News & Reviews News Wire Activist investor group would put Norfolk Southern back on PSR path, reduce operating ratio to 57%

Activist investor group would put Norfolk Southern back on PSR path, reduce operating ratio to 57%

By Bill Stephens | March 26, 2024

Hump yards, low-margin traffic would be in the crosshairs of operations makeover under proposed CEO, chief operating officer changes

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Black diesels with high short hoods work at yard
Norfolk Southern SD40-2 No. 1634 and GP38-2 No 5190 work the hump yard at Bellevue, Ohio, on Feb. 18, 2023. Hump yards could be shut down under the operating plan proposed by Ancora Holdings. Joseph Zadeh

CLEVELAND — An activist investor group says its proposed Norfolk Southern management team would improve the railroad’s operations, service, and profitability by jettisoning CEO Alan Shaw’s resilience strategy and adopting the low-cost Precision Scheduled Railroading operating model.

In a letter to shareholders today, Ancora Holdings says its plan for NS would cut costs, focus on the most profitable merchandise traffic, and produce a 57% operating ratio within three years. That would be a 10.4-point improvement over Norfolk Southern’s 2023 operating ratio.

Ancora aims to get a majority slate on the NS board at the railroad’s May 9 annual shareholder meeting. That group would then oust Shaw and new Chief Operating Officer John Orr. Ancora has touted former UPS executive Jim Barber Jr. for the CEO job and former CSX operations chief Jamie Boychuk as chief operating officer.

“This is our collective opportunity to reestablish Norfolk Southern as a great American railroad — with the right leaders in place, the Company can deliver significantly enhanced value for shareholders and stakeholders,” Ancora Holdings CEO Frederick DiSanto and Ancora Alternatives President James Chadwick wrote.

Ancora’s 14-page letter sketches out Barber and Boychuk’s plan for NS:

In the first 100 days on the job, they would embark on a listening tour with employees and customers. They’d redesign the NS operating plan in September 2024 and implement PSR in October and November.

Balancing the network, improving fluidity, and reducing excess assets — including an unspecified number of hump yards — would reduce the operating ratio to 62% to 63% within 12 months. NS would rely on attrition to whittle down the size of its workforce.

In months 13 and 14, Barber and Boychuk would eliminate excess costs, reach service metric targets, and begin to recapture merchandise traffic. NS also would introduce a new costing and profit management system for the merchandise network. The operating ratio would improve to 60%.

In year three, NS will gain business from existing customers, handle the most profitable traffic, become an employer of choice, and hit a 57% operating ratio.

Ancora believes that NS ultimately can reach a 55% operating ratio by developing “a different way of selling rail service across global supply chains, including with trusted shippers and partners … that creates new rail customers.”

Elements of Ancora’s operating plan include running fewer but longer trains that operate on time, maintaining dependable service, and improving safety — partly through reduced switching. Ancora also would reduce what it calls NS’s overdependence on low-margin intermodal traffic.

Ancora was critical of Shaw’s resilience strategy, which it says is responsible for the railroad’s lagging operational and financial performance. The strategy, announced in December 2022, reduces the emphasis on the short-term operating ratio in favor of keeping a buffer of train crews during freight downturns so the railroad can avoid service problems and capture more volume when business rebounds.

“This strategy, which is the antithesis of the true PSR approaches utilized by other Class I railroads, has increased congestion, led to difficulty handling trough volumes and resulted in a mediocre 72% merchandise on-time arrival record,” DiSanto and Chadwick wrote. “Furthermore, we understand that the strategy also hinges much of its upside potential on the unsupported hope that the freight economy will improve and high-margin volume will fall into management’s lap.”

Ancora also took aim at last week’s hiring of former Canadian National and Canadian Pacific Kansas City executive John Orr as chief operating officer. Orr brings PSR operating experience to NS.

“Norfolk Southern’s share price is down approximately 3.5% in the days since John Orr’s appointment. We attribute this to Norfolk Southern’s uninspiring operating ratio outlook, investors’ low confidence about his ability to execute on those targets, Mr. Orr’s inexperience as a railroad COO, and the governance failures associated with the hiring of Mr. Orr. The perceived benefits of hiring an outside PSR COO are actually a fallacy because PSR is incompatible with Mr. Shaw’s resiliency strategy,” DiSanto and Chadwick wrote.

NS adopted a Precision Scheduled Railroading operating plan in 2019 under then-CEO Jim Squires. But Ancora contends NS does not run a true PSR model.

“If Norfolk Southern’s claims of having a PSR operating model right now were true, the Company’s operating and financial metrics would not materially lag those of CSX and Class I peers (before and after the East Palestine, Ohio, disaster),” DiSanto and Chadwick wrote.

The NS board has unanimously backed Shaw, his “better way” strategy, and response to the Feb. 3, 2023 hazardous materials derailment in East Palestine, Ohio.

Rail labor leaders, the Federal Railroad Administration, and Surface Transportation Board have all expressed concerns over Ancora’s calls for change at NS.

25 thoughts on “Activist investor group would put Norfolk Southern back on PSR path, reduce operating ratio to 57%

  1. I agree with the greed comments. Activist means layoffs, customers being ignored while a few “activists” add more money to their bank accounts.
    Carl Ichan destroyed Trans World Airlines. Frank Lorenzo destroyed these airlines: People’s Express, NY Air, the original Frontier, and Continental.

