Canadian Pacific, PSR and the post-Hunter Harrison era — analysis by Tony Hatch

On Oct. 4, Canadian Pacific held its first Investor Day in the post-Hunter Harrison (PHH) era — and the first in several years — to great pomp and circumstance (à la E. Hunter Harrison, or EHH). There was plenty of news that came out of the conference — pre-announced Q3/18 earnings (above consensus), financial targets labeled “conservative” (of course), exciting commentary on the precision scheduled railroading (PSR) playbook and its transferability (maybe), as well as on consolidation (although I vehemently disagree). But I also checked in with shippers, other carriers, interline connections and others afterward to put what I saw and heard in snowy Calgary into perspective.

Message-driven. There were several phrases we heard often: “rebuilt engine” (PSR-improved rail ops); playbooks (holistic looks at combining ops and marketing — and market reach and technology to capture or recapture business); “disciplined approach” to growth; and, especially, “constructive tension” (say, to demand excellence or determine a major investment). Each of which enables CP to “pivot to growth” (‘nuff said).

Post-Hunter. There were traces of Hunter everywhere, notably in Keith’s commentary, calling EHH the “G.O.A.T.” of railroading. Copies of his bio “Railroader” were stacked up at the meeting, held at the very site named for Harrison. And make no mistake: CP remains an operations-driven company, as Creel put it. But there also were PHH signs everywhere. VP of Intermodal/Automotive Jonathan Wahba, who worked at rival CN in the Claude Mongeau era, joined CP last year because, as he put it, “CP under Keith Creel was a different CP.” Different from what, or whom, exactly, was unsaid. Under Hunter, CP had no CMO; under Keith, CMO John Brooks and team led the show, along with CFO Nadeem Velani (it was an investor conference, after all).

PSR to PHH. To me, the main takeaway was CP’s PSR-to-PHH evolution in three stages — from pre-2012 to the 2012-16 operationally driven (PSR revolution) period, pivoting (2017 and beyond) to “Sustainable, Profitable Growth,” the classic PHH model I think we see at CN and the one developing quickly at CSX. This “dramatic evolution” was the theme CP wanted to impart.

Is the PSR-to-PHH playbook transferable? Those of you who attended RailTrends 2017 may recall the exchange between CP’s Brooks and former CSX VP-Industrial Products Mike Rutherford, who denied that a railway needed to go through these distinct phases. Rutherford argued they could grow and remain in sync with all their stakeholders while undergoing PSR transformation — that proved not be the case for CSX in 2017, although the railroad now is moving fast into the early PHH stages. Brooks argued, as Creel did forcefully in Calgary — and as Hunter did throughout his career — that revolutionary change required a driven leader with board support; a painful and radical cultural change; and full, accountable focus and a drive to execute. Can an existing management make this change? That was a question this Investor Day audience wanted an answer for.

Omaha: Investors also were thinking about Union Pacific’s recent announcement that it, too, was adopting “PSR principles” — and the room’s feeling that “PSR-Lite,” as they saw the measured approach UP’s espousing, was problematic. I wonder, however, whether UP is going PSR-Lite or PSR 2.0 — an attempt to bring other stakeholders on board during the changes rather than after an “under new management” revolution. Although the PSR playbook in this case is more cultural than specific, an insider from a strong railroad culture has yet to lead the change required in PSR — Hunter replaced management at CP and CSX. Could the same folks in an insular, historic culture at UP change themselves? One prominent railroad insider suggested the measured approach UP is taking was feasible, adding that UP already was studying some radical network and operations steps. Meanwhile, investors at the meeting noted that other carriers seem to be at least humming, if not yet singing, from the PSR hymnal (e.g., Norfolk Southern’s recent remarks and interpreting, without substantiating evidence, the retirement of BNSF Chairman Matt Rose as Berkshire’s PSR push).

Can’t get enough PSR-PHH? Neither can we. 
RailTrends 2018 is a PSR-PHH love fest, starring many of the major actors in the drama — UP CEO Lance Fritz, CSX CEO Jim Foote, CN CEO JJ Ruest and the aforementioned Mr. Velani. For more information, visit railtrends.com.