Over his career Hunter Harrison ran four railroads: Illinois Central, Canadian National, Canadian Pacific, and CSX. His gospel was Precision Scheduled Railroading. He’s usually credited with the PSR idea, although we can’t overlook the role of “Pisser Bill” Thompson in formulating the concept. “Pisser Bill” was called that because wherever he was on the railyard, if he had to piss, he would take his dick out and piss all over the place. That’s what railroading was like when Hunter Harrison began his career oiling traincars.
Harrison kept score by one main metric: operating ratio. Operating expenses divided by revenue. He cared about other numbers of course, but only as to how they’d affect operating ratio. You want a lower operating ratio: less dollars spent for every dollar earned.
Harrison focused on the numerator: expenses. He was obsessed with smart use and purchase of assets. One of his sayings was that an unused asset is a liability. When he found unused assets he shed them. On the Illinois Central, which runs from Chicago to New Orleans, there were two parallel tracks. Hunter got rid of one of them. He wanted to save the cost of maintaining it. (Sidings were kept so two trains didn’t run into each other). He knew pricing would take care of itself because the railroad is almost a monopoly. He didn’t care much about customers. He saw some stickers once at a BNSF yard that said “the customer is always right.” He had them torn down. Ignoring customers caused him some problems politically, especially in Canada, but it didn’t stop him from getting the operating ratio down.
Harrison was a fanatic about trainyard efficiency. He rose up as a trainmaster in the Frisco yard in Memphis. Although he never went to college, Harrison had a pure mind for railroad management. When Sue Rathe introduced him to a new world of computerized data at Illinois Central, he immediately understood the potential and how to use it. (Although no one would argue Harrison could not be gruff, Rathe tells us not to miss the gentlemanly side. Harrison encouraged people with potential. His bookshelf was full of memoirs of great coaches, he viewed himself as a coach, he used coaching metaphors.)
As CEO, Harrison got the Illinois Central’s OR down from like 90% to mid 60s. The employees didn’t always like him for it. But they came to respect him. The alternative might’ve been bankruptcy.
What produced results was the approach he would preach for the next two and a half decades – what train velocity does for efficiency, what longer trains mean for efficiency, and on and one. He saw better processes for everything, base hit after base hit.
There’s not much about this point in the book, but I wonder if Harrison had one key world historical insight. Railroading had changed. The Staggers Act of 1980 deregulated railroads. After that there was some nominal oversight but really the railroads could charge whatever they wanted. (The Staggers Act was meant to be anti-inflationary, it was signed by President Carter).
The news that railroads were now, like, businesses hadn’t caught on. Railroads still acted like federal bureaucracies. Everything was inefficient. The labor force was notoriously lazy, naps and “leave earlys” were common, drunkenness not unknown.
That was in the US. Up in Canada mind, CN at this time was still nationalized! In fact not even nationalized, it was a “Crown corporation,” legally speaking it was more or less Queen Elizabeth’s personal plaything.
Harrison realized (if I understand the book right) that pricing would take care of itself. Don’t even think about it, charge whatever. Focus on cutting costs and moving cars (cars, not trains, a key point). You’d make huge gains in operating ratio. That would get reflected in the stock price, and ultimately in Harrison’s personal compensation. By the time he was done he’d personally made something like $500 million, which he used on estates for show horses in Connecticut and Florida, filling trophy rooms.
It wasn’t just having the insight though. Harrison had the combo of skills to execute. No easy job. There was a lot of what he called mud to scrape away. He was not shy about confrontation. During some lost years as a young man he once woke up in a pool of his own blood after a bar fight. He took that attitude into his railroads.
Activist investor Bill Ackman saw the possibilities. He took a big position in Canadian Pacific and fought to get Harrison appointed CEO. After some board room battling, Ackman succeeded.
When Harrison took over CP in 2012, he went up the offices in Calgary. It was the week of the Calgary Stampede. Hardly anyone was at work.
“It’s Stampede,” said one of the secretaries.
“Who gives a shit it’s Stampede? This company hasn’t made a penny and we’re worried about Stampede, having a few shooters at noon?”
