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February 2010
By Jeff Stagl, Managing Editor
While studying business at Indianapolis' Marian College in the late 1960s, John Giles didn't envision a career in railroading, let alone the short-line industry. But when a friend got a summer job at the Baltimore & Ohio Railroad (B&O) in 1968, his perspective changed.
"He told me what kind of money he was making, and it was good money. It sounded good to me," says Giles, who currently serves as RailAmerica Inc.'s president and chief executive officer.
Yet, it wasn't only the paychecks that kept Giles in the rail industry long after he got his own summer job at the B&O in 1969. It was the independence associated with being a worker in the field, something Giles came to appreciate in the early 1970s as a locomotive engineer running his own train between Indianapolis and Decatur, Ill.
"You're out there on your own, totally unsupervised, and I got attracted to it," he says.
Giles, 60, has tried to be an independent thinker who elicits collaboration during his 40-plus-year railroading career, which includes a stop at the Elgin, Joliet & Eastern Railway Co. (EJ&E), a long stay at CSX Corp. and its predecessors, and a short stint as CEO of Great Lakes Transportation L.L.C. (GLT). In the process, he's left his own marks on the Class I and short-line sectors, from helping form CSX's marketing department and developing its strategy, to establishing GLT and boosting its earnings, to making RailAmerica a more centralized and efficient operating company, and taking the short-line owner public.
Giles credits his diverse experiences — and two mentors — with providing him the necessary skillsets to register results at GLT and RailAmerica, including sustained profitability.
He began to follow the diverse-career path while serving as a transportation inspector, trainmaster, and manager of movement and distribution for the EJ&E from 1975 to 1980 — the year he received a masters degree in business from Indiana University. Giles later took a management buyout at the "J" and began working for transportation consulting firm Phillips Brothers in New York City. He consulted on export coal movements.
"I understood railroading and economics, but had to learn where the coal was," says Giles. "It taught me not just more about the B&O, but about most railroads in the country."
While consulting, he met Pete Carpenter, a Chessie System Inc. senior VP who later became CSX's president and CEO. Carpenter recruited Giles to serve as Chessie's VP of coal.
A few years later, Carpenter called on Giles again to help form a separate marketing department in addition to the existing sales department.
Giles came to admire Carpenter's collegial and relaxed management style.
"He was open and congenial, and fun to be around — it was a good way to be a leader," says Giles.
Through the 1980s — which included the merger of Chessie and Seaboard System Railroad Inc. into CSX — and into the 1990s, Giles served stints as head of intermodal, manager of the automotive business unit, assistant VP of planning, and VP of planning and performance improvement.
In the latter post, he analyzed inefficiencies and sought ways to improve operations. Giles helped create 14 performance improvement teams and benchmark other Class Is that were "best at locomotive repair and maintenance," he says. The job was a valuable tutorial on "anything that held money," says Giles.
"We took $450 million out of the company in less than three years," he says. "I also learned an enterprise in holistic fashion, from operations to sales and marketing to economics to pricing — really, how it all works."
In 1995, Giles became CSX's VP of sales and marketing. As the Class I progressed toward the Conrail integration in 1999, former CSX Executive VP and Chief Financial Officer Paul Goodwin handpicked Giles to head strategic planning. Giles respected Goodwin's decision-making skills.
"Paul is bright and analytical," says Giles. "I learned logical problem-solving from him, and how to have your hand on the rudder of a firm from a financial standpoint."
Giles worked with CSX's most senior-level executives and displayed an admirable tenacity as a strategic planner, says Goodwin, who retired from the Class I in 2003 and now serves on RailAmerica's board. Giles molded himself into a non-rigid, thoughtful leader who insists on getting results — and will break down department silos to do so — but also is laid back and fun to work with, says Goodwin.
"He's a taskmaster in the sense of demanding the level of work he expects and challenging people, but he doesn't pound the table," says Goodwin. "He takes an intellectual approach to a problem, yet is relaxed, and people enjoy working in that environment."
Post-Conrail, CSX senior brass didn't display the "same work ethic" as prior to the integration, and the "culture and energy level changed," says Giles.
So, he decided to retire from CSX in 1999. He took time off, then was approached by a recruiter about a major investment involving The Blackstone Group.
The private equity firm was involved in a deal to acquire transportation assets from U.S. Steel Corp. Blackstone wanted Giles to become president and CEO of the company, GLT, that would be formed to manage the assets, which included the Bessemer and Lake Erie Railroad, Duluth, Missabe and Iron Range Railway, Great Lakes Fleet Inc., and Pittsburgh & Conneaut Dock Co.
"The chance to run my own company was intriguing," says Giles.
While serving as CEO from 2001 to 2004, he helped improve safety at the four subsidiaries and boosted the company's earnings by 50 percent.
"All my experience and knowledge came together from the past 15 to 20 years," says Giles. "I saw this as a chance to make the companies performance oriented and create value."
In 2004, GLT's performance attracted the attention of CN, which acquired the company for $380 million. Out of a job again after the acquisition, Giles took time off, but eventually became bored, he says.
He contacted former RailAmerica President and CEO Charles Swinburn to talk about the company and a potential opportunity. Giles eventually became a "catalyst" to Fortress Investment Group L.L.C.'s acquisition of RailAmerica and Florida East Coast Railway, he says. Fortress relied on Giles' financial and railroading acumen while developing the deal.
In 2007, Fortress named Giles president and CEO of RailAmerica — which currently owns and operates 40 U.S. and Canadian regionals and short lines — to succeed Swinburn, who retired.
"I knew how to change RailAmerica into a performer, like at GLT," says Giles, who credits his team of general managers and field supervisors with helping forge an efficient operating company. "We've had a terrific run."
In 2009, that run included two key events: the acquisition of permanent financing and an initial public offering (IPO). The permanent financing for $740 million in debt replaces a short-term bridge note, a temporary form of financing. The IPO, which occurred in October, provides RailAmerica greater access to credit markets, generates capital for potential acquisitions and creates liquidity, says Giles.
In addition, RailAmerica last year increased profits even though traffic dropped 18 percent, says Goodwin.
"Those two things don't go together," he says. "[Giles] is hitting home runs again."
Giles hopes to hit a few more in 2010, such as by offering shippers new electronic tools and a better customer service center, says Giles.
"We will all get out and get back to the customer, and re-energize our hearing aids," he says.
Looking back over his long career, Giles believes he's more tuned in as a short-line problem solver.
"If there's a problem at one of our 40 railroads, I can get on an airplane, meet with the GM and staff, get a handle on the problem, and come up with recommendations and remedies that can be implemented tomorrow," he says.
To foster a team approach to eliminating problems and to prompt results — be it driving up profitability or driving down the operating ratio — it helps to be a taskmaster with a light touch, Giles believes. So far, the proof's in the pudding.
"I'd like to think I elevated the operational performance and reputation of RailAmerica," says Giles.
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