MH:  Again, I was in Emporia for four years, and then they moved me down to Temple, Texas.  That was on the western region.  Jim Fitzgerald was general manager at that time, and so I went down there.  That was one of their busiest divisions.  In fact, they said that they wanted me to go down there because they were going to build the hump yard down in Temple.  They wanted me to be in charge of it, and I am totally opposed to hump yards.

 

BG:  Why?

 

MH:  Because as far as switching cars and so on, you can show efficiency, but if you're going to manage car movements from origin to destination, you don't send them down…Like I used to block traffic in Richmond, California, that was going to Kansas City and to Chicago and to Texas.  It would be back there in 48 hours.  Well, they told me just throw all this together, and we'll take it to a hump yard in Barstow.  So, it ends up spending a day in Barstow.  In fact, we added 36 hours to the transit time.  So, I was against the hump yard, and I told them.  I said, “Well, by the time you look at the coal trains that were operating, the intermodal trains, the grain trains, the sulfur trains, and all that, what are we going to hump?”  And I said, “You know, what we need down here is a mainline fueling facility,” because we were changing all the engines out, and it was a mess.  So, we put in a mainline fueling facility, not a hump yard, and it worked out really well.

 

BG:  Well, I'm asking that because in Galesburg [Illinois], of course, is this major hump yard that is quite incredible for someone like myself to come in and see the operation.  But from your perspective, there are other ways of doing that, accomplishing that.

 

MH:  Yeah, I just have never been…You know I'm not totally opposed to hump yards, and the productivity clearly is there.  But today what I hear called ‘precision scheduled railroading’ is…You know what I call that?  Railroading 101.  Back in the days of Missouri Pacific, that's what you were taught, that you minimized the time that a car got from origin to destination, not only to be able to increase the transit time, but also to reduce the cost.  And so, what you would do is set up a transportation service plan.  Then you would execute that plan to minimize the handling of the cars.  So that's just what I believed in, and I just didn't think that running them through a hump yard…You know we had people say, “Boy, we humped eighteen-hundred cars today! Man, that's a new record.” And I said, “Well you know, you don't look at the productivity by how many cars you hump.  How long did it take the car to get from origin to destination?”

 

BG:  So that was your metric, right?

 

MH:  That's what I believed.  There was a fellow that worked for me at Santa Fe named Don Gil who ended up being in Fort Madison and then came up and was our transportation guy, and he and I both refer to this concept as ‘Railroading 101’.

 

BG:  So, June 1989 you become president.  What was in your mind at that time that you wanted to accomplish; major goals?

 

MH:  Well, that sounds like the question Rob Krebs asked me when I was named president.  You know, just for the record, we had gone through a takeover attempt in ‘86.  The railroad was struggling, and the Reichmann Brothers and Sam Zell came in in 1988, and they brought McKinsey in.  Then John Schwartz who was president of the railroad at that time decided to step down.  And so, there was a search for a new president, and there were five inside candidates.  I was not one of the five inside candidates, but I was the vice president of operations and worked very closely with McKinsey.  They went to Rob Krebs and said that, because one of the fellows dropped out, one of the insiders -- he had been the head of the oil company that was one of the subsidiaries of Santa Fe industries, and so he went to Houston -- so they had to put somebody else in his place, and I was selected to go in there.  So, I was the dark horse.  This was like, five months before…four months before they decided to pick the president.  I was the dark horse, and it ended up that McKinsey, I think, recommended to Rob Krebs that I end up being the president of the company.  

 

So anyway, so when I went, uh…the one thing I felt that the whole industry had failed in doing was dealing with the labor issues.  You know we had been…the Stagger's Act deregulated the rail industry, which saved the rail industry.  There is no question about that.  But through the ‘80s the railroads did not really cut the cost the way that they should.  And so you know, in the old scheme when it was regulated, the game was that you’d go to the Interstate Commerce Commission and ask for X number of percentage increase in rates, and so on, knowing that you were not going to get that, but you'd get whatever, and then you’d pass it on to the unions.  So, it was just kind of a game they played.  

 

And all of a sudden in a deregulated environment, you know, we went through most of the 1980s, and the industry did not really deal with some of the labor issues.  We did get rid of cabooses, which I spent a lot of time testifying that we didn't need cabooses anymore.  Being a former brakeman, I testified in New Mexico, Texas, all over.  But anyway, so when I, when I came in, one of the things that I wanted to do was to reduce the crews and change the work rules.  And that was one of the things that I told Rob that I wanted to do.  Plus, you know, we wanted to get rid of a bunch of branch lines and short line that, and we wanted to change the way that we did intermodal to where it was more focused on profit and so on.

 

So, we had a lot of objectives, but really the number one objective I had was we had to do something about the labor unions and changing the work rules.  And Rob's reaction to that was, “Hey, you need to focus on something else.  We’ve been trying to reduce crews and so on for 25 years, the industry has, and they haven’t been able to do anything.”  But I told him, I said, “You know, I've actually been meeting for quite some time with labor unions, and we actually had a couple of labor unions that the employees got rid of the union.”  That was the yard masters and then the police, the special agents.  And you know, so we treated people well, and we had that reputation.  So, I said, “I'm going to focus on this,” and I made a joke about it.  I said, “I'm going to go all over the railroad and talk to people, and if I have to ‘stand on the corner of Winslow, Arizona’, to tell these people we've got to change the work rules and change the size of the crews and extend the crew districts and so on, you know, I'm going to do that”.  And so, in fact, I did go to Winslow, Arizona, and I went Needles, California, when it was 118 [degrees].  I was in Chillicothe, Illinois, and was not very well accepted.

