Norfolk Southern announces next steps of strategic plan

In taking the next steps of its strategic plan geared to reduce costs, streamline operations and drive profitability and growth on various fronts, Class I railroad carrier Norfolk Southern said this week it is officially consolidating its three operating regions into two as of March 15.

Effective March 15, the NS network will be divided into Northern and Southern regions only, with the Northern Region comprised of the Harrisburg, Pittsburgh, Dearborn, Lake, and Illinois divisions, while the Southern Region will include the Piedmont, Alabama, Georgia, Central, and Pocahontas divisions.

This follows an announcement made by NS earlier this year in which it said it meshed its former Virginia and Pocahontas divisions into a larger Pocahontas Division effective Feb. 1, along with going from three corporate office locations to two, restructuring its Triple Crown Services subsidiary, and integrating the D&H South Line to increase options for shippers, and idling of certain parts of the ‘West Virginia Secondary’ line.
Norfolk Southern’s network is comprised of 22 states in the eastern U.S., and it manages train operations across 10 operating divisions that are part of three larger operating regions – the Eastern, Western, and Northern regions.

The company initially introduced its strategic plan on December 4, 2015.

Through this effort, NS said it expects to achieve annual productivity savings of more than $650 million per year by 2020, from an initial $130 million this year, en route to improving consistency, reliability and availability to become “a faster, lower cost, and more profitable railroad.”

On the company’s fourth quarter earnings call earlier this year, NS Chairman, President, and CEO James A. Squires said that this plan kicked off on June 1, 2015, when he became CEO and is the result of a comprehensive evaluation of its business model, in particular its cost structure and top line growth potential.

“The plan is built on disciplined cost control and asset utilization,” explained Squires. “It is also designed to generate over time revenue growth through pricing and increased volume in service-sensitive markets where we have made significant investments and having well established market presence. The plan is dynamic allowing us to evolve as required given an ever-changing world.”

Squires added that revenue growth from pricing and volume increases is one component of the strategic plan, saying that NS has been deliberate in its analysis, developing a detailed bottom up roadmap to growth over the next five years. He also said that the plan is conservative and flexible in nature and gives NS the ability to adjust to changes in the economy.

Some key components of Norfolk Southern’s strategic plan include:
-Service and efficiency improvements, consolidation, and network rationalization that will enable Norfolk Southern to reduce headcount in 2016 and beyond, building on initiatives begun in 2015 to right-size the workforce. This improved productivity is expected to result in $420 million in annual expense savings by 2020;
-reduce headcount by 2,000 employees by 2020 and decrease overtime by 50 percent from 2015 levels;
-reduce employee levels in areas affected by lower coal traffic and by the rightsizing of the Company’s coal infrastructure;
-consolidate operating regions from three to two;
-halt or reduce operations in several hump or secondary yards in 2016, reducing manpower needs and locomotive fleet requirements and consolidating traffic on fewer, larger trains.
-dispose of or downgrade 1,500 miles of secondary lines by 2020, including 1,000 miles in 2016, as traffic is rerouted onto higher-density lines and some parts of the system are more economically operated in collaboration with short-line rail carriers;
-projected efficiency improvements and network rationalization should enable Norfolk Southern to realize annual savings of $70 million by 2020 by reducing the size of the car fleet and associated costs and reducing payments to third parties by reducing equipment rental and lease costs, along with maintenance expenses for that equipment, reducing the use of third-party switching terminals by leveraging the recently completed expansion of Moorman Yard in Bellevue, Ohio, and reducing trackage and haulage payments;
-projected efficiency improvements should enable Norfolk Southern to reduce expenses by $80 million per year by 2020. Norfolk Southern by decreasing locomotive maintenance expenses by reducing active fleet size by 300 units in 2016 and another 100 units by 2020 through improved velocity, line, yard, and local-switching-network rationalizations and other measures; and
-projected fuel efficiency initiatives should allow Norfolk Southern to reduce fuel consumption by $80 million per year by 2020 by maximizing fuel efficiency through implementation of energy management technology, and reducing fuel consumption as a result of fewer units in the fleet, removal of the oldest, least efficient units, and higher system velocity

Fourth quarter profit for NS dropped 29 percent, with net income at $361 million, while revenue was off 12 percent at $2.52 billion.