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Norfolk Southern Official Seeks To Calm Shippers' Anxiety

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Norfolk Southern's (NYSE: NSC) chief marketing officer sought to assuage shippers' concerns at a rail shippers' conference on April 5, saying his company would engage with shippers and seek opportunities to grow capacity as NSC transitions to the precision scheduled railroading (PSR) operating model.

NSC chief marketing officer Alan Shaw said NSC has been working with shippers as it implements PSR, an operating model in which railcars run on a fixed schedule. Proponents say the model will encourage network efficiencies, but some shippers are still undecided on whether PSR will actually produce those promised efficiencies.

Detractors of PSR have also said that precision railroading is a way for the Class I railroads to shed assets in order to lower their operating ratio and please Wall Street investors.

"Financial goals are a balance of growth and productivity. Growth has just as much of an input or leverage as productivity," Shaw said at the North East Association of Rail Shippers conference in Baltimore, Maryland.

Some shippers have been wary about PSR because of the rapid pace with which CSX (NYSE: CSX) rolled out the operating model in 2017.The quick pace of the rollout, coupled by what some shippers thought was a lack of communication by CSX, caught the attention of the Surface Transportation Board (STB).

Shaw said NSC will be rolling out PSR across its network over the next one to two years, which should ease the transition.

"We're going to engineer some of these changes and take a measured approach," Shaw said.

He pointed to efforts such as "clean sheeting," which is NSC's initiative to shed redundancies, a tenet of precision railroading. Shaw said NSC has been working with regional and local management to find ways to tighten the response windows for shippers' inquiries and clear out congestion in the rail yards. Reducing yard congestion frees up extra cars, tracks and locomotives, which can then be deployed elsewhere, rationalized or sold if NSC no longer needs them.

"That's the capacity dividend," Shaw said.

Another way NSC will implement PSR is through retrofitting its locomotives so that they can run longer and heavier trains. Those trains will also be co-mingled, meaning for instance that trains and lanes previously dedicated towards intermodal movements might also now have coal cars as part of the train.

Shaw said NSC will continue to invest 16 percent to 18 percent of its revenue on capital expenditure projects. The capital investments will be for maintenance and growth opportunities, including developing customer-interfacing software that will shed more light on the whereabouts of a shipper's railcars.

NSC will also develop five operating metrics that will assist in tracking transit times, which could provide some opportunity for shippers and regulators alike to see how PSR is affecting day-to-day operations, he explained.

"The STB will be seeing our metrics" as a way to gauge how the transition is coming along, Shaw said.

Image sourced from Pixabay

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