Norfolk Southern rolls out details of strategic company plan

Class I railroad carrier Norfolk Southern this week released additional information on its strategic plan, which it said is geared to streamline operations and drive profitability and growth on various fronts.

NS officials said its projected expense reduction and cost control efforts will be focused in a few specific areas, including compensation and benefits, purchased services and rents, materials, and fuel. The company initially introduced the 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 week, 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.