ATLANTA — Norfolk Southern CEO Alan Shaw, who has been a punching bag for the activist investors who are trying to oust him, defended the railroad’s growth strategy at a shipper conference today.
“I am fighting. I am fighting for what’s right and I am fighting for the industry,” Shaw told the Southeast Association of Rail Shippers. “And frankly I did that all last year.”
Cleveland-based Ancora Holdings has said that one of the catalysts for its proxy battle was the Feb. 3, 2023, hazardous materials derailment in East Palestine, Ohio. Ancora has been highly critical of the railroad’s response to the wreck, as well as its safety record, its financial and operational performance, and its management team.
Ancora also questions Shaw’s resiliency strategy, which reduces the emphasis on the operating ratio and maintains resources during downturns so that the railroad is ready to handle an eventual traffic rebound.
But Shaw says the NS plan to balance service, productivity, and growth is “a pivot away from that near-term quarterly grind on just O.R., where O.R. was the only focus,” he says.
Ancora says Shaw’s strategy is flawed and will lead only to continued financial underperformance compared to the other Class I railroads.
Shaw says the only way railroads can grow is by making investments in service.
“I’m a finance guy. The math has to work for me. And I’m looking at the rail industry, and I’m looking at an industry that is less expensive than truck, safer than truck, offers more capacity than truck, offers a sustainability advantage relative to truck. But guess what? It doesn’t grow,” Shaw says. “And why doesn’t the rail industry grow relative to truck? Rails have historically underinvested in service. And as a result whenever there’s an economic upturn — and there always is — rails never have the number of resources that we need. So we would offer a lousy service product every two to three years, and we’d miss all kinds of revenue upside which would have provided a lot of value to our bottom line and to our shareholders.”
Railroads need to shift away from a short-term focus, Shaw says.
“I believe that our strategy is the right way forward in the rail industry. It’s a choice,” Shaw says. “Do we want to go back 10, 15 years where it’s just a grind on next quarter’s operating ratio? Or is it one in which we say there’s a lot of growth prospects out here if we work closely with our customers, with our craft colleagues, with our regulators, and grow?”
NS must improve its profit margins, Shaw says, if it is to deliver top-tier earnings and revenue growth. “Ultimately shareholders want companies that can grow. And that’s what we’re delivering,” he says.
The East Palestine derailment put NS and the rest of the industry under intense scrutiny, with some even questioning whether NS should be shut down. Shaw, who was in the hot seat at two U.S. Senate hearings and two state senate hearings, says NS successfully navigated through the crisis in a way that protected the railroad, its shareholders, and the industry.
NS led the Class I railroads last year with a 42% reduction in its mainline accident rate, Shaw notes. NS continues to invest in safety technology and is working with rail labor and an independent safety consultant to improve its safety culture.
And now NS is focused on improving productivity and service, he says, noting that customers, other railroads, regulators, and rail labor all support the NS “better way forward” strategy. “Think about what kind of odd coalition that is,” Shaw says.
“When you can pull together customers and regulators and labor right on the heels of really difficult labor negotiations, and when at this time last year regulators were being asked if they should shut us down, that tells you that we’re doing the right things,” Shaw says.
Ancora has proposed a majority slate of eight board candidates and has proposed former UPS President and Chief Operating Officer Jim Barber as CEO and former CSX Executive Vice President of Operations Jamie Boychuk as chief operating officer.
I wish some of you Trains “reporters” would ask Boychuk why he was let go from CSX & print that as “news.”
join me in voting our shares against Ancora.
The cult of the OR isn’t going away; the only way to rein in the Wall Street overlords is through strict regulation to level the playing field. Norfolk Southern hasn’t a chance to NOT regress. Whether Shaw stays or not, NS will toe the line. Even BNSF is going to be whipped into shape by Warren Buffet:
“Though BNSF carries more freight and spends more on capital expenditures than any of the five other major North American railroads, its profit margins have slipped relative to all five since our purchase. I believe that our vast service territory is second to none and that therefore our margin comparisons can and should improve.”
Tranlation: Lower the Operating Ratio.
I hope Shaw stays the course. He is on the right track.