Harrison turned CP around, starting with the mailroom, where he was disgusted to find a box being FedExed to a destination eight miles away. By then he’d run two railroads. He had a playbook. It was almost too easy for him. In eighteen months he brought the OR down from 81% to 65.9%. Two and a half years later, CP’s OR was 59.8%. He had the railroad using 40% fewer locomatives, he’d closed yars, he was increasing velocity and train length without sacrificing safety (although absolutely sacrificing love from the work force, which he reduced by about four thousand).
For this reader, the least engaging part of Railroader: The Unfiltered Genius and Controversy of Four-Time CEO Hunter Harrison by Howard Green came as Harrison was exiting CP to run CSX for a final act of his career. The details about board politics and compensation packages just weren’t as thrilling as turning around a railroad. I can see why Green devoted so much time to this period, however. He’s an anchor on Canada’s Business News Network, and he had access to Harrison during this time. There was some resentment of Harrison’s manner at CP. Harrison himself acknowledged to Green that he’d mistakenly assumed Canada was just like the USA, and Canadians just like Americans, but the business culture there was smaller, closer, and more sensitive, less blunt.
By the time Harrison left CP and went to fix up the “spaghetti-like” CSX*, his health was in rough shape. He took over CSX in March, 2017, and died that December. His ashes were scattered in the Memphis railyard.
Green sums up Harrison’s worldview on page one:
He reshaped an industry by literally making the trains run on time. While Sir Richard Branson advised executives to focus on employees first, customers second, and investors third, Harrison reversed the priorities: investors came first. For him the game was capitalism, pure and simple. You either played it or you didn’t.
Harrison’s legacy lives on. His protege Keith Creel is now CEO at Canadian Pacific. Bill Ackman is taking another bite of that apple. The question is: has Harrison’s Insight is already played out? The operating ratios for all the major railroads now are in the high 50s and 60%s. Some of those numbers include real estate sales. The railroads were given a great deal of land to induce them and help them build, much of it indigenous land, a continued resentment.
Are these railroads just now juicing their numbers by scrapping off their parts? Is that the ultimate end of capitalism, for a corporation to achieve ultimate efficiency and then begin consuming itself, or rather allowing the shareholders to consume it in a cannibalistic ritual?
I should confess/disclose I myself am long CP and UNP and (through Berkshire) BSNF. Good luck building another transcontinental railroad. Canadian Pacific was built in five years. California will take longer than that to go from Bakersfield to Merced, although in fairness we’re not importing 15,000 Chinese laborers nor will the deaths of 600 people be acceptable. Both CP and the UNP were built with the aid of corrupt schemes. Corrupt schemes may still be rampant but they’re less effective, at least in North American railroad building.
Throughout this book are accounts of high stakes dinners and meetings at places like the Mount Royal Club in Montreal or The Breakers in Palm Beach. I know I’m not cut out to be a railroad CEO because I was reading and thinking, sure, sure this is a faceoff over control of the board but: what’s the food like? What’re people eating? I wanted the flavor! One meal that got my attention was a hasty conference at a Chick-Fil-A near Atlanta. That was the kind of food Hunter Harrison liked.
Cheers to Alex Morris, @TSOH_investing on Twitter, I think that’s how I heard about this book. I read it because I wanted to learn a bit about running a railroad, and I did!
* an example of Harrison’s mind: he could look at the map for CSX railroad and see that “stripped down, CSX wasn’t spaghetti; to Harrison it was more or less a square” with the corners being Selkirk, NY near Albany, Willard Ohio (60 miles south of Toledo), Nashville Tennessee, and Waycross, Georgia.
“The country is grouchy and wants someone to tell them when normal comes back,” said Chad Rogers, a Conservative adviser and founding partner at Crestview Strategy.
from this Bloomberg piece on Canada’s election, “Trudeau Has 12 Days to Salvage His Career After Election Blunder,” by Theophilis Argitis. The blunder was calling an election at all, hoping to consolidate in the wake of a “successful” pandemic. That didn’t work. I wouldn’t want to be a prettyboy politician at the moment, Newsom or Trudeau, it’s not the mood.
