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In the Northeast, doing it like Sinatra

Fall 2015

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A day after taking ownership of East Binghamton Yard in Binghamton, N.Y., NS locomotive 3491, an SD40-2 engine, arrives for yard and local service as part of NS’ new operations there. A D&H GP38-2 locomotive rests on the service tracks.

NS charts a course for growing business with D&H South deal

Norfolk Southern’s purchase of the Delaware & Hudson Railway Co.’s South Line in September strengthens the railroad’s competitive position in the Northeast and opens the door for long-term business growth.

Buying the 282-mile line from D&H, a subsidiary of Canadian Pacific Railway, better enables NS to serve the needs of intermodal, automotive, and merchandise customers across the market region.

A classic Frank Sinatra song, “My Way,” nicely sums up the benefits of NS control, said Jim Ogle, assistant superintendent, Harrisburg Division, where the line runs.

“As Frank would say, we can do it our way. That’s proven successful for us, and it’s best for the company and it’s best for our customers,” said Ogle, the Transportation Department’s point person in the ultra-smooth transition of operations from CP.

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Conductor Philip Estrella, right, watches as Sean Campbell, conductor trainee, lines a switch for their train to enter East Binghamton Yard.

 

NS’ purchase has its roots in the 1999 split of Conrail’s assets between NS and East Coast competitor CSX. CSX acquired Conrail’s New England assets, gaining a substantial market advantage. Ever since, NS has looked for opportunities to extend its reach into the region.

“It’s important for Norfolk Southern and for the national customers we serve that we have broad geographic coverage,” said John Friedmann, vice president strategic planning, who oversaw the planning involved in the line takeover. “New England is too big and important of a market to ignore.”

In 2009, NS expanded its New England presence with the $137.5 million Pan Am Southern joint venture with Pan Am Railways. That venture focused on a 115-mile mainline dubbed the Patriot Corridor that runs between Mechanicville, N.Y., near Albany, and Ayer, Mass., in the Boston market.

As owner of the D&H South Line – which runs between Sunbury, Pa., and Schenectady, N.Y. – NS now has direct, single-line access into the heart of the Northeast region, including improved access to consumer-rich New England markets. This bolsters NS’ ability to compete with other rail carriers, and, most important, with trucks, which move the majority of commercial freight in New England. NS invested $214.5 million to buy the line.

“By giving us better connections with Pan Am Southern and short line railroads in that area,” Friedmann said, “we plan to provide a more truck-competitive service that will help us grow business.”

Through trackage and haulage agreements with CP, Norfolk Southern used the D&H line even before the Conrail transaction. While those agreements gave NS market access, they were costly and often resulted in service issues that complicated business dealings with customers. By the time of NS’ purchase, NS freight accounted for about 80 percent of traffic over the line.

“It just made sense for NS to end up as the owner and operator,” Friedmann said. “It enables us to better control our service product and to make changes to our train plan to adapt to customer demands and needs.”

Through the transaction, NS significantly increased its presence in Binghamton, N.Y., becoming owner of East Binghamton Yard. The former CP facility has 17 tracks and includes a mechanical shop equipped to service locomotives and rail cars.

“Binghamton used to be the end of our world, and now it’s a hub for us,” said Chip Meador, director strategic planning, who helped quarterback the transition planning. “We can go west, north, and south there, and we can go east with a short line connection.”

In addition, NS picked up two smaller yards – an intermodal facility at Taylor, Pa., that serves the Scranton-Wilkes-Barre metropolitan area, and a yard at Oneonta, N.Y.

Overall, Friedmann said, the acquisition solidifies and complements strategic initiatives NS has launched to expand business in the Northeast. Following is a look at how NS business groups stand to gain from the D&H deal.

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On a run between East Deerfield, Mass., and Enola, Pa., Norfolk Southern train 11R, a new train operated with Pan Am Railways, crosses the Tunkhannock Viaduct at Nicholson, Pa., on NS’ first day as owner of the D&H South Line.
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An NS intermodal train passes through Ninevah Junction in New York on NS’ first day of operations as owner of the D&H South Line.
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Boosting intermodal service

NS’ intermodal marketing group uses the D&H South Line to move domestic container freight from Chicago’s 47th Street terminal to the railroad’s intermodal facilities in Mechanicville and Ayer. Most of that traffic is being moved for J.B. Hunt, Hub Group, and intermodal marketing companies doing business with retailers such as Wal-Mart, Target, TJ Maxx, Procter & Gamble, and Best Buy, said Kevin Saunders, director intermodal marketing.

Before buying the line, NS handed off intermodal trains to CP at Binghamton. From there, CP moved the freight to Mechanicville, where much of it was passed on to Pan Am Southern for transport to Ayer.

Having three carriers involved added costs and increased the risk of a service disruption, said Chris Luebbers, group manager intermodal marketing. Now, CP is not involved in the move.

“We have control over the entire service, and it gives us the ability to provide a much more consistent and fluid ride,” Luebbers said. “Consistency is what our customers really need. This enables shippers to be more confident in using NS for access into those Northeastern and New England markets.”

NS could see some business gains at the Taylor intermodal facility. It is located near several big-box retail distributors and a Pennsylvania alcoholic beverage distribution center served mainly by truck, and NS is better situated to convert that freight to rail.