 

We dropped out of the national negotiations in the industry, and that's when I kind of got the reputation of being a maverick within the industry.  They were not happy with me.  But we established the work rule concept and also the reduction in crew sizes that has, that changed the entire industry.  So if you look at the rail industry from the end of the 1980s up through the 1990s, and you look at the total number of people that were in the industry, say, back in 1989, 1990 -- because we actually entered into this in 1990 and then the whole industry got into it at the beginning of 1991.  There was going to be a nationwide strike, but the Congress stopped that.  But anyway, so the productivity, you went from like a million people in the rail industry to within 10 years it was down to 250,000.  And then you look at the productivity and you know it was about 160 or 70 percent of what it was when you had all those other people.

 

So that's what the industry had to deal with.  I mean you did not need firemen on locomotives that hadn't shoveled coal for 50 years.  You didn't need all these brakemen and so on when you've got all these different devices that can line the switches with centralized traffic control, things like that.  You just didn't need all that stuff, so you didn't need the people.  I think that was the biggest change in the industry.

 

BG:  So, I mean you make it sound…. I know it wasn't easy, but what was the…Were there any people within the union that started to agree with you and said, you know, “Let's try to phase this in” or “Let's, you know...” we'll finally recognize that it was in their interests to make these changes?

 

MH:  Well, I'll tell you what.  When I went out and I had all these town hall meetings and I talked to these people, there were union representatives that showed up there all the time.  But what I would tell them is, if we don't change what we're doing right now with the crew sizes, the crew districts…I mean, you know a day's pay was one hundred miles. That's an average of twelve and a half miles an hour.  That was established back in the early 1900s when that's about what a train averaged.  And I said, “You know, if we don't change, the Santa Fe is going to be gone, and it's not going to be that the tracks are going to be ripped up or it's going to disappear, but instead of working for the Santa Fe, you might realize you might work for the ‘Frank Lorenzo & Western’.”  Frank Lorenzo was the guy who took over TWA and threw out all the unions.  

 

So, they listened, and I mean I talked to these people everywhere.  I was in Bakersfield.  I went into union halls.  I went to Temple, Texas; there'd never been a management guy ever gone in there.  In fact, I also went to Lubbock, Texas, and some union guy got up there and started attacking me, and I ripped him, and all the rest of the people in there started clapping, you know.  But I told them the way it was going to be.

 

So anyway, believe it or not, the ones that were most amenable to doing this was out on the Coast Lines.  And then the Western Lines was pretty amenable, as well.  The Eastern Lines that fell out of Kansas City was not so much, but the majority of people were willing to vote for it. So anyway, we made the change.  At Santa Fe, that then set the precedent for the entire industry, so that was one of the biggest objectives I had and also reducing cost and improving service.

 

BG:  Well we're going to get into intermodal in a moment, because that's a big turning point. Did you ever, were you ever a member of the union when you were, like, a brakemen?

 

MH:  Yeah.

 

BG:  So, you had a card, a union card?

 

MH:  I was a member of the Brotherhood of Railroad Trainmen that eventually then became the United Transportation Union.  So, yeah, all my family…

 

BG:  Well, that must have helped in your credibility when you’d go to these meetings and you could say, “Hey, I've been, I've done these jobs, you know”.

 

MH:  Yeah, and that's the one thing that I do think that the employees did respect; that they knew that I had been out there and done that.  When I would go out on a business car -- and say we would stop or something and there would be a track gang out there working on the railroad -- I would always go down and shake hands with them, you know, and say, “I’m the president, but I did that at one time.”  So, I thought that was important.  You know, I have respect for these folks that have to work all these hours and weekends and nights and so on. It's a, it's a tough situation.

 

BG:  Well, I mean, you've told this story and you -- many times -- but you became president of the railroad in 1989, and almost immediately that same year you entered into this agreement with J.B. Hunt, was it, uh...?

 

MH:  Yeah, that's correct.

 

BG:  And so, in addition to sort of tackling this labor issue which was really on your mind, this sort of revolutionary or historic moment also was, was about to take place.  Can you..?

 

MH:  Yeah, it was. There were a lot of things going on, not just the labor relations changing the work rules and crew sizes and so on, but again, we sold off or leased 20 percent of our railroad to short lines, but we kept 93 percent of the revenues.  And then we also focused on the return on business because instead of thinking about volume, we were looking at profitability.  And who was the fellow that I assigned when I became president to do that?  Carl Ice, who is now the CEO of the BNSF.  He was the guy that started measuring the profitability of all of our traffic, and we de-marketed a lot of traffic.  So, when I went…

 

BG:  What is ‘de-market’?  What do you mean, just like get out of that market?

