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Rail News Home Union Pacific Railroad

October 2011



Rail News: Union Pacific Railroad

Profile: Kansas City Southern's Mike Haverty, Progressive Railroading's Railroad Innovator Award winner



— by Pat Foran, Editor

To Mike Haverty, forging an intermodal partnership with a truckload carrier was a no brainer. Thinking north-south in an east-west rail world? Stone-cold obvious.

As president of the Atchison, Topeka and Santa Fe Railway in 1989, Haverty brought together two unlikely business partners by initiating the J.B. Hunt and Santa Fe intermodal service. And after taking the reins at Kansas City Southern (KCS) in 1995, Haverty repositioned the railroad as a north-south carrier via the KCS-Transportación Marítima Mexicana joint venture's $1.4 billion bid in 1996 for Mexico's Northeast Railway, in which KCS acquired the controlling interest in 2005.

"I don't consider any of this as great innovation," says Haverty, KCS's executive chairman, referring to piecing together the NAFTA Railway, but he could have been talking about almost anything he's accomplished in his nearly 50-year rail career. "To me, things have to be logical. They have to make sense. All of what we've done is pure logic."

Perhaps. But just because someone can see something crystal clearly doesn't mean everybody else can — especially if you toil within an industry that Haverty characterized to Progressive Railroading a decade ago as prone to having "a kind of herd mentality."

Steering clear of the herd and convincing other links in the chain to do the same, then finding ways to execute game plans is no mean feat — however obvious the problem or logical the solution may seem. And in that regard, Haverty's got a knack for making innovation seem run of the mill. He's a strategic thinker who's able to read between the North American rail map's lines, make sense of what he's read and plan accordingly. He's a railroader's railroader who executes with a tenacity all his own, colleagues and peers say.

Ultimately, it's his unwillingness to get caught up in what's conventional and/or what isn't, and his relentless focus on what makes sense — and the success he and his railroads have had, as a result — that prompted Progressive Railroading to name Haverty, 67, the recipient of our 2011 "Railroad Innovator Award." He'll receive it at our annual RailTrends® conference, which will be held Nov. 1-2 at the W New York Hotel in Manhattan.

"What really singles Mike out is he has brought a singular vision and focus — particularly in his role at KCS — and that focus has made that company what it is today," says Wick Moorman, chairman, president and chief executive officer of Norfolk Southern Corp., which since 2006 has been a joint-venture partner with KCS on the Meridian Speedway, one of the fastest-growing intermodal lanes in the United States. "For him to come up with a vision of what his company could be, and then to execute on that vision — a vision that, when he started out, wasn't that popular — I always say I'd never bet against Mike Haverty. His [ability] to overcome obstacles is remarkable."

A Singular Focus

Haverty honed his hurdling skills where the Haverty clan settled — in Atchison, Kan., a city rich in rail history. The Atchison & Topeka Railroad, which parallels the Santa Fe Trail, was chartered in Atchison in 1859; "Santa Fe" was added to the railroad's name in 1863, according to a BNSF Railway Co. historical overview posted on the Class I's website. By 1872, eight railroads terminated within Atchison.

"Right after the Civil War, they were recruiting a lot of people to come out and build the railroads," Haverty says. "A lot of the people who came were Irish Catholics from the eastern U.S."

Among them: Haverty's great-grandfather, Thomas, a carpenter who came to Atchison in 1865 from Washington, D.C. The railroad Thomas Haverty, as a bridge and building foreman, helped construct? The Atchison & Pike's Peak Railroad, which later would become the central branch of the Union Pacific Railroad — and, by 1899, the Missouri Pacific Railroad.

In the 1950s, the Havertys resided on Atchison's west side. Haverty's grandfather, Thomas Haverty Jr., was a conductor. Haverty's father, Harold, also was a conductor for the Missouri Pacific. The Havertys lived in a brick house a couple blocks from the rail yard. Next door were the Sullivans, who lived in an "identical" brick house, Haverty says. Tom Sullivan, Harold Haverty's first cousin, also was a conductor.

