Derailment Hurt NS 1st Quarter Earnings

The early February derailment of a Norfolk Southern train in East Palestine took a toll on the company’s first quarter financial performance.

NS said this week that first quarter earnings were down 34 percent to  $711 million.

Company officials said earnings took a hit due to a $387 million charge associated with the derailment, which spilled hazardous substances and forced hundreds of people to evacuate their homes for several days.

The charge doesn’t reflect the potential for insurance reimbursements.

NS CEO Alan Shaw also said during an earnings call that NS also suffered because of changes in operating practices, specifically changing how it assembles and operates long, heavy trains.

That change was made, NS officials said, in an effort to reduce in-train forces that could lead to a derailment.

During the first quarter of 2023, NS said revenue increased 7 percent, to $3.1 billion, while earnings per share fell 30 percent, to $2.04.

Adjusted for the effect of the costs associated with the East Palestine derailment, operating income was up 1 percent, to $1.1 billion, and earnings per share increased 13 percent, to $3.32. The operating ratio rose a whopping 14.3 points to 77.3 percent. In the first quarter of 2022, the OR had been 64.9 percent.

During the first quarter merchandise and coal traffic rose 5 percent while intermodal volume was down 4 percent.

The East Palestine derailment adversely affected NS operations in multiple ways. For a few days no trains could operate past the derailment site.

Once operations on the Fort Wayne Line resumed through East Palestine, trains were forced to operate at slower speeds, which had cascading effect.

NS also pledged to remove all of the soil and ballast between both tracks at the derailment site to remove any traces of spilled hazardous substances.

That work has been completed on one of the two mainline tracks, but won’t be completed on the other track until June.

The Fort Wayne Line through East Palestine is part of the busy NS route between Chicago and New York.

During the conference call, NS executives discussed the effects on it network of the operating changes it made to network.

The changes have affected 70 percent of manifest freights and 17 percent of intermodal trains. The result has been increased dwell times in terminals, a deterioration of on-time performance and slower average train speeds.

The use of distributed motive power has increased on half of the NS merchandise train network.

“We got really conservative on our train marshaling rules based on the environment and recent events,” Shaw said. “As we are dialing that in, and analyzing each train symbol and line segment, we are adding capacity back into the network.”

Chief Operating Officer Paul Duncan expects the adverse effects of operating changes to be short term.

“As we dial in our train makeup enhancements, we are already seeing improvements to our network in recent weeks,” he said.

Shaw contended that NS is a safe railroad, saying the accident rate fell 10 percent during the first quarter compared with all of 2022. The railroad’s mainline accident rate declined 13 percent while the personal injury rate improved by 12 percent.

At the same time Shaw said NS continue to do more to seek to become even safer.

This has included more training for field supervisors and installing additional hot bearing detectors.

NS executives said the carrier is still short of full crew staffing levels in a third of its crew bases despite an aggressive push to hire additional workers.

Class 1s Changing Incentive Programs

Class 1 railroads are using financial incentives to their managers to prod them toward placing more focus on service quality and traffic growth, Trains magazine reported on its website.

The report said the carriers have changed the focus of performance bonuses for executives to emphasize such things as on-time performance rather than reducing the operating ratio.

As an example, Norfolk Southern as recently as last year based 50 percent of the criteria for bonuses on improvements in the operating ratio, which is a measure of how much revenue is devoted to paying operating expenses.

This year NS bonus criteria is based on 40 percent on operating income, 30 percent on revenue growth, 10 percent on merchandise on-time performance, 10 percent on intermodal on-time performance, 5 percent on improving the employee injury rate, and 5 percent on improving the train accident rate.

CSX had made similar changes by reducing the weight given to reducing the operating ratio from 35 percent to 30 percent. Other weights in the CSX bonus structure are 30 percent on operating income, 10 percent new traffic growth, 10 percent safety, 10 percent fuel efficiency, and 10 percent trip-plan compliance. The article can be read at https://www.trains.com/trn/news-reviews/news-wire/management-incentives-at-csx-ns-and-up-shift-toward-service-and-growth/

Legislature Clearing Path for Sale of Cincinnati Line

The Ohio General Assembly is poised to adopt legislation that could clear the way for the sale of the Cincinnati Southern Railway to Norfolk Southern.

The CSR is owned by the City of Cincinnati and leased to NS. It runs from Cincinnati to Chattanooga, Tennessee.

Ohio lawmakers are working out differences in clauses of the state’s transportation bill that was earlier approved by the House and Senate.

Legislation is needed to allow the city to put the question of selling the CSR before voters for their approval.

A legislative conference committee recently approved a compromise that would enable funds from the sale of the rail line to be used by the city for capital projects.

At present, Cincinnati uses lease payments it receives from NS for capital projects. Without a legislative change, the proceeds of the sale of the line could legally only be used to retire public debt.