 

MH:  Yeah, like intermodal business between Denver and Dallas and Houston.  The BN had a much straighter route, and we had a circuitous route.  We'd have to come clear back through Kansas and then go south, and we would lose money on every load.  And then also we were shipping intermodal from Denver to Los Angeles.  Well, the UP had a straight shot out there and Southern Pacific, as well.  It just didn't make sense, so we just de-marketed or got rid of that kind of business.  And you know at that time a lot of the Wall Streeters were coming back and saying, “Man, your loadings are going down.”  And I said, “Don't look at the loadings. Look at the profitability”.

 

BG:  And then that subsequently led you into this partnership with... Because I was reading the difference between the truck or trucking companies being the customer or you being a customer…but you were really in it together.

 

MH:  Yeah, well it... Actually, you know, I mentioned earlier that McKinsey had come on the property in 1988, and I had been trying to tell them that we should team up with a trucking company.  When you looked at all the transportation competition in the United States, we didn't need to go out and buy a trucking company.  We had already owned one at one time that failed because railroaders don't know how to run trucking companies.  We didn't need to have a subsidiary.  What we should do is team up with a trucking company.

 

So, McKinsey went to the marketing people at that time when they were on a property in ’88, and they said, “Hey, you know Haverty said we ought to think about teaming up with a trucking company,” and they said, you know, “The reason he's in operations is because he doesn't understand anything about marketing. Trucking companies and railroads will never be able to work together”.  Well, then a few months later I was named president, and I've told this story before, but when I got my MBA at the University of Chicago, I had -- clear back in 1982 -- I had written a thesis for my marketing course saying that a trucking company and a railroad should team up because railroads are great over the long haul, but trucking companies can go much shorter distances much more efficiently than railroads.

 

So, to me it was common sense – logic -- but nobody really wanted to do that.  So, after I became president, I took this fellow that was leading the study for McKinsey -- his name is John Russell -- and then I also took the professor that I had from the University of Chicago who was in the marketing department when I had written that thesis.  They say that, the old saying is that, ‘A picture is worth a thousand words.’  So, we put business cars in the rear of an intermodal train, and we took off.  And I kept trying to tell McKinsey, you know, that you just don't understand; the trucking business out there is just eating us up.  

 

So anyway, we get out going through New Mexico along Interstate 40 which was literally 30 yards away from us.  We're running 70 miles an hour, and we had a three-man crew at that time.  And these trucks out there were just almost bumper to bumper.  And that was when they had the 55 mile an hour speed limit, although they were running faster than that.  But anyway, their jaws just dropped.  They could not believe how much traffic was out there.  And I said -- this is literally what happened -- I said I didn't know J.B. Hunt from Adam, but a great majority of the trucks that were out there on Interstate 40 were J.B. Hunt trailers and trucks. I said, “I bet you if I could meet J.B. Hunt, that I could convince him that his trailers would be better off over on this steel highway than over on that concrete highway.”

 

So anyway, John Russell said, “You know, we've done some business for J.B. Hunt Transport. Let me see if we can set up a meeting.”  So, two weeks later we flew down.  I took Don McInnes who was the head of our intermodal department at that time.  Ab Reese was our vice president operations.  Owen Zadar was in intermodal; we took him down, and John Russell.  And we then decided that we were going to try and tell them the story of why they should do business with us.

 

BG:  And this is, what, in the fall of ‘89 or the...?

​

MH:  This is…I took them out in October of 1989.  And then two weeks later -- it was right around the first part of October -- and then two weeks later, they set up a meeting, and we were not supposed to actually meet with J.B.  We were going to meet with Kirk Thompson who was the president of J.B. Hunt Transport and Paul Virgin, who was the head of their marketing department, also their legal department.

 

So anyway, we went down there, and we went to Lowell, Arkansas, and walked into his office -- that's where it used to be; it’s in Rogers now -- and here's this guy standing there in his cowboy hat, cowboy boots.  He says, “Hey, I'm J.B. Hunt,” and I said, “I’m Mike Haverty.”  Anyway, we went into the meeting, and we really hit it off.  Every railroad in the United States had been to see him and wanted J.B. Hunt Transport to be a customer.  And he said, “I don't want to be a customer.”  He said, “If we're going to do something, it's got to be a partnership.”  And I said, “You know what, I think we can do that.”  

 

So, he was going to come up to the American Trucking Association -- ATA meeting -- two weeks later.  He was staying at the Conrad Hilton right down the street from Santa Fe headquarters.  And so, I invited him up to take a train trip.  I went out to Corwith Yard and made sure everybody cleaned everything up, because he'd liked everything nice and clean.  His drivers wore uniforms like U.P.S. and so on, and they washed the trucks, and so anyway we had everything gleaming.  We had the war bonnet locomotives on this intermodal train we were getting ready to take off on.  At the rear…we had some cars on the rear, and then we put one of his trailers right in front of a business car so we could stand out on the deck there and watch that trailer, how it rode.  So anyway, we take off out of Corwith, and Interstate 55 is totally backed up bumper to bumper, and we're going 70 miles an hour and so on.