"All people talked about, all I heard about, was railroading," Haverty says.

Although he'd promised his father he'd be the first Haverty to go to college, Haverty also was determined — "determination" and "Mike Haverty" are synonymous, colleagues say — to work for the railroad.

Haverty would keep his promise — to his father, who died in 1962, and to himself. He graduated from the University of Louisiana-Lafayette. And when he turned 19 on June 11, 1963, he passed the exam to become a brakeman for the Missouri Pacific.

That same year, his grandmother, Myrtle Purslow, died. She had raised him since his mother, Norma, died 13 years earlier.

"At that point, I knew I was on my own," he says. "I had to get focused."

On The Fast Track

For Haverty, that meant zeroing in on railroading. After graduating from college in 1967, Haverty entered the Missouri Pacific's management training program. Haverty was determined to make his mark.

"I made up my mind that I was going to be president of the railroad by the time I was 40," he says.

Haverty always thought big and his head was anything but, recalls longtime friend Paul Broussard, who went through the management training program just ahead of Haverty.

"Even then, you could see that Mike is a very humble man," says Broussard, president of Broussard Logistics, which served as a consultant to KCS from 1995 through 2008. "He doesn't stand up and say, 'Look what I've done.' His actions speak for themselves."

The first Missouri Pacific action Haverty saw, post-management-training, was in Hearne, Texas, where he served as an assistant trainmaster. His next stop was a stint as night trainmaster for the Missouri Pacific's Chicago and Eastern Illinois Railroad subsidiary, where the work days were long, intense and fast paced.

In 1970, Haverty left the Missouri Pacific to join the Santa Fe as a trainmaster in San Bernardino, Calif. A year later, he became assistant superintendent in Richmond, Calif. By 1974, he was a superintendent in Emporia, Kan. During the next decade, he continued to rise through the ranks, holding operating positions with increasing responsibilities.

"I was on the fast track," Haverty says.

Along the way, the candid Haverty — "He tells you what he thinks and why he thinks it," NS's Moorman says — also was earning respect from the railroad rank and file.

"I remember suggesting we change the location of yard engine assignments, and he went along with it and helped make it work," says Bill Lyman, an assistant trainmaster at the Santa Fe in the early 1970s. "I thought, 'Gee, he's open to suggestions.' He didn't always accept them, but he was always trying to make the railroad better."

Haverty thought "continuous improvement" in a career context, as well. By 1979, he was back in Chicago, this time as assistant to the VP of operations.

"The company wanted several people who were VPs to get their MBAs — people who were tagged as having potential to be a higher [level] manager some day," Haverty says.

He earned his master's of business administration from the University of Chicago in 1982. A year later, Santa Fe Industries and Southern Pacific Co. announced plans to merge as a holding company — Santa Fe Southern Pacific Corp. (SFSP) — and Haverty was assigned to work on the operating plan, which was no surprise to those who'd worked with him.

"There aren't a lot of people who have the grasp of rail operations that Mike does — he knows it from the ground up," says Lyman, currently a transportation consultant who worked with Haverty at KCS in the 1990s. "You don't have to explain things to Haverty. At the same time, you can't put anything over on him."

Ultimately, the SFSP deal fell through; the erstwhile Interstate Commerce Commission put the kibosh on it in 1986 and rejected an SFSP appeal in 1987.

"It turned out to be a disaster," Haverty says.

But not for Haverty. His railroad star continued to ascend. In 1989, he was named the Santa Fe's president and chief operating officer. He was 44, so he'd failed to achieve his president-by-age-40 goal. He could live with this failure. Two open-heart surgeries — one at age 33, the other at 37 — probably were to blame, he figured.

"It delayed me," he says.

Delayed but undeterred, Haverty hit the ground running as the Santa Fe's new president.

"After the SF-SP merger didn't come through, there had been some radical ideas discussed," Haverty says, noting that consulting firm McKinsey & Co. had been enlisted to help the railway chart a more profitable course. "One was for the Santa Fe to get out of the grain business. Another was to sell off everything except the mainline."

