Posts Tagged ‘James Squires’

NS Set OR Record in 2018

April 3, 2019

Norfolk Southern said it reached a record low operating ratio of 65.4 percent in 2018 and also touted its strong revenue growth in its annual report.

The freight carrier said its 2018 milestones included a third consecutive year of improvement in the operating ratio, growth of 9 percent in total railway operating revenue to $11.5 billion; and increased income from railway operations 12 percent to $4 billion, a record.

A statement from CEO James Squares said that NS achieved many things last year including reimagining operations through culture change, reimagining service and growth through the use of advanced technologies and “building a stronger company for our customers, our employees and our shareholders.”

An operating ratio shows what percentage of revenue is used for operations expenses. It is considered to be a measure of efficiency.

NS Quietly, Slowly Moved Toward PSR

February 23, 2019

Norfolk Southern began its move toward the precision scheduled railroading operating model long before the company publicly embraced it, an analysis by Trains magazine found.

The analysis described as wrong the perception that pressure from Wall Street investors forced NS to change course despite CEO James Squires having once been critical of the practice.

Shortly after becoming NS CEO, Squires said in November 2015 that PSR was a “short-term, cut-to-the-bone strategy that could cause Norfolk Southern to lose substantial revenues from our service-sensitive customer base.”

In particular Squires said the focus on lowering the operating ratio, which is central to PSR, would drive away truck-competitive traffic.

But earlier this year Squires said during an investor day that NS had adopted PSR “because it works.”

The Trains analysis noted quietly hired a consultant with PSR experience long before Wall Street analysts began asking why NS couldn’t be more like CSX.

Mike Farrell, who had worked at Canadian Pacific when it was run by PSR guru E. Hunter Harrison, studied NS operations with the idea of designing lower-cost, more efficient, and more reliable local and terminal operations, Trains reported.

“At the beginning, NS had one toe in and one foot out, all along testing PSR strategies,” Farrell, now senior vice president of transportation during the investor day.

NS has since began to phase in what it has described as a kinder, gentler version of PSR that will cut costs and provide reliable service while still seeking growth in merchandise and intermodal traffic.

Farrell said NS is seeking to work with customers rather than impose PSR on its customers as CSX did.

Although NS plans to cuts its workforce by 3,000 positions, the Trains analysis said that is about how many employees NS would lose through normal attrition.

Still, like CSX, NS plans to operate fewer and heavier trains.

NS Eyes 60% OR, Cutting 500 Locomotives From Roster

February 12, 2019

Norfolk Southern kicked off an investor’s conference in Atlanta on Monday by announcing an ambitious goal to lower its operating ratio to 60 percent by 2021.

To do that the carrier is moving toward the precision scheduled railroading operating model as well as pursuing other ways to increase productivity, efficiency and growth.

“As we implement precision scheduled railroading, our initiatives are focused on five key principles: serving our customers, managing our assets, controlling our costs, working safely and developing our people,” NS CEO James Squires said in a statement.

In 2018, NS posted an operating ratio of 65.4 percent. An operating ratio measures what percent of a company’s revenue is devoted to operating expenses.

NS officials also said their goals include capital expenditures totaling between 16 percent and 18 percent of annual revenue through 2021 and a dividend payout ratio of 33 percent.

The carrier will continue to repurchase shares of its stock using free cash flow and borrowed money.

For NS to meet its operation ratio goal would mean an improvement of at least 100 basis points from the 2018.

Just as its chief competitor CSX did, NS plans to do that in part by paring its workforce. It expects to eliminate 500 jobs this year and will have cut 3,000 jobs by the end of 2021 or 11 percent of its current workforce.

However, the NS version of PSR will differ from that implemented by CSX in that it will seek shipper views before redesigning local service.

NS also said it will continue to talk with shippers after it implements its new local service plan in a process it is calling “clean sheeting.”

Also unlike CSX, NS plans to increase and not reduce frequency of local service to daily, which is an increase from three or five days per week.

Although NS executives said at the conference they are optimistic about retaining overall traffic volume they also expect to get rid of lower-margin merchandise and intermodal traffic.

This year’s operating ratio is expected to be about 64.4 percent.

Coal traffic is expected to continue to decline this year while NS expects to see increases in intermodal and merchandise traffic.

The carrier is also eyeing reducing its locomotive fleet by 500 units.

The NS PSR plan is expected to be implemented beginning July 1 this year by mixing intermodal, automotive, merchandise and bulk commodities into individual trains.

This is expected to increase average train length but also cut terminal dwell times and creating track capacity.

Like CSX did NS plans to operate the same number of trains in each direction every day. It also expects to close or downgrade some yards although no details about that were provided.

NS also expects to differ from CSX in that it doesn’t  expect to sell lower-density routes to short line carriers.

The new operating plan, known as TOP21, calls for heavier trains with increased used of distributed power.

The motive power reduction plans envisions continuation of the DC-to-AC conversion program but reduce the size of the switching fleet.

NS also wants to increase locomotive productivity by 30 percent by 2021, based on gross ton-miles per unit, and boost train length by 12 percent, to an average of 7,130 tons.

Officials said a smaller fleet will be able to handle more tonnage because it will have higher tractive effort due to the near doubling of the percentage of AC-traction locomotives on the active service locomotive roster.

Since 2016, NS has converted 190 locomotives to AC power and expects to have converted 527 of its 1,200 DC-traction Dash 9 units to AC power by 2021.

However, NS also expects to buy some new locomotives.