Watch Now

Norfolk Southern laying groundwork for longer trains, balanced network

After record operating ratio of 60.4% in Q4, NS prepares for next steps post-PSR

A Norfolk Southern train. (Photo: Shutterstock/Andy Borysowski)

As Norfolk Southern looks to 2022, it seeks to implement the next stage of its precision scheduled railroading (PSR) program, with goals that include creating longer trains, continuing productivity initiatives and finding growth opportunities, according to executives speaking on a call with investors to discuss fourth-quarter 2021 results. 

This next stage is “a continuation of our PSR journey. It’s the next generation of it. We implemented TOP21 [NS’ version of PSR], which was really largely focused on our merchandise network. This is going to be focused on all of our service products. It’s a comprehensive plan,” NS President Alan Shaw told investors on the Wednesday morning call. “We are really expecting and challenging ourselves and demanding of ourselves to have an output that delivers longer trains and a balanced network that’s going to promote better resource efficiency, which is going to give us the room to grow. It’s going to deliver an operating plan that our field can execute on a daily basis. So it’s going to improve our service product as well.”

The program, which NS (NYSE: NSC) will detail further during an investors event in the second quarter, will be deployed throughout the year, according to executives. The program could go so far as to reconfigure some of the ways that NS conducts operations, based on the descriptions provided on the call.

“We’ve got a fairly robust operations planning model that we will utilize with TOP SPG [the new program]. And frankly, TOP SPG is a clean slate. We’re going to put everything out on the table, we’re going to redesign our network based on what’s best for Norfolk Southern. And the outcomes of that are going to be a balance between service productivity and growth,” Shaw said.

Said NS COO Cindy Sanborn: “We are taking a ground-up approach to the development of the plan in order to explore what is possible when we remove historical constraints and take a fresh look at our business. We are leveraging lessons learned from the first three years of PSR operations under TOP 21 and using a rich dataset to execute in a customer-centric collaborative process.”

Like its Class I carrier peers, NS expects volume growth to be more pronounced in the second half of the year as manufacturing and consumer activity drive growth. NS hopes that the hiring initiatives that have been taking place will help support that growth in the second quarter and into the remainder of 2022.

“From a service standpoint, we are really focused on improving our availability of crew resources to help us with service. We had some accelerated attrition in several core locations of our network that we had to really increase the pipeline for those locations. And that’s largely in place,” Sanborn said.

As conductor trainees onboard starting in the second quarter and NS continues with its hiring plan, “I think we’ll start to see our service measures improve and in the back half kind of accelerate,” Sanborn continued. “I would also add that TOP SPG is an accelerant as well as we take a look at our service product and take a look at our service plan.”

4th-quarter 2021 financial results

NS’ net profit for the fourth quarter of 2021 was $760 million, or $3.12 per diluted share, compared with $671 million, or $2.64 per diluted share, for the fourth quarter of 2020.

Operating revenues rose 11% to $2.85 billion on a 15% increase in revenue per unit. 

Operating expenses increased by 8% to $1.7 billion amid higher fuel and purchased services. 

NS’ operating ratio for the fourth quarter was 60.4%, which the company said was a fourth-quarter record. OR in the fourth quarter of 2020 was 61.8%. Investors sometimes use OR to gauge the financial health of a company, with a lower OR implying improved financial health. 

“The fourth quarter marks the successful completion of the ambitious three-year strategic plan we launched in 2019,” said NS Chairman and CEO Jim Squires in a Wednesday release. “We achieved significant additional improvement in productivity while overcoming the headwinds associated with the pandemic and global supply chain disruptions. Our team continues to deliver long-term value to our shareholders and customers, and we are in an excellent position to build on these results moving forward.”

NS’ train velocity and dwell time were lower in the fourth quarter year-over-year, and these are two service metrics NS hopes to correct as new hires are directed to areas where more network capacity is needed.

“As we’re entering the first quarter, our improvements have been sporadic as COVID-related absences have more than doubled from where they were in December,” Sanborn said on the earnings call. But “let me be clear — our top priority is to drive the service improvements our customers expect and need and we will get there. We are working very hard to leverage an increased hiring pipeline as well as productivity initiatives to drive our performance.”

Subscribe to FreightWaves’ e-newsletters and get the latest insights on freight right in your inbox.

Click here for more FreightWaves articles by Joanna Marsh.

Related links:

Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.