Haverty, who'd explored rail-truck partnership potential a few years earlier in his MBA thesis, had other ideas.

A year or so before taking the Santa Fe's reins, he'd suggested to the consultants that the powers that be consider partnering with truckload carriers on a premium intermodal service.

"They went to marketing and marketing said, 'That's why Haverty is in operations,'" he says.

A Historic Handshake

Meanwhile, President Haverty pressed ahead with an idea: The Santa Fe would provide the long-haul service; the trucking company, the door-to-door piece. In the fall of 1989, he took a representative from McKinsey, which counted trucking giant J.B. Hunt Transport Inc. among its clients, out on the railway.

"We got a business car and put it on the rear end of an intermodal train going from Chicago to L.A. in 48 hours," he says. "We ran parallel to I-40 in Arizona and New Mexico, and out on the highway, trucks were bumper to bumper. We were zipping along at 70 mph and the trucks were at 55. This guy from McKinsey, his eyes were as big as silver dollars. 'This is what I've been trying to tell you,' I said."

Soon, Haverty and his marketing team trekked to Arkansas to meet with officials at J.B. Hunt.

"As we were about to give our presentation, in walked this guy wearing a cowboy hat. 'Hi,' he says, ' I'm J.B. Hunt,'" Haverty says. "Hunt had been courted by a lot of railroads — everybody wanted him to be a customer. I told him we were looking at door-to-door service, and that we considered him a partner. We hit it off right away."

In October 1989, Hunt was attending an American Trucking Associations meeting at the Chicago Hilton & Towers, which was three blocks from Santa Fe's Michigan Avenue offices. Haverty asked Hunt if he'd stop by for a visit — and then take a train ride from Chicago to Kansas City. Hunt took him up on it.

"We zipped out of Corwith, which parallels I-55, and it wasn't long before we were going 70 mph," Haverty says. "By the time we got to Galesburg, Ill., Hunt was sold. 'Let's do a deal,' he said. 'You want to shake on it?'"

Shake, they did.

"The idea was to price it slightly below truck service [rates], but above normal intermodal," Haverty says. "That kind of premium service hadn't been done."

Santa Fe launched the service, dubbed "Quantum," in early 1990. It was the first major U.S. venture pairing a Class I and a truckload carrier. Quantum would net "tens of millions" of dollars worth of business in the years that followed, Haverty says.

"Mike and J.B. were visionaries," says Gil Carmichael, founding chairman of the Intermodal Transportation Institute at the University of Denver and former Federal Railroad administrator. "Haverty really has been one of the architects of our intermodal system."

What Logic Told Him

He's also been instrumental in prompting railroad strategists to reconsider conventional rail thinking and look a little closer at north-south traffic flows.

"I became enamored of Mexico when I became president of the Santa Fe," says Haverty, citing the soon-to-be enacted North American Free Trade Agreement (NAFTA) and the likelihood that heavy manufacturing would shift to Mexico. "Logic told me it could be a good rail opportunity."

Haverty's conviction that Mexico would be a key link in the transportation chain strengthened after he left the Santa Fe in 1991 and did a little consulting. Among his clients: KCS.

"I tried to convince them to expand their railroad down in Mexico," he says. "A north-south railroad made sense."

By 1995, Kansas City Southern Industries Inc. Chairman Paul Henson asked Haverty to "head up the railroad," with the idea that he'd execute his NAFTA Railway notion. Haverty felt something of a kinship with KCS founder Arthur Stilwell, who in 1887 built the north-south railroad; he signed on as the railway's president and CEO. Sixteen years, and plenty of puzzle pieces and sweat equity (not to mention the other kind) investments later, Haverty and the KCS team — "The best we've had since I've been here," he says — continue to do just that. Cross-border business now accounts for one-quarter of KCS's annual revenue, and there's potential for more. A lot more.

"That's where the growth opportunity is," Haverty says. "If we just execute what we have, we'll continue to grow."

