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Service and growth are pillars of NS’ strategic plan

February 2017

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CEO Jim Squires, left, and CFO Marta Stewart talk shop with NS employees at Squires’ Feb. 10 “Join the Conversation” town hall forum in Atlanta.

Customer service will drive growth at NS, CEO Squires tells employees

Norfolk Southern in 2017 is focused on driving customer service improvements and growing the business, CEO Jim Squires told Atlanta employees at a Feb. 10 town hall meeting.

“The stage is set, the foundation is built,” Squires said. “We are ready to grow.”

NS has a number of customer service initiatives underway, including investments in technologies to improve the way the company engages and communicates with customers.

“Many of you will be involved in these initiatives, whether you are on the marketing team, whether you’re part of operations, or whether you’re part of information technology,” he said. “We’re all a part of that service team, and we’re going to focus on driving service and growing business this year.”

Efficient operations lead to increased profitability

Marta Stewart, executive vice president finance and chief financial officer, joined Squires and reviewed the company’s 2016 financial performance. She highlighted employee efforts that helped NS achieve an all-time best 68.9 percent operating ratio, a measure of expense control closely watched by Wall Street.

Despite a decline in freight volume in 2016, resulting in a $623 million year-over-year decline in railway operating revenues, NS improved its profitability. Income from railway operations in 2016 increased by $190 million versus 2015. That remarkable achievement, Stewart said, was largely a result of employees finding ways to operate more efficiently and reduce costs while maintaining high service levels.

“In a year with declining volumes, the railroad usually doesn’t make more money, but we did,” she said. Weak commodity prices and a sluggish industrial economy in 2016 challenged the entire U.S. freight rail industry.  

Service is key to business growth

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Squires thanked employees for improving network performance in 2016 and for providing industry-leading service that met and exceeded customer expectations.

“That was a key to our strategy, and it will be going forward,” he said. “The charge last year was to reduce spending but to keep service at a high level, and that’s exactly what we did. I understand that was no small feat, because we were asking you to cut in many different areas but to keep service at that level, and you did it. So, I really appreciate that.”

Cost control will remain important as NS aims for an operating ratio below 65 by 2020. Service, however, is the “key to long-term success for this company,” Squires said.

“Our service level is the platform on which we build growth in the future,” he said. “By and large, people are happy with our service right now, so we need to make sure that whatever else we do, we keep that.”

With a theme of “Join the Conversation,” the town hall was the fourth in a series that Squires is hosting with members of his senior management team to discuss NS’ challenges and opportunities with employees. This gathering gave employees a chance to learn more about Stewart and the experience and diversity she brings to NS.

Now in her 34th year, Stewart previously worked for a Big Four accounting firm. She spent more than two decades in NS’ accounting department and served as vice president and controller and then vice president and treasurer before assuming her current position in 2013. A native of Cuba, Stewart recounted how her family of eight – her mother and father, she and four siblings, and a grandmother – fled to the U.S. in 1961 from the island nation to escape communism.

“They had to work hard to establish themselves in the U.S., and we children saw that and always felt like we knew the sacrifices they had made for us so we could have a better life,” Stewart said. “That just shaped me a lot, both for always feeling that I had to strive and work harder, as I do at NS, and also, the commitment to family that I feel – my Norfolk Southern family, too.”

Other highlights of the conversation included:

Strategic plan guides the way: Squires said NS must continue to pursue its strategic plan goals around safety and service, productivity and efficiency, and growth. “We have a great vision for improving service and for making investments in our company,” he said. “We’re going to continue to pursue those things no matter what is going on around us. By the same token, we have to stay flexible and open to changing our strategy and our approach. The world is always changing, and we have to be flexible and adaptable.”

More predictable work schedules: NS recently introduced a fixed work schedule of six days on and two days off for locomotive engineers, allowing for better planning of train starts and work schedules. This benefits employees and the company, Stewart said, and NS continues its pursuit of predictable schedules with rest days for all regular assigned train crews.

“Those are the types of things we need to think about because our most valuable asset is our employees,” she said. “We need to make sure that our employees want to work here, are happy to work here, and are excited and want to make a difference for Norfolk Southern.”

Coal business outlook: Coal revenues, once accounting for about a third of NS’ railway operating revenues, have declined by $2 billion since 2011. Despite a current uptick in business, driven partly by higher natural gas prices, NS does not expect coal revenues to return to former highs, Stewart said. NS has made up lost coal revenue by growing its intermodal and merchandise business, she said. “That’s one of the reasons why the company needs to and already has changed to be more focused on the types of commodities the consumer needs, because the part of the U.S. economy that’s growing is the consumer,” she said.

New and rebuilt locomotives:  In 2017, the railroad plans to purchase 50 new locomotives and convert some of NS’ older Dash 9 DC locomotives to AC traction power, which improves their reliability and efficiency. Employees at Juniata and Roanoke locomotive shops are involved in the conversions. “It’s absolutely amazing what our folks are doing,” Stewart said. “They are taking them right down to nothing, just a base, and totally rebuilding them to like new. We’re still buying new because we don’t want to put all our eggs in one basket, but these rebuilt locomotives cost approximately half of what new locomotives cost, so it’s a great financial return for the company.”