 

And you know this story has been told many, many times.  He is the one -- we were sitting across from each other -- and he's the one that got up and walked over to me, and said, “Haverty, we've got a deal.”  And I said, “J.B., what's the deal?”  And he said, “I don't know,” but he said, “We're gonna do a deal.”  And based on that handshake, we did not have a formal agreement.  I assigned Carl Ice to help negotiate the agreement and then also a lawyer named Rick Weiker, who I thought a tremendous amount of, still do.  And they negotiated the agreement.  We shared the revenues, and it turned out to be a tremendous thing for us.  I think, you know, by the time we got the final agreement done, I think we were doing 30 million dollars business.  I just went the other day, the other night, to Matt Rose's retirement party, and I saw the fellow that now is dealing with J.B. Hunt, and he told me in 2018 they handled 1.5 million J.B. Hunt units on BNSF.

 

BG:  Wow. Wow.

 

MH:  So that handshake went to 1.5 million, and the revenues are about $1.5 billion.

 

BG:  And that was the first time in the industry that that happened?

 

MH: Yes. And you know, there's many things that I've done in my career like investing in Mexico and so on and different things. People said, “He's crazy; doesn’t know what he’s doing.  It's never going to work.  Trucking companies hate each other,” and so on.  But, take a look at these trains now; ???? and Schneider, they're all on board.

 

BG:  I had the privilege of meeting, uhm, Mr...I think, McKinney Maersk Moller from Denmark.

 

MH: Oh, yeah... yeah.

 

BG:  And he was a big contributor to the Smithsonian.  And I asked him why he gave several million dollars to the Smithsonian for our Maritime History Hall, and he said, “Well during World War II, I was exiled from my country, and I ran my company out of New York, and I wanted to give something to America.”  But Maersk has quite an intermodal operation.

 

MH:  They were our biggest ocean carrier business at Santa Fe.  Our biggest customer was U.P.S., and we ran trains that were almost exclusively U.P.S. traffic.  Then we ran trains that were containers, double-stack Maersk containers, and we had a tremendous relationship with Maersk.  They were our biggest customer.

 

BG:  Did you ever meet him?

 

MH:  You know, I actually, I did meet him.  And you know the ironic thing is that his wife is from here in Missouri.

 

BG:  I didn't know that.

 

MH:  Yeah, exactly.  Out on...I can't think of the town right now, but on our, that line that runs between here and East St. Louis, she was born out there.  And in fact, we wanted to put a monument up there -- and I had actually gone to Copenhagen -- but he didn't, he didn't…he was the kind of guy, very low key.

 

BG:  Yeah, he gave us several million dollars, and he didn't want his name on the gallery.

 

MH:  Yeah, exactly.  That’s the kind of person he was.

 

BG:  And his staff told us, and you’ll appreciate this, they didn't even know.  He just went to the post office himself and mailed the check and hadn't even told his staff that he was doing it.

 

MH:  That would be, that would be typical.  That’s the way he ran his company.

 

BG:  It was quite an honor to meet him.  I just thought you'd enjoy that.  So, I mean that handshake that occurred…were you stopped at Galesburg or just passing through?

 

MH:  No, no.  And the date was November 1st, 1989.

 

BG:  Okay.

 

MH:  And the train, it just was by total chance that it was going through Galesburg, and we were running from Chicago to Kansas City, and of course that’s a high-speed line there.

 

BG:  Yes.

 

MH:  He was extremely impressed, and as you saw in the video that we talked about that.

 

BG:  Yes.  Well, I'm not going to ask you to go back through that again, but I think that these are great stories.  And again, talking about turning points in the industry, this has got to be one of the big ones.  The Staggers Act, you mentioned earlier, which was eight, nine years before, but it still took that much time before the impact really was beginning to be felt and the deregulation, the ability to work out…Could you have worked out a deal like that under the old rules?

 

MH:  No. Would have never happened.

 

BG:  Right.

 

MH:  And I will also tell you that, under the old regulated environment I would have never been president of Santa Fe.  Again, everything was a lot of politics and all that.  And I was not cut out of that mold.  So anyway, I would have never made it.  I spoke out and said what I thought needed to be done, and we did it, and that was it.

 

BG:  So, you stayed with the Santa Fe for another six years?

 

MH:  No, I was there for two years as president.  In fact, when I was named president, I was 44.  I was actually the youngest president in 100 years since William Barstow Strong.  And uh, but anyway, what was happening is we were selling off all of the assets, or spinning off all of the assets, of Santa Fe Industries and going back to being a pure railroad.  Rob Krebs was the Chairman and CEO, and I was the…And he’s only a year and a half older than I am.  So…it had finally been, by 1991, I could see that he wanted to run the railroad, and I decided that you really didn't need two people to run the same railroad.  So, I decided to move on.

 

BG:  I knew you respected him.

 

MH:  Yes, and it was because of him that I became president, and if it had not been for him…

 

BG:  Uh huh.

 

MH:  And I've told the Lexington Group that, and I've said that before publicly.  It was because of him that I was, became president.  I mean McKinsey recommended me, but he was the person that was making the decision.

 

BG:  Uh huh.  But two years is a relatively short tenure, and then you, you stepped aside and started your own...

 

MH:  Yeah, but we turned that company upside down.

 

BG:  Yeah, I’d say in two years, between the labor agreements and…

 

MH:  I used to have customers come and say, “Well, what are you going to do next?” I mean…But we didn't have, we didn't have all the service failures that you see with a lot of changes now.

