ATLANTA — Norfolk Southern set fourth-quarter and annual records for revenue and profits, but expects a slowing economy and declining freight demand to produce flat revenue and earnings this year.
The big unknown: Will the railroad’s ongoing service improvements allow NS to offset anticipated traffic volume declines as the economy weakens?
CEO Alan Shaw, speaking to investors and analysts on the railroad’s Wednesday morning earnings call, said service is the best it’s been in two years as NS nears its train and engine crew hiring target.
The railroad currently has 7,500 active conductors and engineers, just 100 shy of its goal for May, Chief Operating Officer Paul Duncan says.
The big four U.S. railroads, including NS, couldn’t meet demand in 2022 due to widespread service problems related to crew shortages.
“We made great strides to close the year and are encouraged by our progress,” Shaw says. The operations improvements helped push NS’ traffic volume to 52-week highs in December.
“I think we’re going to be able to claw back some volume — in fact, I’m certain of it,” Chief Marketing Officer Ed Elkins says. But there’s uncertainty about whether that will exceed slowing demand in intermodal and merchandise traffic segments, he says.
The railroad’s key operations metrics, including average train speed and terminal dwell, have continued to rebound from their second-quarter lows. “We know we have to keep getting better,” Duncan says.
Despite the softening freight demand, NS will continue to hire aggressively to shore up crew locations that remain below minimum levels, Shaw says.
NS executives reiterated plans outlined at investor day last month that they would not furlough train crews during a downturn as part of an effort to make the railroad’s service more resilient. Furloughed workers tend to not return to the railroad, making it difficult to maintain service and capture traffic during an upturn.
“We want to ensure that if there is a volume downturn we are in position as volume comes back to handle it and handle it well,” Duncan says.
NS will spend $2.1 billion on capital projects this year, including the modernization of 115 locomotives as part of its ongoing DC-to-AC traction conversion program. The like-new AC units will have the pulling power equal to 150 DC units, Duncan says.
For the quarter, NS volume declined 1%, with intermodal down 4%, merchandise traffic flat, and coal volume up 8%. The railroad’s operating income rose 5%, to a record $1.1 billion, as revenue grew 13%, to a record $3.2 billion. Earnings per share rose 10% to $3.42. The fourth-quarter operating ratio rose 3.1 points to 63.5%.
For the year, volume declined 3%. Operating income rose 8%, to a record $4.8 billion, as revenue increased 14%, to a record $12.7 billion. Earnings per share grew 15%, to $13.88. The operating ratio increased 2.2 points for the year, to 62.3%.
Record profits, but they cut the engineers bonus in half. That’s what happens when they vote for a contract that allows the company to determine the bonus regardless of income and profits. It’s a cheap shot to all engineers that worked through the pandemic and the crew shortage with minimal rest and home time.
This is a multi-faceted issue. Crew shortage is a big problem and hiring is the obvious cure, but there is so much more affecting poor service. “Fuel conservation” efforts, i.e. isolating engines and running trains that could go track speed at 20-40 mph is creating so much drag on the network that it is exacerbating crew shortages and is pointless. Mail trains and amtrak catch a dog doing 20mph and everyone goes 20mph. You save minimal fuel at the cost of cutting your network speed in half, and lose the $ savings in recrews. 2-3 mile long trains cant meet anywhere because they don’t fit in the sidings designed for >7500 feet trains. And employee morale is actually at the bottom, the real bottom of the barrel. They want mindless robots that don’t think and only do what they are told to a T, so that’s what they do. Combining road and re-naming yard service as “road switchers” in an effort to ruin home life and squeeze more out of T&E has made it so no one does the least bit more than they have to to get through a shift and leave. Shaw is a breath of fresh air, but much work to do, aunt C really ruined NS.
Just think what NS could have done if they provided good service. Best wishes to Mr. Shaw in his efforts to turn the ship around before it runs aground.