Riding the Rails: Inside the Business of America's Railroads

By Robert D. Krebs

A former Burlington Northern Santa Fe Railway CEO tells the behind-the-scenes story of the transformation and resurgence of America’s ailing railroads.

When Robert D. Krebs joined the ranks of Southern Pacific Railroad in 1966, the industry had been in decline for decades, and the future of trains was in peril. Despite these obstacles, Krebs fell in love with the rugged, competitive business of railroads and was determined to overcome its resistance to change and put rail transportation back on track.

By the age of forty, Krebs was president of the Southern Pacific Railroad and had also served as chief executive of both the Santa Fe Railway and Burlington Northern Santa Fe Railway companies. Riding the Rails: Inside the Business of America’s Railroads details Krebs’s rise to a position of influence in the recovery of America’s railroads—and offers a unique insider’s view into the boardrooms where executives and businessmen reimagined transportation in the United States.

• Language: English
• Publisher: Open Road Integrated Media
• Release date: Jan 22, 2018
• ISBN: 9780253031877

Book preview

Prologue

  ON MY SECOND DAY as an acting assistant trainmaster for Southern Pacific Transportation Company there was a message to see Charlie Babers. I then occupied the lowest rung on the railroad’s steep management ladder, and Babers was the assistant superintendent of the San Joaquin Division. I was thinking he probably wanted to welcome me to the job.

My first day had been interesting, for sure, supervising the loading of potatoes into refrigerated freight cars at sheds in three small towns just north of Bakersfield, California, in the verdant Central Valley. Early that afternoon, at the start of my shift, a brakeman got hurt and I had to drop him off at a hospital in Bakersfield. He said he was fine, so I left. Then I cruised out to Cawelo, the first station, where I discovered we had a car of onions to pick up but no waybill for it. Of course, we couldn’t ship it if we didn’t have a waybill. I got on the railroad radio and wasn’t very nice with the clerk in the office, telling him I needed that waybill now. Later, I watched empty refrigerator cars being spotted on sidings for loading the next day. The sun was up before all this got done and ended my sixteen-hour day.

The next afternoon I went to see Babers, who seemed to be in charge of things because the division superintendent, W.C. Morris, was a godlike figure I seldom glimpsed. Babers was a railroader’s railroader, six-foot-six and about 250 pounds, with a voice and manner equal to his proportions. I walked into his office in Bakersfield, thinking he was going to tell me what a great job I was doing. I saw my personnel file open on the middle of his desk and begin having doubts.

Babers didn’t waste a moment on pleasantries. Krebs, he began, I see you went to Harvard. To me, you’re a stumblebum. You’re a smartass. And you are just like a locomotive—if you don’t work, I am going to replace you. Exact words. I was close to tears. What the hell did I do? Eventually, he told me.

I was aware of FELA, the Federal Employers Liability Act, which protects railroaders injured on the job, because I had broken my wrist getting off a moving freight car early in my two-year stint as a management trainee. What I didn’t know was the cardinal rule of railroad managers: when employees are hurt, you don’t just take them to the hospital or a doctor; you stick with them as if you were their own mother. You need to find out what is going on, because later you might have to testify that this guy didn’t really get hurt or that he was soon walking around and saying he was fine, only to sue the railroad later. I did none of those things I was supposed to do. Then Babers overheard my brusque conversation with the clerk on the radio, delivered with the impatience of a Harvard Business School graduate.

So first day on the job, I had impressed the second-in-command of the San Joaquin Division as rude and clueless. This could have been the start of a short and swift downhill slide right out of railroading. But I respected Charlie Babers and listened to what he said. He never had to dress me down again. As years went by, we became friends. Ultimately, Charlie worked for me. A lot would happen in my life between that afternoon in Bakersfield and the day I would propose that he become general manager of SP’s Pacific Lines, the half of this big railroad that lay west of El Paso, Texas.

The Making of a Railroader

1     NOT UNTIL AGE twenty-three did I even imagine working for a railroad. I was born in 1942 in Sacramento, California. My dad, Ward Krebs, was a banker, working for American Trust Company, which later became Wells Fargo. He was the great-grandson of people who came west by wagon train during the Gold Rush and settled in Hangtown, also called Old Dry Diggings, which is the present town of Placerville, in the foothills of the Sierra Nevada mountains. My mother was Eleanor Duncan Krebs, whose relatives hailed from Scotland and came to California by way of Canada. I was their only child.

Railroading was absolutely, positively not in my blood. Try as I might, it’s hard to think of any interest in or experiences with railroads during my upbringing. Like all boys in that era, I had a Lionel train set my dad and I would set up at Christmas. And I recall going to Sacramento to see my parents board Western Pacific’s California Zephyr streamliner for a banking convention in New York City. Maybe I had a short train ride or two as a kid. If I did, it wasn’t memorable.

But there was one connection I should note between my childhood and the life I would later lead, because I hated it. When I was in third grade, my father was transferred from Sacramento to North Sacramento to run a branch of American Trust. We moved to be close to that branch. I had to forge a whole new set of friends. Then his employer bought a bank in Woodland, 20 miles to the west, and sent my dad to run it. Again, we moved, and again, new friends. For my dad, running that branch bank may have been the happiest time in his life. But it wasn’t mine. When I was in seventh grade, dad was transferred back to Sacramento. Another move, another loss of friends, another struggle to make new friends. I vowed I would never subject my children to the stresses of being uprooted every few years. But that’s exactly what happened.

