Norfolk Southern Chief Executive Mark George says the railroad remains focused on improving its service while continuing to advance the proposed merger with Union Pacific, and that it can and must do both simultaneously.
“From the outset of our announcement to merge strengths with Union Pacific Railroad (NYSE: UNP), we have been clear: Norfolk Southern (NYSE: NSC) is not singularly focused on closing a transaction,” George wrote in a LinkedIn post on Monday.
“There is no trade-off between evaluating long-term opportunities to strengthen the freight rail network and executing at a high level for customers today. Responsible leadership requires both,” George wrote. “We operate NS as a standalone railroad that competes and wins in today’s market, because that’s what our customers and employees expect and deserve. We also have to think about what will unlock their ability to tap a more competitive rail ecosystem.”
George admits that NS service is currently falling short of expectations as the railroad struggles with a bout of crew shortages and rising volume. Terminal dwell has risen and train speeds have fallen since a bout of harsh weather in February and a March 7 derailment that shut the railroad’s main line across Pennsylvania for 48 hours.
Although operations improved after the traditional dip in volume around Memorial Day, the railroad gave up those gains over the past two weeks,according to its latest service data. While intermodal on-time performance remains above 95%, roughly one third of merchandise shipments arrived more than 24 hours later than their original estimates this past week.
“Recently, we have acknowledged where performance has not met our customers’ expectations, nor our own, quite frankly. Some of this is due to external pressures like weather and macro conditions,” George wrote. “We have taken targeted actions to improve our execution, and to strengthen the resilience of our network. The foundation is solid, and these actions will build on it. Our operations team, led by new COO Brian Barr and made up of long-tenured, dedicated railroaders who have delivered historic service levels before, is focused on stabilizing performance and driving measurable improvement over time.”
Barr replaced John Orr, who resigned as executive vice president and COO May 31.
Norfolk Southern remains committed to improving service consistency, network fluidity, and communication with customers, George wrote.
It’s a misconception, the CEO says, that looking long-term is a distraction for day-to-day operations.
“The opposite is true,” he wrote. “A strong railroad today is the foundation for any future success, and at the same time, we are looking ahead to ensure we continue to create value and strengthen the network over the long term. We’re seeing those priorities go hand in hand.”
George contends that the UP-NS merger will break a structural barrier to rail volume growth: The inability to provide coast-to-coast service.
“By directly connecting Eastern and Western railroads without the need to interchange traffic with another carrier, our merged railroad will strengthen the U.S. supply chain, support American manufacturing, create workforce opportunities (including growing vital union jobs), improve transit times, enhance national security, and deliver broad public benefits including lowering costs for shippers,” George wrote.
The other Class I railroads and some shipper associations have said the merger is not necessary and will reduce rail competition and increase shipping costs while posing the risk of integration-related service problems.
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