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Rail News Home Kansas City Southern

January 2011

Rail News: Kansas City Southern

Kansas City Southern CEO David Starling is counting on collaboration to keep growing the franchise that Mike Haverty built


by Jeff Stagl, Managing Editor

On June 28, 2010, Kansas City Southern announced that President and Chief Operating Officer David Starling would become chief executive officer to succeed Mike Haverty, who would become executive chairman. The appointments were to take effect on Aug. 1.

A few days after the announcement, the Class I faced one of its biggest challenges during Haverty's 15-year stint as top executive: Hurricane Alex struck Mexico in early July, damaging a Kansas City Southern de México S.A. de C.V. (KCSM) mainline that was closed for 23 days for major repairs.

Haverty had never before dealt with a track outage lasting that long. For Starling, it was a trial by fire before the trial even started.

"July was a time of crisis for our company, and David wasn't even the CEO yet," says Executive Vice President of Sales and Marketing Patrick Ottensmeyer.

During the ordeal, managers in Mexico and the United States — who had tended to work separately — held conference calls twice daily with Starling and other senior execs. Eventually, the entire management team bonded more closely, says Ottensmeyer.

"There wasn't a single time the team came apart," he says.

During a group interview held Dec. 7 in Kansas City, Mo., Haverty, Starling and Ottensmeyer credited a "seamless" CEO transition as the driving force behind the teamwork developed since the mainline outage, which they characterized as the company's "defining moment." They also discussed the pros and cons of the new leadership arrangement.

Starling, 61, mentioned a few cons related to the CEO post: his lack of experience in managing a public company "at this level," and the need to devote one-quarter of his time to dealings with the board and financial community.

He also cited one major pro: the ability to rely on a well-experienced executive chairman as a sounding board while controlling the company on a day-to-day basis and executing the strategic plan.

"Mike has been here for 15 years and has the bruises to show for putting it all together," says Starling, referring to Haverty's efforts to acquire the former TFM S.A. de C.V. and establish a competitive north-south network between commercial and industrial centers in the United States and Mexico, and develop a transcontinental intermodal corridor between Dallas and Atlanta via the Meridian Speedway.

Architect and Collaborator

The combination of Haverty's franchise-building vision and Starling's team-building acumen bodes well for KCS' ongoing growth objectives, says Ottensmeyer.

"Mike is the architect and visionary; Dave has a collaborative management style," he says. "There's a high level of trust and respect for [our] team."

KCS wasn't always highly respected by other Class Is as a major western player, says Starling. But Haverty's conviction that Mexico would be an important rail link because of the North American Free Trade Agreement and fortitude to gain control of a key Mexican railroad changed that, he says.

"KCS is relevant now," says Starling.

His charge: ensure it remains that way. KCS' board and Haverty handpicked Starling because they believed he would be an optimal keeper of the flame.

Haverty first began to note and appreciate Starling's managerial skills more than 30 years ago. They met in 1980 when Haverty was an executive for the Achison, Topeka and Santa Fe Railway, and Starling was an operations manager for the Burlington Northern Railroad. They eventually became friends.

In 1999, Haverty chose Starling to run the Panama Canal Railway because of his intermodal experience gleaned from stints as vice president of Mi-Jack Products — where he helped form a terminal operating company — and managing director of stack train operations for American President Lines (APL).

Starling also gained global ocean carrier experience with APL, including responsibility for operations in the Phillippines, China, Taiwan and Hong Kong.

In July 2007, Starling began serving as an executive representative for KCS, in addition to his role as the Panama Canal Railway's president and director general, to work with ocean carriers calling on the Port of Lázaro Cárdenas, Mexico, and Port of Balboa, Panama, and gain exposure to the Class I's Mexican intermodal network.

By 2008, Starling's varied experience made him an ideal candidate for KCS' presidency, says Haverty.

Shortly after assuming the post, Starling helped make some difficult cost-cutting decisions to offset recession-reduced traffic and income, such as trimming headcount, cutting incentive pay, reducing travel, initiating weekend shutdowns and renegotiating some maintenance contracts.

His performance throughout the cost-reduction period — which stretched from fourth-quarter 2008 well into 2009 — and during the KCSM mainline outage showed he can handle adversity, says Haverty.

"Tough times show the level of a person more than when the going is good," says Haverty. "He has grown and evolved into this [CEO] job. I think we now have the best management team, both north and south of the border, in my 15 years here."

Time to Move On

The transition was necessary because Haverty, who turned 66 in June 2010, believed he had "reached an age where it's time to move on," he says.

Now, he plans to spend less time at KCS headquarters and more time vacationing. But Haverty isn't ready for retirement; he expects to remain executive chairman for "three to five to 10 years," he says.

"I'm not here all the time, but I'm still in the decision-making," says Haverty. "I'm here if Dave needs advice, but it's Dave's company to run."

Since the recession, KCS has become a "new company," one with better cost controls and "re-tooled" operations, says Starling. The downturn afforded the management team a chance to analyze KCS' network and operational processes, which led to the formation of a "one network-one team" initiative, he says.

For example, the Class I recently created an international rail operations support team to help KCSM and Kansas City Southern Railway Co. better manage transportation and customer service. The team will share best practices in the United States and Mexico.

Getting Feisty

Managers' post-Hurricane Alex practices might be among them — as in how they collaborated with customers to find ways to move their freight in Mexico despite KCSM's crippled mainline. In some cases, trucking wasn't an option because of flooded highways.

The team's "feistiness" in identifying modal options earned praise from some shippers, including Whirlpool Corp., which presented the Class I an award for its post-storm efforts, says Haverty. Whirlpool also named KCS its Rail Supplier of the Year in 2010.

"Alex helped us because the team had to work together," says Haverty, adding that Starling prompted KCS to register a record 73.5 operating ratio in the third quarter despite the hurricane's effects. "We took a disadvantage and made it into an advantage."

The experience also helped strengthen relationships with customers, says Ottensmeyer.

"Not a single customer went away from us because of the hurricane," he says.

One-Quarter and Counting

Now, Starling aims to attract more customers, especially those of the intermodal variety. He plans to rely on the Class I's "good core" network and operational flexibility — which enables KCS to work its train schedules around customers' needs — to entice additional shippers.

Cross-border business now accounts for one-quarter of KCS' annual revenue, and there's potential for more, says Starling.

"There are 1.9 million cross-border truckloads we have identified that we could serve," he says.

To meet that objective, Starling plans to continue seeking Haverty's counsel and leaning on his team-building and strategic plan-executing skills. During his short tenure as top exec, the management team largely has functioned as a hard-working, harmonious group, says Starling.

"We have put a group of people together who know what they're doing and work well together," he says. "Now, we're one network and one team."


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