I loved Northern California. As far as I was concerned, the sun rose and set on San Francisco. Throughout my youth and well into adulthood, that great big beautiful city or somewhere nearby was where I wanted to spend my life. So it was natural that I would attend Stanford University in Palo Alto, my dad’s alma mater. By then my parents lived in Hillsborough, south of San Francisco on the peninsula, and I enjoyed bringing my fraternity brothers home on Sundays, where we would enjoy a good home-cooked meal while my mother did my laundry.

Stanford didn’t have a business major, which was probably just as well. Instead, I majored in political science. I figured that my undergraduate years should be a liberal arts education, so I took economics, history, language, and political science courses. I also went to Stanford’s campus in Florence, Italy, for two-thirds of my sophomore year. That experience spawned a lifelong love of Italy and of art.

When I graduated in 1964, I headed straight for business school. Since I had already been to Stanford, I chose Harvard and was accepted. Back then, the Harvard Graduate School of Business admitted quite a few students right out of college. It was a mistake, for me at least, and now several years of experience in the real world is pretty much a requirement for admission. I treated my two years in Cambridge as if it was a continuation of my undergraduate experience. Our second year, my three roommates and I cut classes on Wednesdays and Thursdays to ski in Killington, Vermont. One roommate caused a stir when he came to class to hear a lecture just before the semester ended—his first appearance since registration. And he aced his final.

One course had an especially lasting impact on me: Human Behavior in Organizations. It focused on such topics as what you do when you run an assembly line and how you get people to work together so the line runs smoothly. I also acquired a financial background and learned to understand balance sheets and earnings statements. Through case studies I was exposed to concepts of management control—as applied to railroads this would mean what measurements allow you to understand whether a yard is functioning smoothly.

In early 1966, in my last semester, I started looking for a job. As I said, my dad was a banker, and I wanted to be a banker, too. When I was at Stanford, Dad had gotten me a job during summers at Crocker National Bank in San Francisco. But he counseled me that if I wanted to follow in his footsteps, I should go to New York, because New York City was the global capital of banking. And Dad said the best bank in the world was Morgan Guaranty Trust Company of New York, which later became J. P. Morgan, and several mergers later is JPMorgan Chase.

Each spring Morgan Guaranty hired maybe a dozen Harvard Business School graduates, and I was invited to go to New York for interviews. I walked into the bank’s main office on Wall Street and I swear the green carpet was two inches thick. The people I met sat at big rolltop desks and had their shoes shined while we talked. Everyone seemed young and ambitious and competitive. I thought, this is crazy. Look at all these people trying to claw their way to the top, and in New York City, which I don’t particularly like anyway.

Southern Pacific Company, holding company of SP Transportation, recruited at Harvard too. SP sent Dean Johnson, a senior manager of the computer department, as its representative. Southern Pacific was just starting to implement TOPS, or the Total Operations Processing System, which was an early IBM computer-based accounting and control system. I thought Johnson was looking primarily for people to work in the computer department. Harvard Business School seemed to me a strange place to be seeking computer experience, and it certainly wasn’t what I had in mind.

But the important thing to me was that Southern Pacific was based in San Francisco. So I signed up to meet Johnson. I told him I wasn’t terribly interested in programming. I asked, How about operations or something like that? This was what really interested me, little as I knew about it at that time. I always thought the operating side makes any company, and especially a railroad, succeed or fail. I figured the people who someday would run the railroad would come from operations rather than what we now know as information technology. Johnson was probably surprised that I preferred operations but arranged for me to come to San Francisco for interviews.

Southern Pacific’s grand general office building stood at the foot of Market Street, next to the Embarcadero and adjacent to the financial district. The eleven-story high-ceilinged red brick structure was built to replace offices destroyed in the 1906 earthquake. It stood in the shape of a U, because SP originally planned for the building to double as its downtown passenger station. But during the Depression the adjacent land was sold to the US government for a postal building, and generations of commuter-train riders, including me, have had to trudge an extra half a mile from Third and Townsend streets to reach their offices.

I walked into 65 Market Street (later expanded with office towers and relabeled 1 Market Plaza), and the contrast with Morgan Guaranty Trust on the other side of the country could not have been more vivid. Everyone at Southern Pacific looked to be sixty-five years old, at least to my young eyes. I met with second-level people, not the chairman (Donald J. Russell), the president (Ben Biaggini), or the vice presidents of operations and traffic (Bill Lamprecht and Bill Peoples). Later, I also looked at the other big companies in San Francisco, including Standard Oil of California (Chevron), Crown Zellerbach, and FMC Corporation.

I’m sure that what got me a job offer from SP, besides the fact that nobody else wanted to work for railroads, was that I had gone to Stanford and had a Harvard MBA. The offer was to enter the railroad’s two-year management-training program at a salary of $775 a month. Morgan Guaranty made me an offer as well. The deciding factor became location. I had no love or appreciation for railroads, but SP was in San Francisco (good) and Morgan was in New York (not so good). I could have sat at one of those rolltop desks getting my shoes shined every morning with all the other recent HBS graduates. In stark contrast, at Southern Pacific the managers all looked ready to retire. Southern Pacific represented opportunity, and why not reach for that opportunity? So I said thank you but no to Morgan Guaranty and in June 1966 went to work for Southern Pacific Transportation, the railroad subsidiary of Southern Pacific Company.

My roommates at Harvard were aghast when I informed them I was going to work for SP. They could not believe the magnitude of my mistake. One of them said, "Rob, you are crazy. Don’t you understand railroads are dying? We can understand if you want to be in transportation, but go to work for a good transportation company, like TWA