The language adopted by the conference committee allows NS to buy the rail line and places limits on principal in a trust to be managed by the CSR Board of Trustees.

The legislation would allow sale of the line to be submitted to voters in 2023 or 2024.

The transportation bill was expected to be approved by both chambers on Wednesday.

NS 9-1-1 on the Conway Mingo Jct. Local

For the past several weeks the Norfolk Southern 911 Honoring First Responders engine has been assigned to the C65 local between Conway and Mingo Jct.

This past Saturday I managed to catch it leading.  Here are a few pictures.

The top image shows the local crossing the bridge at Yellow Creek. The second and third images were made of the train coming by what’s left of the steel mills at Mingo Jct.

Photographs by Todd Dillon

All Class 1 Railroads Lost Traffic in 2020

All North American Class 1 railroads lost traffic volume in 2020, but some lost more than others.

Weekly carload reports issued by the Association of American Railroads show that Canadian Pacific suffered the least loss of traffic.

CP’s volume fell 2.2 percent compared to the average 6.8 percent decline of the big six systems.

CSX posted a 5.7 percent decline in overall traffic in 2020 but also had the industry’s largest intermodal gain for the year at 1.5 percent.

Canadian National had overall volume decline of 6.1 percent. Other traffic declines posted by Class 1 carriers included Union Pacific, down 7 percent; BNSF, down 7.6 percent; and Norfolk Southern, down 11.9 percent.

NS sustained the steepest declines among Class 1 carriers in intermodal, carload, and coal traffic.

Class 1 Execs Tout Intermodal Growth

Class 1 railroad executives speaking this week during an investor’s conference played up the recent growth in intermodal traffic, with one executive comparing it to near-peak season levels.

CSX Executive Vice President of Sales and Marketing Mark Wallace said intermodal volume is up 6 percent in the third quarter to date with domestic intermodal volume having risen since late June.

“And that has carried on,” he said. “The volumes have been very, very strong — much to our delight.”

Wallace attributed the rise in intermodal volume to consumer spending, saying e-commerce traffic has been particularly strong.

He and NS Chief Marketing Officer Alan Shaw spoke at the Cowen 2020 Global Transportation & Sustainable Mobility Conference where executives said intermodal traffic generally is now above pre-COVID-19 pandemic levels.

Shaw said NS has also benefited from strong consumer spending, but also from a partnership it has launched with BNSF and Union Pacific for traffic moving between the Southwest and the Southeast.

Another factor favoring intermodal has been a tightening of truck capacity.

The railroad executives also cited good rail service helping to spur intermodal volume growth.

The pandemic has accelerated growth in e-commerce. Shaw said retailers will begin keeping inventory closer to consumers, which presents NS with a “huge opportunity” because it operates the largest intermodal network in the East.

Wallace said his railroad’s intermodal on-time performance, measured by trip plan compliance, was in the low 90 percent range in the third quarter to date.

However, it had been in at 95 percent before the pandemic. One reason for the difference, Wallace said, is that CSX is challenged in getting furloughed train crews back to work in an expeditious manner.

The executives noted that imports to East Coast ports have been growing because retailers are looking to get goods inland as quickly as possible.

They expect East Coast ports to gain traffic because of a rise of manufacturing in Southeast Asia, which favors an all-water route to the East Coast via the Suez Canal.

The increase in intermodal volume, though, will not necessarily result in additional trains being operated.

Instead, the executive said the added traffic will be placed on existing trains.

“We’re leveraging the capacity dividend we created,” NS Chief Financial Officer Mark George said.

He was referring to how as part of the railroad’s use of the precision scheduled railroading operating model it is running fewer but longer trains.

The average train weight at NS is up 11 percent since the beginning of 2019 despite coal traffic being down by a third compared to a year ago, George said.

Wallace said CSX has 30 percent additional capacity on its existing train starts and ample road capacity for longer trains.

Wallace said CSX does not anticipate making any further changes in its intermodal network and it doesn’t expect to close any of its eight existing humps operating at classification yards.

“If we see a high-return project where we think we could have — we could spend some capital and get a very, very high return on that project, then we’re looking to do that, we would do that,” he said.

However, Wallace said CSX has nothing on the horizon as far as major capital expenditures beyond what is planned now.

NS to Raze MG Tower Near Altoona

MG Tower as seen on Sunday of Memorial Day weekend 2013 during an excursion pulled by Nickel Plate Road 765 trip heading back toward Horseshoe Curve then Altoona for a lunch stop. (Photograph by Edward Ribinskas)

A historic former Pennsylvania Railroad interlocking tower near Altoona, Pennsylvania is set to be razed.

Norfolk Southern is seeking bids to demolish MG Tower two miles west of Horseshoe Curve.

“We have put the demolition out to bid and are awaiting responses,” NS spokesman Jeff DeGraff told the Altoona Mirror.

