New NS CEO to Visit Ashtabula

New NS CEO Alan Shaw plans to spend today visiting with maintenance of way workers in Astabula.

Shaw, who assumed the CEO role on May 1, is spending time visiting various NS facilities in its first few days on the job.

He replaces James Squires, who has retired. Shaw’s ascension to CEO was planned. He was named NS president last December.

Other locations that Shaw has visited or plans to visit include Debutts Yard in Chattanooga, the yard in Elkhart, Indiana; and an operations center in Roanoke, Virginia.

Shaw also has written to NS employees to lay out his goals as he talks over the railroad.

He called service restoration and developing a customer-centric company that is operations driven among the top priorities.

“My first priority, and the top priority of every member of the Norfolk Southern team, is to restore service to the quality our customers expect and deserve,” Shaw wrote.

“We’ll compete and win in the $800 billion truck and logistics market by being customer-centric and operations-driven.”

The letter cited Amazon and UPS as examples of the type of service-oriented company that NS must seek to become.

Shaw also went on to call for controlling costs and growing revenue.

NS Outlines Steps it’s Taken to Untangle Intermodal Congestion

In response to a request by federal regulators, Norfolk Southern has outlined steps it has taken to alleviate congestion in its intermodal terminals.

NS contended that the congestion is due to factors beyond its control, an assertion made by other Class 1 railroads in their responses to the U.S. Surface Transportation Board.

NS said it has taken steps to limit the flow of containers, particularly to terminals in Chicago, where bottlenecks have occurred due to a high volume of containers coming in and shippers and receivers being slow to pick up containers unloaded from inbound trains.

In a letter signed by CEO James Squares, NS said it is metering the flow of traffic at origin terminals to keep inland terminal volume “consistent with the ability of the drayage and warehouse communities to pull them from those terminals, and increased the flow of inbound containers as outgate capacity has improved.”

The most congested NS terminals have been Chicago Landers; Austell, Georgia; and Columbus, Ohio.

At Landers, NS increased stacked container capacity by 60 percent and lift capacity by 40 percent.

Squires said NS has worked with BNSF and Union Pacific to create steel-wheel interchanges in Chicago in order to reduce the demand for crosstown rubber-tire moves of containers from one railroad terminal to another.

NS Set Quarterly Records in 2nd Quarter

Norfolk Southern said on Wednesday that it set records in the second quarter of 2021 for net income and diluted earnings per share, operating ratio and income from railway operations.

In a news release, NS said net income rose 109 percent to $819 million, or $3.28 diluted earnings per share from $392 million, or $1.53 diluted EPS, in the same quarter a year ago.

Income from railway operations rose 91 percent to $1.2 billion while the operating ratio was a record 58.3 percent from 70.7 percent a year ago.

Railway operating revenue of $2.8 billion increased 34 percent, driven by a 25 percent increase in volume and a 7 percent increase in revenue per unit. Railway operating expenses totaled $1.6 billion, an increase of 11 percent.

 “We are even more confident about growth for the balance of this year,” NS CEO James Squires said during an earnings call.

NS executives said they expect revenue to increase by 12 percent this year, up from the previous forecast of 9 percent growth.

They project shaving up to 4.4 points off the operating ratio this year, an improvement from their earlier projection of a 3-point improvement.

Overall traffic volume was up 25 percent including a 29 percent gain in merchandise traffic, a 20 percent rise in intermodal and a 55 percent gain in coal traffic.

All figures are in comparison with the second quarter of 2020, which was marked by an economic downturn triggered by the COVID-19 pandemic.

“We are approaching pre-pandemic revenue levels,” said NS Chief Marketing Officer Alan Shaw. “However, the composition of our business has changed dramatically due to  . . . trends in the overall economy that were accelerated by the pandemic.”

Shaw said one example of how NS was able to take advantage of those changes is carrying traffic serving consumer and manufacturing markets in the East.

Even as NS traffic grew during the second quarter, its payroll was 8 percent smaller.

Train are longer (14 percent) and heavier (16 percent). Yet the railroad said fuel efficiency improved 4 percent.

“These gains were achieved in part by the increased deployment of distributed power and more blending of previously separate traffic types on the same train,” Chief Operating Officer Cindy Sanborn said.

Sanborn said that in order to accommodate longer trains NS plans to lengthen passing sidings on some routes. She attributed the fuel efficiency gains to longer train lengths.

NS now has 1 percent fewer locomotives than it did a year ago. It has retired older locomotives and stepped up converting DC units to AC traction.