 

BG:  Uh huh.  Did it take a personal effort, take a lot out of you with that many changes in two years?

 

MH:  Extremely stressful.  Yeah.  It was very stressful.  And you will recall that I actually had a couple of heart surgeries. So anyway, so when I took off and I left, I took a year off and just spent time with my family that I hadn't had an opportunity to do:  went to see my son play baseball; we took a family vacation in Hawaii, and then…Then I formed my own company, Haverty Corp., that looked at transportation investments.  But anyway, I took some time off.  I was definitely worn out.

 

BG:  Were you, where were you living at that point?

 

MH:  We lived in Naperville, Illinois. Yeah.

 

BG:  So now we're moving up…Now we come to here, Kansas City.

 

MH:  Right.

 

BG:  Well, let's just talk for a little bit about your relationship with Mi-Jack [Products] because that happened during that time.

 

MH:  Yes.  Really my relationship with Mi-Jack started back in about 1988.  There were some folks that…Mi-Jack was, you know, they built the rubber-tired gantry cranes, and they were very much involved in intermodal.  In fact, it was Larry Cena who used the very first crane that Jack Lanigan did, and really Santa Fe was ahead of the entire industry in intermodal-ism because of that.  

 

But anyway, because of Mike Lanigan, he knew that I really like Notre Dame football.  And so, he also heard rumors from people associated with intermodal at Santa Fe that were predicting that I was potentially going to be the president.  Now this was before I even thought I was ever going to be the president.  So, he started taking me to Notre Dame football games, and he actually, he engaged Johnny Lattner to be kind of a sales person for him.  I'd go to games with Johnny Lattner and get to be personal friends with him.  Great guy, fantastic guy.  And so anyway, that's how I get to know the people at Mi-Jack.

 

And you know, that was another thing.  When I was Vice President Operations, we actually, we were one of the first groups to contract out the operation of intermodal terminals.  We did that south of Denver at the facility we had there.  And you know, the unions were not real happy about that, but that's how ITS got started that ran terminals and eventually became a huge company that did out-sourcing for virtually all the railroads in North America, of handling their Intermodal business.  So that's how we get to know each other.

 

BG:  I see.  So then when you formed your company…so when you left Santa Fe and took a year off, but then you renewed your relationship with them around the time.

 

MH:  Well, I never really did lose the relationship with them.  I was always very close to the Lanigan’s.  We're almost like family, and so anyway, we kept a relationship.  I started this company up, of Haverty Corp., and they became an investor in the company, and uh, and so we ended up... We invested in what was part of the old South Orient Railroad; ran through Texas down to the border of Mexico.  Then [the Lanigan’s] wanted me to go down and look at Argentina because they had invested in a port down there.  And they wanted me to stop in Panama and look at the railroad there, which I did not want to do.  But I ended up doing that in April, or March, of 1994.  And that's…and ultimately, we were, we set up our proposal for Haverty Corp. to run that operation, and Mi-Jack would be an investor.  And then things just kind of went silent. So then when I took over the job at Kansas City Southern in 1995, Mike Lanigan called me and said, you know, “Hey, what about Panama?”  And I said, “Hey, let's take the plan I wrote up with Haverty Corp., and instead of Haverty Corp. and Mi-Jack, it will now be KCS and Mi-Jack.”  And that's how we got invested in the Panama Canal Railway.

 

BG:  Wow.  And that was probably considered at that time, you know, going back to your sort of moniker as maverick, that must have really been considered ‘out there’; a high-risk decision.

 

MH:  Yeah, nobody could understand that.  And I remember some people going down -- I think I've told you this story before -- with the Smithsonian, and a couple of board members that were in the shortline business went by and looked at what we were doing with the track in Panama:  putting in concrete ties, hundred thirty-six pound welded rail to run at 70 miles an hour, and it's a 47-mile stretch across the isthmus of Panama.  They said, “How could that guy be that stupid to do this?”  

 

Well, I had this idea that we were going to run this like a production line.  And guess who our biggest customer was?  Maersk.  And in fact, I went over to Copenhagen, and that's what I was doing over there.  And tried to get them to invest in the railroad, and they just couldn't understand what it was that I was trying to do.  But I was telling them, instead of running through the canal, taking 24 hours to queue up and nine hours to go through, you know, if you've got these units, if you're going down the, if you’re going down the west coast or down the east coast, drop them off, and we'll just shuttle them back and forth.  Well, they couldn't figure that out, but guess who became our biggest customer?  Maersk.  And guess what?  The operating ratio of the Panama Canal at one time was below 50.  It was like 48.  It was unbelievable.

 

BG:  Forty-eight meaning, uh…?

 

MH:  That was the operating ratio.  So that meant that contribution margins on the traffic was 50 to 52 percent.  And today the big emphasis is on the operating ratio -- which that's another subject; I think overemphasis, but, uh…You know they, they all want to get down into the 60s and the 50s, but you know, we hit that.   And we just operated, again you know, with small crews.  We didn't have labor unions, and the guys would get off the trains, then they'd go and help unload the units, you know.  

