E. HUNTER HARRISON, a veteran railway executive, tried retiring in 2010, after he made Canadian National (CN), a formerly state-owned company, the best-performing of the large railways in North America. But once he pocketed the gold watch and attended the retirement party he faced a void that raising and training horses for showjumping did not fill. By mid-2012 he was back at the helm of another railway, Canadian Pacific (CP), whose glory days were long past. Once he had turned around CP, he didn’t make the same mistake again. On January 18th the 72-year-old Tennesseean both announced his departure and entered negotiations with Florida-based CSX to become that railway’s CEO.
Just the rumour that Mr Harrison might be moving to CSX caused the share price to rise by 23% in 24 hours. It continued to rise when the negotiations became public. At last, on March 6th, CSX appointed Mr Harrison as CEO and met the condition set by Mantle Ridge, an activist hedge fund with which he has partnered, to name five new board directors. Mr Harrison made long-term shareholders in CP and CN rich, tripling profits at both during his tenures. CSX shareholders expect the same.
Will he deliver? CSX is different from the railways Mr Harrison has run in the past. Its 21,000-mile network is concentrated, spaghetti-like, in heavily-populated eastern America, unlike the linear, continent-spanning networks of roughly similar total length that are operated by CN and CP. And he faces two new and potentially damaging headwinds: the decline of coal, a mainstay of railway-freight volumes; and Donald Trump’s views on trade. Both could seriously disrupt business on North American railways.
Mr Harrison certainly knows the industry inside and out. He reportedly started out lubricating the undercarriage of railcars for $1.50 an hour and worked his way up at Burlington Northern before leaving to work for Illinois Central. He joined CN when it bought Illinois Central in 1998. Along the way he became an evangelist for precision railroading, his concept that freight trains should run on a strict schedule regardless of whether they are near-empty or full. This went against the prevailing trend of adding more locomotives and cars and leaving their schedules flexible. Operating fewer trains, but on time, Mr Harrison showed, meant greater efficiency and better service for customers, who know when their shipments will arrive.
Another part of precision railroading is ditching old equipment and slashing staff. Mr Harrison retired 700 locomotives, or two-fifths of the fleet, at CP; about 6,000 of 20,000 jobs disappeared, largely through attrition. This earned him the ire of some unions, which also questioned the impact on safety of time-saving measures like allowing staff to jump on and off (slow-)moving trains or insisting that managers drive trains if no other staff were available. This reduced some managers to tears, says a former employee: “They weren’t afraid of driving the train, they were afraid of crashing it.” Mr Harrison thought the hands-on experience would help them do their desk jobs better.
CSX is in better shape than either of his previous two charges. CN was government-owned until 1995 and was hobbled by bureaucracy. CP, created to tie Canada together with a line extending to the west coast, was the laggard among the big North American railways when Mr Harrison arrived. Its operating ratio (operating expenses as a percentage of revenues) was 81.3 at the end of 2011. By 2016 it had been driven down to around 60, although some people quibble that one-off sales may have flattered the ratio. CSX had an operating ratio of 69.4 in 2016, and is already making many of the moves Mr Harrison has used elsewhere, like increasing the ratio of cars to locomotives and cutting staff.
As for coal, revenues from the commodity fell by nearly $2bn to $1.7bn between 2011 and 2016. Further falls are expected. The main replacement as a source of revenue is intermodal container freight carrying all manner of goods. Here Mr Trump is a problem. His proposed renegotiation of the North American Free-Trade Agreement (NAFTA) is creating alarm in the industry. Re-imposing borders in the North American market would have a “tremendously negative effect”, says William Vantuono, editor-in-chief of RailwayAge.
Accepting the job, Mr Harrison confirmed that he will bring precision railroading to CSX. Might he have grander ambitions? Mr Vantuono believes that his ultimate goal is to arrange one of the mergers that eluded him in the past and to create a transcontinental railway. Others think he just wants to show—again—that his way is the right way. “There isn’t a railroad that Hunter Harrison couldn’t improve,” says Anthony Hatch, a New York-based analyst. But it will be difficult to repeat his previous successes or to match sky-high shareholder expectations.