Fewer locomotives are being bad ordered spending time in repair shops. The NS locomotive workforce has fallen by 55 percent in size compared with 2018.

NS officials said they are focusing on improving local service in yards by changing staffing to make service more consistent and terminals more productive. More remote control locomotives are being in used as part of these efforts.

Sanborn said NS has reduced switching volume in Chicago by building trains in its Elkhart, Indiana, yard that can be directly interchanged with other railroads.

Train crews have received smartphones that allow them to provide real-time reporting of switching moves. NS plans to implement a new local train reporting application this summer to improve reporting of first- and last-mile service.

NS CEO Squires Expects 2021 Traffic Rebound

Norfolk Southern CEO James Squires understands he and his team have a lot of work to do to boost the fortunes of a railroad that saw freight volume drop nearly 12 percent last year.

That made NS the biggest loser among North America’s Class 1 railroads all of which lost volume during a year dominated by a pandemic-depressed economy.

Speaking to a conference this week of railroad construction and maintenance firms, Squires attributed NS’s problems to it being an “energy commodity franchise and a disparate impact on our utility coal business,”

The carrier’s coal traffic plunged by 37 percent last year, the worst in the railroad industry.

But its ethanol and frac sand volumes also were affected by the collapse of energy prices.

“But with that said, I remain confident that we have an outstanding growth strategy at Norfolk Southern,” Squires said.

“We have one of the premier intermodal franchises in the industry.”

He noted NS has the largest intermodal network in the East and expects consumers to help NS pull out of its slump through their consumption of goods hauled in intermodal containers and trailers.

Squares predicted the economy and rail traffic would continue to rebound this year as COVID-19 vaccines are rolled out and the pandemic wanes. 

“I’m very optimistic about 2021, particularly in the second half [when] we should see a great deal of activity as customers restock inventories, as people enjoy the ability once again to be out and about and to lead their lives as usual,” he said.

In looking longer term, Squires said the railroad industry needs volume growth in order to compete with trucks.

The NS CEO also touted precision scheduled railroading, which has enabled it to operate more efficiently and reliably by moving tonnage on fewer but longer trains.

Although most Class 1 railroads practice PSR, Squires said what makes the NS version differ from others is that it keeps customers informed of significant operational changes.

NS Operating Revenue down 29% in 2nd Quarter

Second quarter operating revenue at Norfolk Southern plunged a whopping 29 percent to $2.1 billion.

In announcing its quarterly financial results, the carrier said the steep dive was driven by a 26 percent decline in total freight volume compared with the second quarter of 2019.

It was the largest second quarter 2020 drop among Class 1 railroads.

NS posted net income of $392 million, down 46 percent, and diluted earnings per share of $1.53, down 43 percent compared with the same period a year ago.

Railroad officials cited the COVID-19 pandemic’s impact on freight volume as a major factor in the dismal quarter performance.

Operating expenses during the quarter were $1.5 billion, down 21 percent from a year ago due to lower fuel, compensation, benefits and purchased services expenses.

In a statement, NS CEO James Squires said the railroad will continue to further trim its infrastructure, including reducing the number of hump yards that it operates and operating longer trains.

Income from railway operations was $610 million, down 43 percent. The railroad’s operating ratio for the quarter was 70.7 percent compared to 63.6 percent a year ago.

During an earnings call on Wednesday morning, Squires declined to predict how the railroad might fare from a financial perspective for the remainder of the year because it remains to be seen how durable the economic recovery will be.

However, he and other NS executives expressed guarded optimism, saying the carrier has seen a strong rebound in intermodal and automotive traffic.

One commodity NS does not expect to bounce back is coal, which sank by 57 percent during the second quarter.

NS Chief Marketing Officer Alan Shaw said coal will continue to be depressed due to competition from low-cost natural gas and weakness in export metallurgical coal markets.

During the second quarter, merchandise traffic dipped 29 percent while intermodal traffic was down 16 percent.

Shaw said the growth of consumer demand and tightening truck capacity could bode well for intermodal volume growth.

The resumption of auto manufacturing and rising manufacturing output have boosted merchandise volume.

“The consumer segments are doing really well,” Shaw said noting that intermodal and automotive volume in July have outpaced those of June.

Average train weight was up 6 percent due to NS moving more tonnage on fewer and longer trains.

Train starts were down 28 percent and Chief Operating Officer Michael Wheeler said many of the train suspensions are likely to be permanent even as traffic volume recovers.

