Norfolk Southern announces new initiatives to drive further productivity and accountability

Norfolk Southern Corporation (NYSE: NSC) provided an update Thursday on its plan to accelerate progress on its strategy and deliver long-term shareholder value.

Alan Shaw, Norfolk Southern president and chief executive officer, said, "The initiatives announced today will help us progress toward our strategic goals and close the margin gap with our peers. Our network enhancements and improvements to our reporting structure will empower our new chief operating officer, John Orr, with the scope to implement his scheduled railroading plans and accelerate our operational improvements. This positions Norfolk Southern to become a more productive, resilient, and efficient railroad, and drive long-term value creation."

Accelerating Operational Performance

• Operations Reporting Changes: Intermodal and Automotive Operations, previously under the company's Marketing division, is now reporting to Orr. This change will instill additional operational rigor, enhance opportunity for further productivity, and improve alignment and coordination across the business, including in Merchandise and Bulk. This organization joins Car Management, which has also been moved into Operations.
  
• Near-Term Operational Priorities: Since Orr's appointment as COO on March 20, 2024, he has been streamlining operational processes and enhancing safety, productivity, and service. These initiatives include:
  • Executing a 'Safety Blitz' to reinforce best practices;
  • Assembling a task force and war room in the Network Operations Center to assess network-wide asset utilization;
  • Developing a network heat map to identify blockages and increase speed; and
  • Classifying two hump yards as 'High Performance Terminals', where he anticipates achieving 33% improvement in dwell time over the next 60 days at those locations.

Together, these changes are helping to increase the speed of the Merchandise network and open the door for broader network fluidity and efficiency. In just two weeks, tangible results have already been realized, including:

• • Improved Terminal Dwell by 8%;
  • Increased Merchandise Train Speed by 8%; and
  • Decreased Active Train Count by 8%.

• Lane Rationalization: A comprehensive review and optimization of the Intermodal network has eliminated lanes that do not have the density to meet productivity targets. To date, this has removed 53 low-volume lanes with limited growth prospects, comprising 15% of all our Intermodal lanes. This effort reduces network complexity, supporting the company's efforts to drive fluidity and productivity. It frees resources to improve service in lanes that are of greater strategic value to customers, driving growth and accelerating profitability improvement, while reducing conflict to the speed and efficiency of the Merchandise network.
  
  
• Implementing Intermodal Reservation System: A new driver appointment system has been deployed at two of the company's major international terminals. With drayage arriving at scheduled times, terminals are prepared to quickly hand off freight, reducing driver dwell and increasing fluidity. Norfolk Southern has also launched new stack optimization technology at the terminals that manage containers, allowing the overall facility to operate cohesively. The combination enables crews to handle additional volumes and reduce ground traffic, creating the opportunity for further growth.

Ensuring Performance Accountability through Changes in the Compensation Program

Norfolk Southern also announced that the human capital management and compensation committee of its board of directors has approved changes to the company's 2024 annual incentive compensation plan. The changes include the addition of Operating Ratio (OR) as a performance metric to replace the margin modifier as part of the plan for 2024. This will further align management incentives with the company's financial and operational goals and strategy, which include safety, service, productivity, and growth.

The 2024 OR targets also align with the improvements needed to achieve the company's long-term objectives of achieving a sub-60% OR in three to four years and delivering an industry-competitive OR.

John R. Thompson, chair of the human capital management and compensation committee, said, "Following extensive shareholder feedback, the board determined to explicitly include OR improvements as a component of our 2024 compensation plans in line with our commitment to hold management accountable. As management continues to drive productivity throughout Norfolk Southern's network, OR improvements will be a key component of our long-term success and enable us to achieve our objective of delivering best-in-class value to shareholders."