NS Strategy Shift Draws Wall Street Approval

Norfolk Southern’s new business strategy drew applause from Wall Street on Wednesday, but a report posted on the website of Trains magazine noted it also drew some skepticism.

NS CEO Alan Shaw said during an investor’s day event this week that NS would refrain from furloughing operating personnel when traffic drops during economic downturns and would be more focused on providing consistent service and seeking traffic growth rather than looking to reduce expenses at every turn in pursuit of an ever lower operating ratio.

But the Trains report said some Wall Street analysis must be persuaded that the Atlanta-based Class 1 carrier can reach its 2019 service levels and maintain them.

The views of the analysts were expressed in notes written to clients and in interviews conducted by Trains.

One analyst agreed with Shaw that maintaining the existing work force during traffic downturns would hurt short term profits but prove beneficial in providing better service and reducing the recovery costs inherent in having to hire and train new personnel once the economy recovers.

Traditionally railroads have furloughed workers during economic downturns in an effort to reduce expenses. The assumption has been that once traffic picks up furloughed workers will return to their jobs. That has been less the case in recent years.

One analyst who approved of the NS approach said that increasingly railroad earnings are becoming dependent on volume growth, which can be difficult to achieve when service quality is lackluster.

Some of the notes written by investors said the new NS strategy may face a test in 2023 if the economy continues to slow and freight volume is reduced with it.

As for the skepticism, one analyst wrote in a note to clients that the rail industry in the past decade has not seen its traffic volume keep pace with economic growth.

NS alone has lost 4 percent of its traffic volume during that period with much of that loss coming from a 52 percent fall in coal traffic.

That and other notes said NS will have to show it can achieve the consistent service it claims to be seeking with its new approach and that it can, indeed, divert to rail freight that is now moving on highways.

The Trains article can be read at https://www.trains.com/trn/news-reviews/news-wire/wall-street-analysts-welcome-norfolk-southerns-service-and-growth-plan/

NS Revamping Operating Philosophy

Norfolk Southern on Tuesday rolled out yet another service strategy that CEO Alan Shaw said is designed to enable long-term growth while enticing shippers to move freight by rail rather than by highway.

As reported by Trains magazine on its website, the Atlanta-based carrier will still employ the precision scheduled railroading operating model, but Shaw described it as a different form of it that will not focus not so much on reducing the operating ratio, which is the percentage of revenues that NS spends on operating expanses.

Instead, NS will seek balance among service, productivity, and growth.

“These are not competing priorities. They are complimentary,” Shaw said indicating that NS will not focus so much on reducing expenses and profit margin.

“We just can’t cut our way to sustainable growth,” Chief Financial Officer Mark George said during NS’s investor day program.

He said NS will strive to o provide consistent service even during tough economic times.

Shaw said NS management recognizes that the traditional approach of furloughing workers during economic downturns and cutting spending “did not work well.”

It led to a deterioration in service and lack of confidence by shippers.

Shaw acknowledged that NS has yet to reach its desired level of staffing and although its service has improved, it is not yet where shippers expect it to be.

In future traffic downturns, NS will avoid furloughing operating personnel so it can be better prepared for traffic rebounds.

“By serving more volume in the recovery, we generate more revenue, and by avoiding the disruption, we enable customers to trust us and build supply chains around us,” Shaw said.

A key to the new NS plan is running what Floyd Hudson, vice president of transportation, described as a disciplined operation, which he defined as running trains on time, switching cars within six hours, and putting the right car in the right block on the right train.

NS hopes this will enable it to attract business that now moves in trucks. If NS is able to pull off its new strategy its expects freight volume to grow between 2 percent and 4 percent annually while revenue increases by 5 percent a year.

Most of this volume growth is expecte4d to come from intermodal, which NS executives said could grow at twice the rate of the gross domestic product.

In a related development, NS has told the U.S. Surface Transportation Board that its has posted improvements in its service metrics in recent weeks, which it credited in part to improved staffing.

NS now expects to reach its pre-pandemic service levels service metric levels by May 2023. Its eastern counterpart CSX told regulators its goals remain unchanged because its network  resiliency, staffing and hiring levels, and current service metric trends do not yet justify changes to its service recovery plans.

