Back on track

When Charles Swinburn became CEO of RailAmerica Inc. in August 2004, he set out to tackle three problems impeding the short line railroad’s efficiency and ability to serve customers. Those concerns – safety, rising fuel prices and increased congestion on the railways – were having a negative impact on the company’s ability to grow and on its bottom line.

“We were having a spate of bad luck on the safety side,” Swinburn says. “We had too many derailments and some personal injuries across our railroad systems. My most immediate focus was safety.”

Every derailment cost the company thousands of dollars, and injuries have a direct effect on casualty expenses and insurance costs. So Swinburn began revamping the way the company approached injuries and derailments.

“On the track side, we made ourselves a lot smarter in our capital investments in track,” he says. “We spend, round numbers, $55 million to $60 million a year on track maintenance.”

It’s a matter of assessing 7,800 miles of track and prioritizing problem areas.

“We put in place a risk analysis — a determination where on our railroads there was or is the highest risk of a train coming off the track by virtue of curves, grades, condition of the track, etc.,” he says. “We began to focus on those areas and make investments at those locations.”

If the company is to continue to lower its costs, Swinburn says, employees must be better trained on how to identify those problem areas. The training budget was increased from $80,000 to $160,000 to show employees the company’s management is committed to safety, even if it means decreasing production rates.

“We put in a training program for all our train operators and conductors — the people that actually run the trains – on how they can spot places on the tracks that are not in good shape or are vulnerable to future derailments and report them so the engineering people can get out and fix them,” Swinburn says.

But safety isn’t just about the condition of the tracks. It’s also about the culture of the company. You can’t mandate safety.

“On both sides — the injury side and the derailment side — we have also taken major steps to try and change the culture,” Swinburn says. “Particularly on the injury side, there is a cultural thing. People have to believe that the organization is committed to safety and have to commit themselves to safety.

“It’s not intuitive. They have to make a conscious decision that they’re going to be safe, that they’re going to follow all the rules and that they are going to work with each other to ensure a safe workplace.”

RailAmerica can’t mandate safety. What Swinburn does instead is ensure is that management’s concern for safety is clearly communicated. One week every month, Swinburn and his vice president of operations visit one of the company’s railroads, meeting with its management team.

“As part of that, we stress safety,” Swinburn says. “We stress it at the beginning, in the middle and at the end of those meetings. We’ve had a very good response. We are successful at convincing those people that we care about safety, that they should never sacrifice safety just to get the job done quicker.

“The way we characterize it is, ‘You don’t put operating considerations ahead of rules compliance.’”

The emphasis on safety and investment in new training programs has paid off. During the first quarter of 2006, derailments caused by track decreased 62.5 percent, reportable injuries during the same period dropped from 16 to seven, and RailAmerica’s injury ratio was less than half the national short line average.

Fuel prices
Like safety issues, rising fuel prices have a direct impact on RailAmerica’s bottom line.

“It was in the spring of ’04 when fuel prices really began to skyrocket,” Swinburn says. “We’re an energy user, a pretty significant one.”

Since then, RailAmerica has adopted a number of strategies designed to recover as much of those increases as possible.

“It is still an issue, but we feel better about it than we did a year to a year-and-a-half ago,” Swinburn says.

At the beginning of 2005, RailAmerica was able to recover, at most, 50 percent of any rise in fuel prices.

“We were quite vulnerable to increases,” Swinburn says. “We put in as many fuel-saving measures as we could across all our railroads.”

Swinburn set out a series of best practices rules to help save the company money. For example, the industry practice is to leave diesel engines running while cars are being loaded or unloaded or during shift changes. At RailAmerica, those engines are shut down. During the winter, the company now uses small generators to keep fluids from freezing in northern climes, a practice that is far less expensive than leaving engines running.

Swinburn has also put a greater emphasis on making sure the right equipment is assigned to the right job.

Not one to settle for saving only what he has direct control over, Swinburn pursued the transcontinental railroads, known as Class I railroads in the industry, to see if they could help with the issue. RailAmerica’s railroads interchange traffic with the Class I’s.

“We’re independent companies, but in certain ways we’re their agents in dealing at the local level with customers,” says Swinburn.

“You’ve got to convince the larger partner that doing something differently is in that partner’s interest, as well as your own interest.”

To get the Class I’s to share the fuel charges, Swinburn had to convince them RailAmerica couldn’t absorb the impact of sudden fuel-cost increases and still maintain customer service levels to their mutual clients.