If you’re an American and you haven’t seen Erin O’Toole yet, then first picture “Erin O’Toole” and then look up a picture of the Conservative leader.
up in Canada. I’d tell you the name of the restaurant but you’d think it was a joke.
Very cool place: MOA – Museum of Anthropology, on the campus of University of British Columbia in Vancouver.
My feet were kinda messed up (from walking?). Mentioned this to my friend Hana. She knows how to bring forth bounty from the Earth, I knew she would have some wondrous cure. She thought about it and came back with this medicine they use for messed up cow udders.
Gotta say it seems like a miracle product.
It’s got to go to Victoria, British Columbia’s Lisa Helps.
Mayor Lisa Helps has a very cool city she’s entrusted with.
Design of Big Wheel Burger by our buds at Caste Projects
More about Victoria can be found in A Trip To Canada.
just reviewing some good times summer mems.
I thought the UK Remain camp would win in the Brexit vote, because I could remember following the 1995 Quebec separation referendum. (What teen boy isn’t mesmerized by Canadian politics?) Canadian Tanya Krywiak remembers:
It was a night many will never forget. Twenty years ago, on Monday, October 30, 1995,citizens across Quebec went to the polls to decide the future of their province — and Canada.
The 1995 Quebec vote seems like an apt analogy to Brexit. Really close, emotional, a kind of impractical vote that came to pass due to political posturing. And then:
An astounding 93.5 per cent of those eligible turned up to vote either yes or no to sovereignty. At 10:20 p.m., the “no” side was declared the winner with 50.58 per cent.
Quebec voted, just barely, to remain in Canada.
At the time the narrow win for No was partly chalked up to the huge Unity rally and similar rallies across Canada:
The Unity Rally was a rally held on October 27, 1995, in downtown Montreal, where an estimated 100,000 Canadians from in and outside Quebec came to celebrate a united Canada, and plead with Quebecers to vote “No” in the Quebec independence referendum, 1995 (held three days after the rally). Held at the Place du Canada, it was Canada’s biggest political rally until 2012.
Highlighting the celebrate a united Canada part. Because maybe that’s what the Remain people in the UK failed to do.
The Canadian Unity Rally was a celebration, it was for something, even just a feeling and a song. It countered an emotional argument with an emotional argument.
There was something exciting and satisfying about exiting the EU. Did the Remain people offer anything to celebrate?
In fairness there’s not a ton there. I mean the EU’s flag sucks:
There’s no good song, either. (There’s the “Anthem of Europe” I guess).
Compare that to the 1995 Unity rally. From the NY Times:
150,000 Rally To Ask Quebec Not to Secede
By CLYDE H. FARNSWORTH
Published: October 28, 1995
MONTREAL, Oct. 27— In an eruption of national pride, tens of thousands of Canadians poured into Montreal from across Canada today to call for unity and to urge Quebec to remain part of their country.
At the Place du Canada in downtown Montreal, a crowd estimated at 150,000 waved the maple leaf flag of Canada and the fleurs-de-lis flag of Quebec and sang the national anthem, hoping to convince the Quebecers to vote No on Monday in their referendum on whether their province should secede from Canada.
Take this to the most visceral level. In the Trump vs. Hillary election, if you’re undecided, which side feels more emotionally satisfying?
Voting for Obama was emotionally satisfying, a celebration:
Role Play: you are Hillary’s top advisor (or Hillary herself). How do make a vote for Hillary feel like something more emotionally satisfying than anti-Trump? A celebration of what’s best about the USA?
Feel like she did a decent job of this with the help of both Obamas at the DNC:
Sweet! A package arrived!
Let’s see what I got…
Oh, it’s Kayak Full Of Ghosts: Eskimo Tales, gathered and retold by Lawrence Millman. Let’s hear what Millman is up to:
You know what, let’s just jump right in and read one of the stories:
Well, lots to think about. Thanks to Dan Vebber for putting me on to Millman.
Lucy from Trailer Park Boys is now a captain in the Royal Canadian Air Force.