 

So anyway, we put all this money in upfront with the idea that it would be…You put all the capital expenditures up front.  We had a 50-year concession.  That railroad literally would last for 50 years with minimum maintenance.  But everybody just said, “Man, they’re crazy” and “Never gonna work!” and so on.  Then we got Amtrak retired locomotives and painted them in the Kansas City Southern paint scheme.  We called the railroad The Panama Canal Railway Company instead of Panama Railway so people could understand where it operated.

 

BG:  So, Kansas City Southern was probably the smallest, right, of the Class I’s?

 

MH:  It was the smallest.

 

BG:  So, you had to be like the, uh…what was it?  Remember when Avis was, “We try harder”?  I don't know what your slogan was, but you had to really be a kind of a scrappy entity within the whole industry, right?

 

MH:  Yeah.  And if you go back in the history of the Kansas City Southern, it's always been somewhat of a scrappy entity back to the days of Arthur Stillwell.  I mean, he did some of the things that some of the bigger railroads did not like, uh, in pricing and things like that.  Over the years it's always been scrappy.  

 

But when I went to work there in May 1995 -- May 15, 1995 -- the railroad had actually been up for sale in 1993 and 1994.  The holding company also owned the Janus Fund and the Berger Fund and other financial assets, and the board had decided to get rid of the railroad. Now when I had Haverty Corp. company, I was down talking to Landon Rowland at Kansas City Southern trying to convince him, “Don't sell it! Expand into Mexico. That's the next growth area in North America.”  But they said that they were going to sell the railroad.  In fact, they tried to hire me to help him sell it, and I said, “I'm not into selling railroads. I like to run them!”  

 

But so anyway, they did not get it sold.  And the chairman, Paul Hanson -- who used to be the CEO and chairman of Sprint Corporation, and then he was chairman of Kansas City Southern -- came up to see me in February 1995.  And they didn't get the railroad sold because the two interested parties were Burlington Northern and Santa Fe.  And I still will tell you that that was the reason that those two got merged together, because there was very much a concern by Santa Fe that BN was going to buy the Kansas City Southern, and the Santa Fe might be left out.  So, Santa Fe then merged, and so KCS was kind of out there on its own.

 

So here it had been for sale for almost two years.  There hadn't been hardly any capital put into it.  Nothing.  Information technologies.  When I came down in May of 1995, virtually people were writing the obituary of Kansas City Southern.  It was not going to survive, and it was only a matter of time before it would be sucked up by much larger carriers.  

 

BG:  So, what made you so interested in heading up a railroad that everybody was so... so pessimistic about?

 

MH:  Uh, because I did believe, and I had been down there trying to tell them, “Don't sell it. Think about expanding in to Mexico.”  And then I truly believed that, so when Paul Hanson came up in February, I did not know that he was going to offer me the job.  I thought he was just going to come up to ask me what I thought about the potential in Mexico.  He said, “You know, we'd like to have you run the company,” and I said, “Well, the only way I would do that is if the board would be willing to consider expanding into Mexico.”  And he said, “We will.”  And so anyway, so that's why I accepted it.  

 

I remember telling my wife, I said, “You know, this is small railroad; not nearly what I went through at Santa Fe for two years,” which you know, she was…I traveled constantly and worked lots of hours.  And I said, “This will be a lot easier.”  Uh…not quite!  It was actually -- and I've told a few people that if I'd known what I was going to get into, I probably wouldn't have taken the job.  But you know as I look back on it, I mean it's been a very gratifying experience.

 

BG:  Oh, yeah.  Well, uh, taking that on…Now, NAFTA had passed in ’91, ’92?

 

MH: ‘94.

 

BG: ’94?

 

MH:  It went into effect in 1994.

 

BG:  Right, but, but…George H. W. Bush had…the negotiations started under him...

 

MH:  Yes, the negotiations. That's how I got involved in it.  In ‘91 when I was still at Santa Fe, I had gone to Acapulco to a worldwide CEO conference down there and got to meet the negotiators from Canada, the United States, and Mexico who gave the presentation in 1991. And that's when, I said, “Whoa, this thing is going to be something.”  And I actually wanted Santa Fe to get interested in this, but Southern Pacific had had a very difficult situation in Mexico back in the ‘60s when their investment down there was expropriated.  And so, you know, there was not a great feeling about us going down there; although, personally, I thought that we should do that.  And of course, then I left, you know, shortly thereafter.  And I really did believe in Mexico and NAFTA.  And I still do.

 

BG:  So, um, the decision to go into Mexico, was that, was it a phased approach, or how did you work that through to finally get into the country or how to, sort of, cross the border?

 

MH:  Well, one of the things that happened is after I left Santa Fe, J.B. Hunt Transport had actually wanted to get into the trucking business down in Mexico.  And J.B. asked me, uh, clear back in 1991, to accompany him on a trip to Mexico as he was looking for a partner down in Mexico.  So, we went to El Paso, we went to Monterrey, and then we went down to Mexico City.  That's where I met Pepe Serrano who owned the largest ocean carrier and transportation company in all of Latin America.  