One of the biggest longer-term opportunities, Luebbers said, is the potential to expand international business at the Port of New York and New Jersey. That includes growing existing Canadian markets in Montreal and Toronto and establishing new service from the port to markets in Buffalo, Albany, and Ayer. Currently, most of that international import traffic moves by truck.

“There’s an opportunity to come up with some new services,” Luebbers said. NS, he added, is taking time to ensure smooth operations before pushing too aggressively for new business.

“Transportation, in particular, is being very diligent in the transition of operations and not trying to do too much, too soon,” Luebbers said. “I think that’s been a good approach.”

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Revving up automotive business

Since the Pan Am Southern joint venture, NS’ automotive business group has reached into New England at auto ramps at Mechanicville and Ayer. All of NS’ auto traffic flowing into that large vehicle consumer market moves over the D&H line.

NS’ ownership of the South Line should lead to improved service, said Richard Kiley, group vice president automotive and supply chain. NS previously needed CP’s approval to run additional volumes or increase capacity for auto traffic on the line, a process that sometimes disrupted service for NS customers.

“We look at this as being able to control our own destiny, making sure we have efficient routing from origin to destination,” Kiley said. “Any time we can make our service more consistent, our customers look at us more favorably, so this opens the door to expanding business.”

Ford is NS’ largest auto customer at Ayer, while the Mechanicville facility handles a mix of Ford, Toyota, and Chrysler vehicles. Consistency for them means meeting service schedules to avoid delaying haul-away truckers who transport vehicles from the auto ramps to car dealerships in the region.

“The focus for automotive is shoring up our service between the Midwest, where the vehicles are produced, and New England, where they are consumed,” Kiley said. “This is about maintaining our market share, improving our product, and putting together a service package that is readily sellable.”

Growth potential for local customers

The D&H line runs through a key part of the Marcellus Shale market in Pennsylvania, giving NS a stronger position there. NS picked up about 16 customers previously served by CP, and, currently, the biggest local business for NS on the line is moving fracking sand that oil and gas companies use to drill in the shale deposits.

NS also picked up an International Paper plant that produces corrugated cardboard boxes, and several small grain and feed customers, including one that makes wild bird seed. In addition, NS gained access to General Electric’s turbine production plant in Schenectady. Within a week after taking over the line, NS moved a turbine from the GE facility to a Georgia utility plant.

“The new business showed up almost instantly,” said Doug McNeil, director distribution and network services in industrial products.

McNeil headed a marketing team that analyzed the business case for the transaction. A benefit of owning the line, he said, is that NS can promote industrial development along the tracks. One opportunity is the transload market, including establishing Thoroughbred Bulk Transfer facilities at key locations to draw in business that currently isn’t rail-served.

“It just made sense for NS to end up as the owner and operator. It enables us to better control our service product and to make changes to our train plan to adapt to customer demands and needs.”

— John Friedmann,
vice president strategic planning

“People seem to think this is just an intermodal and automotive play, but there’s a lot of potential for merchandise traffic,” said Gregg Cronk, system manager interline service.

Chad Grinnell, short line development manager, handles direct customer sales along the line. He said some businesses on the line told him he was the first railroad sales person they’d seen in seven years.

“The feedback we’ve gotten has been extremely positive,” Grinnell said. “We’ve had discussions with all the customers on how we can mutually grow their business.”

Having direct access to NS’ network expands opportunities for local customers to do business with NS-served suppliers, producers, and vendors they couldn’t connect with via CP.

“The ability to capitalize on NS’ customer base for their supply chain options, whether it’s a warehouse or soybeans, is really the most exciting avenue for customers on the D&H South Line,” Grinnell said. “It doesn’t mean we’ve landed business, but the ability to expand their vendor list, get competitive pricing, and get better service continues to drive our discussions.”

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Engineer Ken Kertesz, a former CP engineer who was hired by NS, works his last CP/D&H train into East Binghamton Yard on the day before the cutover to NS.

 

Expanding reach with short lines

NS now can offer more cost-efficient rail options for short lines that connect to the D&H South Line and for mutual customers, said Jennifer Cox, manager short line development.

“Providing single-line service to our short line connections makes the economics work,” Cox said. “You have fewer railroads involved and you can eliminate things that people see as barriers or complications to getting the business done.”

NS expects to grow business on short lines that connect with Pan Am Southern in the New England market as well. Opportunities might include moving paper products, plastics, building materials, and agricultural goods.

McNeil said NS plans to offer reliable and timely service by running merchandise trains over the line every day of the week. CP was running trains three days a week when NS took over, he said. Many of the short lines and their customers wrote letters to the U.S. Surface Transportation Board supporting NS’ purchase of the line, he added.

“Customers will get a lot more attention because they’ll have a hometown railroad focused on their business,” McNeil said.

Over the next year, business now handled by other carriers will come up for bid, he said, giving NS an opportunity to make a play for it.

“There’s a lot of truck traffic that comes out of New England that is very service sensitive, and I think our ability to compete for that is going to improve dramatically,” McNeil said. “We just have to track down the business and sell the opportunities.”