  2. “…would improve the railroad’s operations, service, and profitability by jettisoning CEO Alan Shaw’s resilience strategy and adopting the low-cost Precision Scheduled Railroading operating model.”

    PSR looks good on paper and theory, just like that Laffer Curve and it’s so called “trickle down” effect that I’ve been waiting 45 years for.

  3. Call Ancora’s bluff, tell them they can run NS all they want, but 20% of the OR has to be for safety and has to be reached before any stock buybacks can take place. Talk about a poison pill they won’t swallow.

  4. NS has already implemented a “Quiet PSR” and is making dramatic moves to hedge against Ancora. Such as removing Paul Duncan and replacing him.

  5. I am still voting against Ancora.When is all this information going to be sent to the stockholders. I haven’t received anything. All propaganda.

  6. If this is the plan to “improve” NS that Ancora has indicated a willingness to meet and discuss with the STB and Chairman Oberman; I would willingly pay to be the proverbial fly on the wall when that meeting takes place. It would be entertaining to hear what the Chairman has to say about this train wreck of a plan.

  7. Show me a company that has been take over by a hedge fund and succeeded. I am still waiting to see that in my lifetime. I totally agree with Bob Crowe, these hedge funds are destroying American businesses and the employees who work there for short term profit.

  8. It doesn’t, matter whether Ancora or Shaw win this fight. Shaw has recruited a PSR “expert” Orr from CPKC and paid a king’s ransom. The differences between Orr and Boychuk differ only on the margins. Long trains, reduced frequency, fewer workers, shuttered shops, ripped up yards and track, reduced CapEx, more share buybacks all happen no matter which ghouls are in charge.

    Mayo Pete and Amtrak Joe are asleep at the switch. They are only good at ribbon cuttings where hundreds of millions of taxpayers dollars are freely give away to add capacity to wildly profitable corporations is sinful.

    1. Here we go again…
      I hope you are aware that neither Mr. Buttigieg nor President Biden have any say over all this, so how can they be “asleep at the switch”?
      This is a capitalistic shareholders issue. It is not a governmental issue.
      Please keep politics out of these comments…they have no place on this site.

    2. Investment Group almost sunk CSX. It’s all about the short term to get the “OR” down under 60. The way to achieve this is longer trains, less employees and sell off infrastructure.

  9. How long before the STB decides that they have to make a rule setting the minimum OR a railroad is allowed to reach? It can be done, so just set it at 65 and let it be! If not the STB then the FRA, but one of those two agencies has that power.

  10. Ancora says they want to cut service. That in and of itself is the reddest of red flags. That is the first step towards bankruptcy. As for Orr’s lack of experience, well Ancora’s proposed CEO has ZERO railroad experience, and their proposed COO got fired by CSX. So much for Ancora’s commitment to railroading.

  11. Lets be real, the only thing Ancora is interested in is more money for themselves. Sure, stockholders might see a small bumb in their holdings, but it will be the execs at Ancora who will see the most money out of this. What about the hard working people at NS who will loose their jobs because of Ancoras greed? and there will be layoffs. Closure of hump yards, aren’t hump yards more efficient than flat switching? What about shippers whose product might not make Ancoras list for service ? Oh yeah, they talk about listening sessions with employees. The only thing that means is we are going to do what we do and we are really not listening, but it makes us feel good about ourselves. EHH’s PSR as written does not work. The railroads have tweeked much of it. Finally, Ancora has shown no Knowledge of every day railroading. But it all about the money. These companies are destroying American industry by making obscene amounts of money of the backs of hard working people. There< I have vented .

  12. What the NS Board needs to “sell” is the long-term (10-15 years) soundness of the current plan.
    Also, regarding safety, while the majority of injury/fatality accidents occur in switching, most of the newsworthy accidents happen on mainline freight.

    1. Do you really think that Ancora gives a flying f— about 10-15 **years**? They consider themselves visionaries if they have a timeline of 10-15 months!

  13. Sounds like Ancora is mad about the East Palestine derailment and they want there money back now. I live 6 miles from the derailment site. Norfolk Southern (Alan Shaw) has made the commitment to make things right for that community. He has also changed the direction of how railroads treat their employees. That was prior to East Palestine. Yes It has cost them over 1 Billion dollars, But they are honoring those commitments. Ancora would snub their noses at their employees and East Palestine.

  14. Ever watch the TV show “Engineering catastrophe’s? Proof that everything looks so good on paper! Not!!!

  15. Seems all Ancora cares about is the OR and the stock price. So it’s all about PSR and an ax to everything else. Cut everything to the bone and when traffic picks up there will be no one to move it. But when they bail there stocks will be worth more.

    1. The stock price at sale is all they’re interested in. Not how it gets there.

    1. To this 64-year-old bass player, that sounds suspiciously like the title of an old jazz tune….might ye be a musician? All kidding aside, everybody with any sense knows this is a losing move beyond 3 years out. A pox on Ancora and anyone that votes with them. I’d ask Elon Musk to put the lot of them on a Dragon spacecraft and offer to send them on a lunar flyby mission, and then leave them stranded in solar orbit.

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