming
a lumbering,
state-owned
railroad into the
most efficient
company in
the industry.
est investor gathering.
Union Pacific declined to make Vena available
for an interview. But since it unveiled its version of
precision scheduled railroading last year—a strat-
egy it calls the Unified Plan 2020—Union Pacific
has reduced its use of switch yards, lengthened
trains by 10%, and cut head count 6%. Its operat-
ing ratio has dropped to 60%, and the company
thinks it can ultimately get to 55%.
Norfolk Southern announced a productivity plan
called TOP 21 at its February investor meeting. By
shedding 500 locomotives and 3,000 workers, the
Virginia-based railroad aims to reduce its operat-
ing ratio to 60% by 2021, from 64% today.
Before the new plan took effect in July, the
company held town hall meetings across its net-
work to explain the service changes to customers,
says its chief marketing officer, Alan Shaw.“Our
customers are very, very happy with the service
improvements we’ve made,” he tellsBarron’s.
Precision railroading gets most of the credit for
the railroad profit revival, but price increases have
played an unappreciated part. Union Pacific has
steadily raised prices at a rate in excess of infla-
tion. Higher prices have also been an integral part
of a “yield up” strategy at Norfolk Southern, as it
aims to increase its revenue per railcar.
The subject of prices is sensitive, given the indus-
try’s history of monopoly and regulation. At a May
hearing of the federal Surface Transportation Board, Colin McConnell/Getty Images
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