It's that simple, Haverty says. Really.

Is it? It depends on how your mind works, colleagues and counterparts say.

"Mike takes time to sit back and think about the strategic implications of what he's doing," says Lyman, who in 1998 served as chief transportation officer for KCSM predecessor TFM S.A. de C.V. "He asks questions about why his competitors are doing what they're doing so he understands what the game plan is and can be prepared for that. That's what led him to Mexico in the first place."

And once Haverty's developed that strategic view, he's locked in.

"He'll work out all the angles to make it happen," Lyman says. "In that sense, he has a marvelous radar screen compared to his peers. And then the tenacity creeps in."

To Haverty, though, it's all about the latter. The first sentence of his bio is a quote attributed to him: "There are three keys to success: Determination, determination and determination." There's also a quote from former U.S. president Calvin Coolidge: "Persistence and determination alone are all powerful."

Persistence Personified

The sentiment was especially true during the mid-to-late 1990s mega-merger period, when rumors swirled about KCS's future as Haverty pursued the nascent NAFTA Railway strategy amid a cacophony of second-guessers ("He paid too much for the Northeast Railway concession") and naysayers ("He's overplaying his north-south hand"). Haverty heard the rumors but never listened to them.

"The top person sets the policy for what your ethics are, or how you do business," Haverty says. "And I was determined. Determined. It was not easy. You couldn't really recruit people to come here, for example, because of everything we were facing. But we just had to keep on plugging."

Plug, they did, and at KCS, the plugging continues — words like "scrappy," "pesky," "entrepreneurial" and (of course) "determined" remain apt adjectives in descriptions of the KCS approach to doing business (as well as KCS personnel). That, too, is part of Haverty's legacy, along with his singular focus and clarity of vision — regardless of his tendency to relegate the latter to see-the-ball/hit-the-ball stuff.

"His foresight is like the Vanderbilts or the Arthur Stilwells," says logistics consultant Broussard. "Mike built a railroad and, really, I don't know how he did it. I'm not sure how many others could have put that franchise together, piece by piece and in such a short period of time. It just amazes me."

 

Hatch on Haverty: He personifies the word 'innovation' (the spirit of it, too)

Editor's note: On Nov. 1, Kansas City Southern Executive Chairman Mike Haverty will receive Progressive Railroading's 2011 "Railroad Innovator Award" during the annual RailTrends® conference in New York City. RailTrends is presented by Progressive Railroading and independent transportation industry analyst and consultant Tony Hatch, who's known Haverty for more than two decades. Following are Mr. Hatch's thoughts on Mr. Haverty receiving the "Innovator" award.

"Although the first two winners of the 'Railroad Innovator Award' were surely richly deserved, our third winner perhaps personifies the wording — and the spirit — of the award best. I have known Kansas City Southern Executive Chairman Mike Haverty my whole rail analyst career, and I can say for two innovative — no, revolutionary! — acts, he almost deserves to retire the trophy.

"The first is the well-known but still under-appreciated act of getting J.B. Hunt, the man and the trucking company (that had both grown rich competing against rails), on the Santa Fe Railway and thereby starting not just that relationship so important to both companies today, but really the whole modern, high-service intermodal industry that is the spearhead of today's and tomorrow's 'Railroad Renaissance.' The impact of that alliance and all of the imitators is felt in every retail transaction, infrastructure decision and supply chain today.

"Not to be outdone, at KCS, he fought off naysayers and predictions of doom to keep his 'little engine that could' independent and now thriving, but also to create the 'NAFTA Railway' to Mexico. With near-sourcing so in vogue and the Mexican and cross-border markets humming even in this slow economy, his second innovation may almost approach the revolutionary status of his first."



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Browse articles on Haverty Mike Haverty KCS Kansas City Southern J.B. Hunt intermodal Railroad Innovator Award RailTrends Mexico rail Santa Fe Railway Atchison Topeka and Santa Fe Missouri Pacific NAFTA Railway

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