Wheeler said train starts are down 20 percent thus far in July as NS has amalgamated various types of traffic into its merchandise trains.

Wheeler said NS still is able to add volume to existing trains without having to add train starts.

The second quarter saw the closing of hump operations in Linwood, North Carolina, and Bellevue, Ohio, and NS expects to close additional terminals.

Closing Linwood and Bellevue is expected to save the railroad $20 million to $30 million a year.

NS Operating Revenue Down 4% in 3rd Quarter

Norfolk Southern this week reported that its third-quarter 2019 operating revenue fell nearly 4 percent to $2.8 billion.

In a news release, NS said a 2 percent increase in average revenue per unit was partially offset by a 6 percent decline in total volume.

Net income in the quarter dropped to $657 million, or $2.49 per share, compared with $702 million, or $2.52 per share, for the third quarter of 2018.

Operating expenses for the third quarter of 2019 fell to $1.8 billion compared with $1.9 billion a year ago. Third-quarter rail operating income fell to $996 million from $1 billion last year.

NS posted an operating ratio of 64.9 percent, which was third-quarter record and a half point improvement over third quarter 2018 operating ratio.

The carrier attributed its lower operating ratio to positive results of its new TOP21 operating plan, followed by the “swift transition to the plan’s second phase,” said NS Chairman, President and Chief Executive Officer James Squires in a news release.

“These efforts produced an 11 percent reduction in crew starts and recrews compared to the third-quarter last year, robustly outpacing the 6 percent volume decline while maintaining resilient service that supported an 11th consecutive quarter of year-over-year revenue per unit growth,” Squires said.

NS said that it also made headway toward more efficient mechanical operations during the quarter.

“Looking ahead, additional productivity will be generated as we advance to the third phase of TOP21 and execute initiatives surrounding fuel efficiency, distributed power, intermodal operations, and our mechanical network,” Squires said.

However, NS said it will miss its target of a 1-point reduction in the operating ratio this year, partly due to the effect of one-time actions being undertaken.

Squires said management remains confident about reaching its target of a 60 percent operating ratio in 2021 through a program of cost-cutting, efficiency gains and revenue growth.

Overall traffic volume declined 6 percent during the third quarter of 2019 with merchandise down 4 percent intermodal down 5 percent and coal off by 15 percent.

Revenue per unit climbed in all three business segments as NS continued to raise rates, said Chief Marketing Officer Alan Shaw.

Last August NS launched the second phase of its TOP21 operating plan, which is based on the principles of precision scheduled railroading.

The initial phase of the operating plan began on July 1 and involved consolidating trains and boosting the use of distributed power.

NS is mixing some intermodal, bulk, and carload traffic together in the consists of longer but fewer trains. Train starts and recrews per day have declined 11 percent.

NS has cut its active locomotive fleet by 22 percent and its number of train and engine crews by 13 percent to a record low.

The Class 1 carrier also has lopped 3,200 workers from its rolls and expects to employ 23,300 at year’s end, said Chief Financial Officer Cindy Earhart.

During an earnings call, Wall Street analysts asked Squires why the NS operating ratio has not declined as quickly as it did at CSX and Union Pacific after those carriers adopted the PSR operating models.

Squires said NS continues to push as hard as it can on costs, efficiency, and revenue growth and is controlling what it can in a declining volume environment.

NS also lags behind other Class 1 carriers on fuel efficiency, although Squires said NS is working to improve that.

Squires Pleased with NS PSR Implementation Thus Far

Norfolk Southern CEO James Squares told a conference recently that implementation of the NS version of precision scheduled railroading is going well.

Speaking to the Midwest Association of Rail Shippers, Squires said the operating plan, known as TOP21, has seen a seamless transition for most shippers.

“More than 80 percent of carloads in our merchandise network have different trip plans” compared with before the new operations plan.

Squires said that has enabled NS to to do more with less and he wishes the carrier has gone to PSR sooner.

NS had the benefit, Squires said, of observing PSR being implemented at other railroads and therefore was able to learn from the experiences of those carriers so it could “do PSR right, do it our way.”

Squires said freight cars on line are down 18 percent, shipment consistency is improved by 71 percent, terminal dwell times are down 39 percent and customer volumes are up 77 percent for customers served six days a week or more.

NS now needs 30,000 fewer freight cars than it needed in 2018. Squires said the resulting car surplus could be used to support traffic growth, which he expects to occur in the second half of the year.

In the past six month, NS has mothballed more than 600 locomotives.