 

And so anyway, when I came down in ‘93 and ‘94 to talk to Landon Rowland at Kansas City Southern, I told him about Pepe Serrano.  And so anyway, as a backup, Landon was always looking at, you know, “What if this doesn't happen or that doesn't happen?”  So, he actually sent a fellow named Mike McClain down into Mexico and to look at the Mexican railroad that was going to be privatized.  That decision was made in ’95.  Actually, they knew by ‘94 it was going to be privatized, so he went down.  He actually met Pepe Serrano, who I had been down there with.  And in fact, Pepe Serrano had sent a message through J.B. Hunt to me that if the railroad is privatized -- this was when I was running Haverty Corp. -- would Haverty be interested in coming down and running the railroad down in Mexico?  And I said no, that I didn't want to do that.  But I wanted to hook up with a railroad in the United States.  And so that's, that's how it came about.

 

But literally the second day that I was in office [as president of KCS], Pepe Serrano sent a consulting team up to see me about making an investment in Mexico.  Believe me, I had so much going on.  I said, “Hey, I love Mexico; want to invest in it,” and so on.  “I first got to learn about what Kansas City Southern is.  I've got to learn the business here,” and so on.  “So, we'll talk about this.”  

 

But so, I got down here in May, and then just a short time later -- I think it was June -- that the....well, in fact, the month I got here the UP/C&NW merger was approved, which Kansas City Southern lost a lot of grain as a result of that.  And then three months later the BN/Santa Fe merger was approved, and then a couple of months after that the UP/SP merger was announced, and it would end up that if that merger was approved, that 90 percent of all rail traffic west of the Mississippi River was going to be handled by those two.  So, everybody again said Kansas City Southern was gone.  

 

So, I knew that we had to step up the pace and look at investing in Mexico.  It so happened that Serrano's company owned the Texas Mexican railroad.  And we did not want to have to go before the Surface -- the Interstate Commerce Commission at that time later became Surface Transportation Board.  So, we took a 49 percent position in that.  And this was with all the mergers taking place, and we were the laughing stock of the industry.  You know, here Kansas City Southern runs to Beaumont.  It's got a 500-mile gap between Beaumont and Corpus Christi.  But we had a plan, and our plan was that the, what then became the Surface Transportation Board would cause the UP/SP to spin off some of its lines, and we would pick up a line that would connect down there -- which that never happened, but we did get trackage rights.  So, we did have access then to get to Laredo, so we became a legitimate bidder on the Mexican concession.

 

BG:  And was, there was competition for that, for that Mexican business?  Who was your competition, I guess?

 

MH:  Union Pacific totally, uh, almost dominated. You know, they had, they have eight different interchange points between the United States and Mexico; and Laredo is the biggest, but Union Pacific totally, almost dominated all the traffic into and out of Mexico.  There were gonna be three concessions that were going to come up, and the first was the Northeast concession that ran from Laredo to Monterrey to Mexico City to Veracruz, and then over to Lazaro Cardenas, Port of Lazaro Cardenas.  And it was a given that Union Pacific was going to get that, but we ended up with that.

 

BG:  You know we read so much now about NAFTA and about trade, and what specifically about NAFTA made it a game changer, in your opinion?  What was, what was a provision that really made it feasible or attractive for you to make this kind of investment?

 

MH:  Well, it knocked down, you know, a lot of the tariffs.  And you know -- I've told the story before -- but you know, Ross Perot always talked about, you know, with NAFTA you were going to have this ‘giant sucking sound’, and so on.  And I've said the only giant sucking sound I've seen is Mexico buying products and sucking them down into Mexico.  And in fact, Kansas City Southern handles more southbound traffic to Mexico than we handle out of Mexico.  And you know, a lot of people don't understand that.  And a lot of these people that grow grain in Minnesota and Iowa, Nebraska, Illinois, Missouri, Kansas, Oklahoma, so on -- they're now shipping products down in to Mexico.  I mean, it's been a tremendous amount of business.  They’re buying our products, and you know, they are producing products down there that come into the United States.  

 

But as far as I'm concerned, NAFTA did exactly what it was supposed to do, and if you look at the trade between Canada/the United States and the United States/Mexico prior to NAFTA and then you come back, you know, years later and look at it, I mean, the growth has just been absolutely phenomenal.

 

BG:  Do you think that after 20 years that these kinds of agreements should be revisited or fine-tuned?

 

MH:  Yes.

 

BG:  So, you're a...

 

MH:  Yeah, you know, I think that's true with any kind of agreement that you’re in.  You know, I mean, when it's been in effect for 20 years, you're going to find out, “What'd we do wrong?” and “What are the weaknesses?”  So, let's go back in, and let's tweak it and do what we need to do, but you don't scrap it.

 

BG:  Well, especially in the last 20 years -- and this is something that I'd be interested in your -- we're living in the digital age now.   You know, you remember the, uh, the cards from the ‘60s.  But now it's, since the…I guess, the silicon and transistors and chips have changed everything, so even that alone in the last 20 years has changed communications and information technology.  How has that affected your business?

 

MH: Railroad business?

 

BG:  Yeah.