He said the demolition is for safety reasons because the structure is deteriorating. How soon the tower will be razed will depend on cost estimates the railroad receives.

The tower was built during World War II when the Pittsburgh-Philadelphia mainline boasted four racks.

Joe DeFrancesco, executive director of the Railroaders Memorial Museum of Altoona, said MG was not a viable candidate for preservation because it is far from a public road.

Moving the structure would be difficult and expensive, he said.

“You preserve what you can preserve,” DeFrancesco said. “Some things are beyond reach.”

Railroads Eye Traffic Gains As Auto Plants Restart

With North American automotive production plants restarting operations in the past week, Class 1 railroads are hoping for a boost in freight traffic.

Aside from carrying finished automobiles and trucks, railroads hope to cash in on carrying automotive parts and supplies.

However, railroad executives say the wild card is whether consumer demand will be enough to prompt growth in automotive traffic volume.

Falling automotive traffic has been a significant contributor to falling freight volume in the past two months.

The Association of American Railroads said North American traffic for motor vehicles and parts fell 36.4 percent year-to-date to 335,839 carloads in data reported at the end of the week ending May 16.

Automotive production also is expected to ramp up slowly. Automotive production in the U.S. and Canada restarted on May 18 while Mexico plants are scheduled to resume work on June 1.

“Our auto plants reopened this week with very limited production,” said Norfolk Southern Chief Marketing Officer Alan Shaw. “The sustainability of that production is going to be highly dependent on consumer demand and consumer confidence to go out there and buy automobiles.”

Shaw said the deliberate pace that auto makers plan to follow would also likely result in “puts and takes” for auto suppliers since some supplies, such as steel, are already at the plants.

He said auto industry suppliers might not see demand recovery until auto production has been up and running for some time.

Mark Wallace, CSX executive vice president of sales and marketing, said the restarting of automotive production might help the railroad gain clarity on merchandise volumes for the remainder of the second quarter and into the third quarter.

CSX Chief Financial Officer Kevin Boone said the carrier was starting to see some “very small car orders” coming through the auto manufacturing plants.

But Boone said it would be a couple of weeks before any sizable volumes appeared.

“This will be a slow ramp-up, and they’re focused on protecting their workforce as well,” Boone said adding that “certainly going zero to something is helpful.”

Canadian Pacific CEO Keith Creel sees volume growth from automotive traffic rising in the third quarter but expects it to be flat in the fourth quarter.

However, he said the return of automotive production will give CP some lift in the second quarter with traffic declines linked to the economic downturn triggered in part by the COVID-19 pandemic bottoming out in May.

Federal Court Overrules Kentucky Blocked Crossing Law

State laws designed to discourage railroads from blocking grade crossings that have the effect of regulating railroad operations are impermissible under federal law, a judge has ruled.

The case involved a Kentucky law that was challenged by the Association of American Railroads.

A federal court in rendering the ruling in favor of AAR acknowledged that states have historically had a role in regulating local highways.

But the Kentucky law has the effect of regulating railroads and that is the province of federal law, the court ruled.

“ . . . the state does not have the authority to regulate highway safety to the extent that its laws require the railroad to effect such substantial changes,” the ruling said.

At issue was a case that began with police in Pulaski and McCreary counties issuing citations to Norfolk Southern under a state law that stated trains cannot block roadways for more than five minutes.

The Pulaski citations were issued for blocking Richardson Lane near a depot in Burnside.

Most of the citations said trains were stopped for between 15 to 20 minutes.

NS contended in court that five minutes is not long enough to perform all of the safety checks needed following a crew change.

An NS manager said that those checks can take 15 to 20 minutes if everything goes well.

Although NS entered pleas of guilty to 11 misdemeanor citations, the AAR filed a lawsuit on the railroad’s behalf in a federal court against Pulaski County Attorney Martin Hatfield and Pulaski Sheriff Greg Speck in their official capacities, as well as the Sheriff and County Attorney for McCreary County.

After the court ruled against him, Hatfield issued a statement saying that although he was disappointed in the ruling, local authorities would obey it as they review their options for an appeal.

He said the state court cases should not be affected “until we have either exhausted our appeals, or made the decision not to appeal.”

Chasing Down the NS OCS Train

Back in May Norfolk Southern ran its executive train on the Fort Wayne Line through Northeast Ohio.

I chased it to get some new views and as many old Pennsylvania Railroad position light signals as I could.

I also went out because NS has repainted and renumbered the engines so they wouldn’t conflict with new diesels they had bought.

My first photo location was the curved bridge in Massillon.  It’s probably the most famous spot on the line and a must have photo.

Next was Wooster but the train was going through just as I pulled up.  I then went to Lucas, which is just east of Mansfield.

After a crew change I got it passing under a signal bridge in town.

My final stop was North Robinson passing an intermediate signal.  This ended the chase as it was getting dark then.

Photographs by Todd Dillon