The carrier is reviewing its demurrage policy after receiving shipper customer complaints.

Squires Lays Out Conditions for 1-Person Crews

Norfolk Southern CEO James Squares can foresee trains operating with just one crew member, but said three things need to happen before that can routinely occur.

James Squires

Speaking to a gathering of short line and regional railroad executives at an NS marketing meeting in Norfolk, Virginia, Squires said the technology needs to be in place, there needs to be changes in regulations to allow one-person crews and the railroads needs to negotiate one-person crews clauses in their collective bargaining agreements with unions.

Squires said position train control could be the technology that makes one-person crews possible.

As for regulations, Squires said at a minimum those must not prohibit one-person crew operations but preferably will also be conducive to such operations.

He noted that the FRA has signaled that it plans to preempt state minimum crew laws that require two or more crew members on a train.

Squires said the number of crew members aboard a train is an outgrowth of work rules in union contracts.

Although Squires said NS will someday ask its unions to agree to one-person crews, he did say that the technology and regulations need to be in place before seeking one-person crew agreements with unions.

“That’s going to be a very contentious and prejudice and time-consuming round of negotiations for reasons that I think are obvious to everyone,” he said.

NS Sets Records in 2nd Quarter

Norfolk Southern on Wednesday reported that during the second quarter of 2018 it set records for operating income, operating ratio, net income and earnings.

Second quarter net income rose 43 percent to $710 million, or $2.50 per share, compared with $497 million, or $1.71 per share in the same period of 2017.

NS officials attributed the net income growth to an 18 percent increase in income from railway operations and a lower effective income tax rate.

“Our second-quarter results reflect strong growth in our business and our sustained commitment to improving financial performance,” said Chairman, President and CEO James Squires in a news release.

Railway operating revenue for the quarter increased 10 percent to $2.9 billion over the second quarter of 2017 as overall volumes were up 6 percent reflecting growth in all three commodity categories of intermodal, merchandise and coal.

Operating expenses rose 6 percent to $1.9 billion for the quarter over a year ago, as a result of higher fuel prices, higher incentive compensation and increased costs associated with overall lower network velocity offset, in part, by refund claims for prior years’ employment taxes paid on equity awards.

Income from railroad operations increased 18 percent to $1 billion compared with the second quarter of 2017, which NS said marked a record for any quarter.

The operating ratio of 64.6 percent was a second quarter record. NS posted an operating ratio of 66.9 in the second quarter of 2017.

NS Leasing More Locomotives, Reopening Hump Yard

Norfolk Southern has continued leasing locomotives to handle traffic surges and alleviate congestion that has occurred in particular in the southern reaches of its network.

The Class 1 carrier leased 90 locomotives in the first quarter and has added another 50 leased units to its fleet

NS CEO James Squires said the additional motive power will help handle traffic growth and enable the carrier to convert 120 older six-axle DC units to like-new AC-traction locomotives as part of its ongoing DC-to-AC conversion program.

It has also hired 400 new conductors to keep its train and engine crew headcount up.

Speaking to the Bank of America Merrill Lynch 2018 Transportation Conference, Squires said congestion in the South prompted NS to plan to reopen a hump yard in Chattanooga, Tennessee.

Squires said the hump at DeButts Yard will be a hybrid operation, meaning it will be used to classify traffic for local customers. Block swapping will continue to be done in the yard as well.

In the past year NS has increased its building of large blocks of cars and swapping them en route to minimize handling and to speed shipments along.

NS had closed the DeButts hump in May 2017. Since them terminal dwell times in Chattanooga have risen sharply.

Dwell times in Chattanooga have increased from an average of 33.5 hours in the second quarter of 2017 to 49.5 hours in April and to 62.7 hours this month.

Squires did not say when the hump would reopen. It remains in place, but workers must re-install the retarders used in hump operations.

Dwell times have also risen in other yards in the South as have average train speeds.

Despite efforts NS has made since last year, the service metrics in that region have not improved.

“We’re holding our own against strong volume growth,” Squires says. “Volume on our network is at a 12-year high.”

The NS CEO said that humps allow resiliency and operational flexibility when traffic rises by absorbing surges in traffic and metering the flow of volume by holding cars until they are ready to be released to customers.

“Customer service is not where we want it to be,” Squires said. “I want our customers to feel fully satisfied with the service they are getting from us, and right now many of them don’t.”

Despite the problems it has experienced, Squires said NS had the strongest volume growth among the Class I railroads for the year to date and that demand for rail service is the strongest he’s ever seen.