CSX said that since late October it has met or exceeded each of the key performance targets it set last May in its service recovery plan. The ranks of conductors and locomotive engineers are near normal levels.

The Jacksonville-based carrier said it has an active personnel force of 6,918. It’s goal is to reach 7,000 to 7,100 by the end of this year.

NS told the STB that since last May it has exceeded its hiring of new operating workers while also exceeding its target levels for system velocity and on-time performance.

However, terminal dwell time remains elevated and its local service metric fell short of its six-month goal.

NS Launches New Operating Plan

Norfolk Southern launched on Monday a new operating plan that is largely focused on improving intermodal service although it will be applied to all types of freight shipments.

The plan, known as Thoroughbred Operating Plan|Service Productivity Growth was described as an evolution of its previous operating plan known as Thoroughbred Operating Plans 21.

TOP|SPG continues to build upon the elements of the precision scheduled railroading model with its emphasis on efficiency but also adding and more point-to-point intermodal service.

For example, NS will consolidate all intermodal traffic moving between Chicago and Harrisburg, Pennsylvania, at one terminal in Chicago, 47^th Street.

Under the previous operating plan, NS operated one train daily between 47^th Street in Chicago and Rutherford Yard in Harrisburg and one train daily between 63^rd Street in Chicago and Rutherford.

In the new operating plan Chicago-Harrisburg intermodal operations will be consolidated at 47^th Street and expanded to four daily trains between there and Harrisburg. The intermodal trains serving the 63^rd Street terminal will be eliminated.

NS officials said they are seeking to increase the number of miles per day that cars travel by reducing how often those cars are handled en route and how much time they spend sitting in yards.

The running time will be adjusted for more than half of all road trains. Schedules will be changed for 90 percent of all scheduled trains.

There will be changes to 39 percent of yard blocks. The officials said the new operating plan seeks to reduce network directional imbalance, and simplify operations of routes and terminals.

The carrier indicated it will increase the number of daily intermodal trains it operates systemwide from 79 to 85.

NS CEO Alan Shaw cautioned that implementation of the plan won’t occur overnight.

In a video created to announce the new operating plan, Shaw said the goals of the plan are reducing the complexity of the NS network by reducing train meets and how often cars need to be worked while en route.

In a social media post, NS said the new operating plan “isn’t a radical change in how we work with our customers, but a shift in how we execute our operations to move their shipments more directly and consistently.”

NS said there will be no operating changes for most customers and for those who are affected It has been working with them to ensure they are prepared for coming changes.

Above all, NS indicated, the new operating plan seeks to provide greater consistency in the service provided to shippers.

NS Revising its Operating Plan

Norfolk Southern has given its operating plan a new name.

During a fourth quarter earnings call with investors this week, company officials said the new plan, known as TOP SPG, involves a reworking of the railroad’s merchandise operating plan.

TOP, which denotes Thoroughbred Operating Plan, is the NS version of precision scheduled railroading, which the company implemented in summer 2019.

SPG stands for service, productivity and growth, which Chief Operating Officer Cindy Sanborn described as the three facets of the plan.

The operating plan covers all types of trains and freight. The plan calls for long trains and a more balanced train plan that NS President Alan Shaw said seeks to improve efficiency and service.

The new operating plan will be implemented this spring as NS places into service a new wave of conductors who are going through training.

Sanborn acknowledged that during the fourth quarter service quality was not where the company wanted it to be, which she attributed in part to crew shortages in some regions of the NS network when the number of operating personnel fell by 8 percent.

NS has sought to compensate for this by boosting its locomotive fleet by 5 percent by putting back into service idled units. It also has been operating fewer but longer trains.

During the fourth quarter average train speed declined 17 percent compared with the same period in 2020. Terminal dwell increased 24 percent.

Sanborn said both metrics have improved this month but NS remains hindered by crew shortages stemming from COVID-19 infections and quarantines.

NS plans to continue to convert locomotives from DC to AC traction operation. Sanborn said the motive power fleet is now 60 percent AC traction and two-thirds of it is capable of being used as distributed power.

During the fourth quarter NS completed one siding project and plans eight additional siding projects in the Southeast where many routes are single track.

Adding siding capacity is key to being able to operate longer trains.