 

MH:  Well, certainly it has helped improve it.  I mean, with signal systems, PTC that's being put in, and the way that you can exchange information and different things like that, it's just…you know, technology has really helped.  The thing I say about the railroad industry though is, you look at how long the railroad industry has been around in the United States and how many times people have written it off and saying, “Well, it's going to die.”  And you know, there have been lots of times that, that were not good in the past.  You had robber barons, then you had poor management, and you had too many unions, and you had at one time the railroad nationalized, and the threat of nationalization, and all that stuff.  But when you get down to it, the steel wheel on the steel rail is still the most efficient means of ground transportation that there is.  So, when you take that ground transportation over the long haul and you take all the technology that is available to figure out how you can move all this traffic and so on, like FedEx does, like U.P.S. does, and so on -- I think the railroads are going to be around for a lot longer.

 

BG:  I went to a convention two years ago in Indianapolis at the Railway Supply Institute. They have this…

 

MH:  Yeah.

 

BG:  Amazing --- and you've probably been there, I'm sure.  And these suppliers, most of whom are relatively small companies, that -- I mean, you've got G.E.  I don’t know.  G.E. was making locomotives at one point.  I don’t know if they’re still or they’re spinning that off.

 

MH: Yeah.

 

BG:  But the supply chain of just what it takes to, to make this industry work is quite amazing.  And I'm thinking about what you would say to somebody considering a career in railroading now.  What would you advise them, you know, what would be the path that they might follow to be, you know, following in your footsteps?

 

MH:  Well, I think that, clearly, they have to be innovative, but in the final analysis -- and you know, I'm old school -- you know, you have to run a tight ship.  And again, you have to deliver the product on time at a reasonable price.  And I mean that's just common, economic logic. So, when you get into this business you need to understand what is technology going to be able to do in the future?  How can it help you plan the supply chain and work with other organizations and so on to move the products?  But in the final analysis, you still got to move it from A to Z at a reasonable price.  And you got to do it as expedited as you possibly can.

 

BG:  I want to talk a little bit about people. You've mentioned a lot of people who have influenced you, and I had some people who we haven't mentioned -- Paul Tellier.  Uh, what was your relationship with him?  How did you get to know him or work with him?

 

MH:  Paul actually, uh, first came down to see me around 1998, and he was interested in a -- and I can say this now; it’s been a long time ago -- he was interested in a consolidation that might involve Kansas City Southern.  And you know, the ironic thing is that Kansas City Southern had been for sale, you know, just a few years earlier, and all the railroads looked at it and had come to the conclusion that it just wasn't the right thing.  In fact, Kanas City Southern had bought what we refer to as the Meridian Speedway between Shreveport and Meridian that is actually the best route between the Southeast and Southwest in anticipation that Norfolk Southern might be interested in the Kansas City Southern.  But anyway, none of the railroads had wanted to buy this.  

 

But then Paul took over and really modernized the Canadian National, you know, and it went from being a nationalized railroad to a privately traded railroad.  And what Paul did is just absolutely amazing.  And he was innovative, entrepreneurial; did just a tremendous number of things.  But he came down to visit me, and he’d thought about, he said, “You know, we need to think about maybe we put these companies together,” you know?   “You believe in NAFTA,” and you know, go from Mexico to the United States to Canada.  And I said, “Yeah, we do,” but I said, “You know, Paul, we don't even really connect with you. You know, we're not…” and he told me, he said, “I'm going to buy the Illinois Central.”  Now, he told me this a long time before he actually bought it.  But he said, “So we will connect.  We'll connect at Springfield, Illinois, and we’ll connect at Jackson, Mississippi.”  So, you know, I never ever told anybody, and I never went out and bought any IC stock or anything, and I just, I kept it quiet.

 

But anyway, so you know he kind of really wanted to do something, and I told him, I said you know, uh, you have to let us develop Mexico and see what we can do there and create value for our shareholders, because, you know basically with our stock price back in those days -- and you can go back and take a look at it – I mean, Kansas City Southern was still a holding company, but you know -- and it had done pretty well -- but we still had a lot to do to create value.

 

Anyway, he and I, though, developed a relationship, and we ended up…We didn't merge, but we ended up entering into a marketing agreement to where they would move traffic from Canada to Mexico and then move traffic between Mexico and Canada via our lines primarily going through Jackson.  And Paul and I and our teams would meet literally every quarter, and we'd go back and measure how much business we would do and what the opportunities were and so on.  But he was a great...

 

BG:  He's going to be an inductee into the Hall of Fame.  He is an inductee, I should say.

 

MH:  Yeah, he actually, I think, he's already in.  I think he and I and one other fellow are the only, maybe, living members, living inductees.

 

BG:  Something you just mentioned -- and I want to talk about people who we've sort of mentioned in passing -- but something you just mentioned about shareholders.  And so much of the reading about business, and one of the criticisms of corporations is that they are forced into short-term thinking because of the shareholder expectations.  Can you comment on that at all how that affected your management and your decision-making in this industry?

 

MH:  Well, I'll tell you, there's a tremendous amount of pressure from Wall Street. There always has been; there always will be, you know.  And their number one objective is the return on investment, but sometimes you have to look beyond quarter to quarter to quarter.  You know, you've got to look at the long term.  And I would say that I've always been a long-term player.  And so, we made decisions for the long term, and you know, if you go back and look at the results, it turned out just fine in the long term.  But from quarter to quarter we didn't always meet the expectations.  And my response to that is you need to understand what we're trying to accomplish, and if you really don't like that, you don't want to do it, then you ought to own some other stock besides us.  That's the way I feel about it.

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