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As NS traffic surges, service put to the test

Summer 2014

Inman Yard in Atlanta, Ga.
A mix of rail traffic moves through busy Inman Yard in Atlanta, Ga.

 

Challenged first by nature and then by an unexpected surge in traffic volumes, Norfolk Southern employees have proven their grit during the first half of 2014.

The excellent news for the company at midyear: Overall business volumes are near record levels in an improving economy, generating revenue and income records in the second quarter.

The challenge ahead: The surge in spring and summer traffic slowed NS’ recovery from an extremely difficult winter. Now, the company is hiring additional train and engine crews and repositioning locomotives and other resources to keep the trains moving and meeting customer demands.

A winter whammy

As summer temperatures top 90 degrees in much of Norfolk Southern’s territory, it’s easy to forget the brutal cold and snow storms that disrupted rail traffic industrywide.

“It was a record-setting winter no matter how you look at it,” said Rush Bailey, assistant vice president service management. “All North American railroads were heavily affected. We had issues with braking systems, blocked interchanges, frozen switches, and trouble getting crews to trains. We had to run shorter trains, and the whole network started to slow down.”

As the weather improved in March, NS “reset” the network flow, a tactic that involves holding already-late trains until their regularly scheduled departure times.

“When the network is running so far behind, that’s the time to reset the clock,” Bailey said. “It gets everybody refocused on operating to plan and getting everything back on schedule.”

 

maintenance-of-way crew
A Norfolk Southern maintenance-of-way crew clears snow from track switches as a local NS train out of Altoona, Pa., arrives at an interchange yard in Hollidaysburg, Pa. Chris Boast, electric welder, handles a snow blower, Nick Holsopple, electric welder—helper, uses a shovel, and Joe Barr, section foreman, follows up with a heavy-duty broom.
Jeff Bennett
Jeff Bennett, a conductor and yard foreman at Spencer Yard in Linwood, N.C., works the pullback tracks on the yard’s north end, using remote control locomotive technology.

 

A surge in demand

As winter turned to spring and then summer, NS’ weekly carload volumes increased to more than 150,000 as customers ramped up shipments delayed by winter storms, the economy improved, and a truck driver shortage placed more demands on rail. Climbing much higher than anticipated, volumes approached levels not seen since 2006 all-time highs, Bailey noted.

“Because it was not projected, we didn’t have the resources in place to meet that demand, and it impeded our ability to recover from winter,” he said.

NS is adding personnel and equipment to help meet the increased demand, including hiring and training around 900 train and engine employees this year, a process that takes six to eight months. To offset the lag time, NS has scheduled additional classes for new conductor trainees at the company’s training center at McDonough, Ga.

“We’ve stepped up training and have maxed out capacity at McDonough to train conductors,” Bailey said. “Some new conductor trainees should be done with training and at work by October.”

Many of the new train and engine employees might be working on new locomotives. NS purchased 25 new AC road locomotives in early 2014 and plans to buy 50 more AC road engines during the second half of the year to boost capacity. NS also has purchased 19 used locomotives this year that are being refurbished at Juniata Locomotive Shop as needed.

“With expected improvements in network velocity, we should be in good shape in terms of locomotives by the end of the year,” Bailey added.

NS field employees have accomplished a lot dealing with extreme weather and heavy volumes to keep shipments moving and the network fluid, said Jerry Hall, vice president network and service management.

“Our Operating Division employees – transportation, mechanical, and engineering – have done a phenomenal job,” Hall said. “The first and second quarters presented very difficult operating challenges, and our people, as always, rose to meet those challenges. Their efforts reflected our SPIRIT values in every way.”

Markets to watch

The spike in business has put the railroad’s resources to the test.

“Any time there’s a dramatic change in volume, it’s going to stress the network,” said Mike McClellan, vice president industrial products. “We’ve got enough railroad to handle the business. We just need resources in the right places.”

While first-quarter volumes in industrial products were stagnant, the merchandise business grew by 7 percent in the second quarter, led by a 13 percent increase in metals and construction volumes.

“Rarely do you see years where you don’t grow at all in one quarter and then have significant growth the following quarter,” McClellan said.

Growth has been especially strong in “frac” sand used in drilling for natural gas and oil, as the petroleum industry ratchets up activity in the Marcellus and Utica shale regions in Pennsylvania and Ohio and additional East Coast refineries come on line.

“The crude-by-rail franchise continues to ramp up,” McClellan said. “We’ve also had big numbers in ethanol, steel, and some segment of grain shipments.”

Domestic thermal coal, a wild card in NS’ business markets for the past two years, experienced an 8 percent year-over-year volume increase in the second quarter, while overall coal volumes grew 3 percent.

“Coal is the more economical source of energy right now,” said David Lawson, vice president coal. “Utilities have been buying more coal because natural gas prices are higher, and coal stockpiles have been depleted because of the harsh winter. Overall volume is up from what we forecast. That requires more resources.”

 However, export coal, which typically accounts for about 20 percent of the coal NS moves annually, is facing challenges this year, including highly competitive international supplies and depressed markets for both metallurgical and thermal coal. “It’s been very cheap to buy coal from Australia and Indonesia,” Lawson said. “Their currency and quality advantages, coupled with their proximity to the
Asian markets, have made it difficult for U.S. coal producers to compete in the global marketplace.”

 The improving economy during the second quarter contributed to an impressive volume growth of 11 percent in overall intermodal traffic, with international volumes rising 16 percent.

“We’re running ahead of budget and hope it continues,” said Jeff Heller, vice president Intermodal. “All of our facilities are growing across the network, and business between Norfolk and Chicago is up.”

A plan for the future

About 25 percent of the nation’s freight moves through Chicago. The extreme winter weather and train backlogs prompted the Chicago Transportation Coordination Office to take action requiring member carriers to reduce traffic through the gateway. NS and other Class I railroads participating in the Chicago Region Environmental and Transportation Efficiency program, or CREATE, formed the office.

“All of the Class Is had daily conference calls so the railroads could coordinate to make things more efficient,” Bailey said. “Even under the best of conditions, Chicago has capacity constraints.”

The expansion of NS’ Bellevue rail yard in northern Ohio, slated for completion in December, will do a lot to alleviate congestion in Chicago and across the Northern Region, Bailey said. The $160 million project will double Bellevue’s humping capacity, making it the largest classification yard on NS’ system. The enlarged yard is expected to reduce operating costs associated with moving industrial products, especially in the Northern Region where much of the ethanol, frac sand, and crude oil traffic is concentrated.

 “Bellevue will help tremendously,” Bailey said. “We will be able to build full trains at Bellevue and run them directly to Chicago and to our western interline connections without making a stop along the way. That takes a lot of pressure off Chicago, and every time we reduce handling, it takes 24 hours out of transit.”

That should please NS customers who have voiced frustration by the slowdowns experienced since the end of winter weather.

“Weather, they understand,” McClellan said. “Volume increases are confusing.”

Given the adaptability and hard work of NS employees, McClellan said he is optimistic that service levels will return to normal soon.

“We will modify our operations to handle this business as we always do,” he said, “and we will get back to the high level of quality that we are known for offering – and get there as quickly as we can.”

Bellevue Yard
An aerial view of Bellevue Yard taken last November shows the existing hump yard on the left and construction of a second hump yard on the right. When the expansion project is completed, the Bellevue facility will become NS’ largest classification yard.

NS records in 2Q 2014:

(EXCEEDED) $3 billion: Railway operating revenues

(SURPASSED) $1 billion: Income from railway operations

$562 million: Net income

$1.79: Diluted earnings per share

66.5%: Railway operating ratio