Once the Class I’s understood that, passing on a portion of the surcharge was a logical solution to maintaining customer service levels.

“One way or another, you’ve got to be able to carry that argument and convince them it’s in their interest to do it,” says Swinburn. “They’re not going to do it if it’s simply a charitable endeavor.”

And they are not going to have that conversation if you haven’t been doing everything you can to help them.

“A lot of it is living up to your responsibilities,” he says. “They’re not even going to have that conversation about sharing with you unless they believe that you have been doing what you should be doing under the partnership-type relationship all along.”

The result of these negotiations is that fuel price increases no longer cut into the company’s profits as deeply as they once did. RailAmerica can now recover about two-thirds of any fuel price increase.

Congestion
Railroads are limited in their efficiency by the amount of track available to run their trains on, and congestion is a major issue.

“There’s just not enough track to allow trains to run as freely and efficiently as possible,” Swinburn says.

And it’s not just a matter of congestion on RailAmerica’s tracks. The Class I’s that RailAmerica is interchanging traffic with have the same problem.

The industry measures efficiency based on how many days it takes for a car to make a complete cycle from a shipper’s dock to a receiver’s dock and back to the shipper’s dock. RailAmerica averages eight days across its 42 railroads.

“There is too much traffic on the system for that move to be 100 percent efficient or anywhere even close to that,” Swinburn says. “The result of that is things move slower than everybody would like, and shippers cannot get their goods moved as much as they would like.”

When this happens, RailAmerica loses business as freight is shifted to trucks.

“The answer is not to put more cars or locomotives on the system because that will probably compound the problem,” says Swinburn. “They’ll just get in each other’s way more than the existing cars and locomotives are getting in each other’s way because there’s not enough track out there.”

There are several components to system congestion affecting RailAmerica, only some of which the company has direct control over. But just because the company can’t control Class I traffic, for example, doesn’t mean it is ignoring the situation. As with any company that must sometimes play by another’s rules, Swinburn has kept an open dialogue. And that dialogue is bringing results.

Class I’s are giving shippers incentives to load and unload cars on weekends so the car doesn’t sit still for two days.

The goal is to drop the average cycle half a day during each of the next two years. Swinburn plans to also do that at RailAmerica through improved technology and by learning from the Class I’s.

“We’re doing those same things ourselves,” he says. “We’re talking to our shippers to encourage more efficient utilization by them of the cars to cut down the amount of time the car sits there. We are applying IT resources to our control of cars.

“We have gone, in the last two years, from only knowing where the cars were on a several-day delay basis because everything was being reported manually on paper … to now where it is all computerized. I can sit at my desk when I come in in the morning and look across 42 railroads and find out where the cars are by car number, by individual car if necessary, as of midnight the night before.”

RailAmerica has used that information to increase the charges shippers pay for cars that are sitting at their businesses and ultimately improve overall efficiency.

“Normally they get one or two free days, and then they have to start paying,” says Swinburn. “The point there is not to collect more money; the point is to give them the incentive to turn those cars quicker.”

Maximizing efficiency
With the three biggest problems under control, Swinburn is looking to focus on maximizing efficiency throughout the organization. His blueprint is a five-year strategic plan that he drafted and then got input from the heads of all 42 railroads that comprise the network.

“You’ve got to get the people who do it involved in it, help them structure it, challenge them and coordinate things,” Swinburn says. “You can’t just bring in a consultant from outside and do the classic time and motion study and end up with results that people are going to willingly participate in.”

Swinburn took suggestions and redrafted the plan before issuing a final version with a long memo explaining why some suggestions were accepted and others rejected.

“Every quarter we’re going to review our progress toward the elements of our strategic plan,” he says. “Managers at all levels have as part of their 2006 goals and objectives, agreed to pieces of the plan that should be implemented this year. At the end of the year, their performance evaluations will be based on how well they’ve done against those objectives.”

Swinburn’s strategies appear to be working. RailAmerica posted nearly $423.7 million in operating revenue in 2005 compared to $369.4 million in 2004. In addition, it had income from continuing operations of $30.8 million last year, compared with a loss of $23.1 million in 2004.

Swinburn plans to continue working on new strategies to grow the company. His philosophy was perhaps best summed up when he quoted Will Rogers in last year’s annual report.

“Even if you are on the right track, you’ll get run over if you just sit there.”

HOW TO REACH: RailAmerica, (561) 994-6015 or www.railamerica.com

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