Stephen C. Tobias
Vice Chairman and Chief Operating Officer
Norfolk Southern Corporation
Thank you Wick, and good morning. I am pleased to report that the state of operations on Norfolk Southern is very good. We enter 2007 having successfully met a dual challenge during the last 12 months, as our people handled rising traffic volumes while continuing their improvement in employee safety. In the next few minutes I’ll review that safety performance, and then I’ll highlight our initiatives to enhance our capacity to move the freight.
Norfolk Southern Safety
Safety has been and continues to be our first priority. Safety is good business and attention to this subject leads to efficiency. In 2006, we further reduced the number of injuries to our employees. For the full year, reportable injuries fell 18.7% to 317, compared to 390 the previous year. Our preliminary reportable injury ratio in 2006 improved to 1 injury per 200,000 man hours, compared with 1.19 the previous year. That is a 16.0% improvement – (the best among Class I carriers). Even at that, however, we are still short of our goal. For 2007 we’ve set an aggressive goal of 0.79 injuries per 200,000 man hours. And as you have heard me say before, we will not be satisfied until we have worked the number of reportable injuries down to a nice round number – ZERO.
As the economy has expanded in the last several years, customers ask if capacity is an issue. Seeing the volumes at their doorsteps, and projecting growth in some areas, they wonder if carriers will be able to move it all. They’re looking for signs of congestion, and of course they’re looking for any indicators that might help them with their forecasting and planning.
From Norfolk Southern’s view, the rising economy manifests itself through consistent carload growth that has continued each year since the mid-1990s, with the exception of 2000-2001. Car load volumes have been increasing, but have shown swings in the mix of commodities. And in their own ironic fashion, fuel prices present a challenge, since they drive more business to us while at the same time increasing our costs.
Fortunately we have been about as prepared as any company could be. When we implemented our TOP train operating and planning system five years ago, and TOP II two years ago, we put into play tools that enable us to react quickly to changing conditions. We put into play a system that handles growing traffic volumes in a methodic, scheduled and real-time manner.
But system improvements are just one part of the equation. Assets are critical for addressing capacity and we have been making the investments necessary to meet the transportation needs of the market place. For example, at the beginning of last year we announced a capital expenditure program of $1.146 billion. As a result of a 1% traffic growth and other opportunities, we increased our spending an additional 2.8% to $1.178 billion for 2006. We plan a $1.340 billion capital budget for 2007. So let’s look at locomotives, rail cars, personnel and infrastructure.
Capacity Improvements – Locos, Cars, Personnel
This chart lists our critical assets that independently and collectively affect our capacity to handle business. Over the last several years we embarked on substantial locomotive purchase and repair plans. Last year we continued the trend with the purchase of 142 new locomotives from General Electric and Electro-Motive Diesel. We rebuilt 52 locomotives and overhauled 420. This year we plan to purchase 53 locomotives and to continue with rebuilding and overhauling at about the same pace as last year.
On the car side, we have always maintained an inventory of coal cars to match the needs of the coal producers, export businesses and growing utility users. With renewed interest in coal as an energy source, we have carefully planned our purchase and rebuild programs. We purchased 400 new aluminum coal cars last year, and we plan to purchase 1,300 coal gondolas this year. At the same time, we are extending the life of some our aging merchandise and coal cars. This program is cost effective, and we plan to continue it at a high level.
We have several other car development programs under way to reflect marketplace conditions. For example, the dip in the automotive markets has given us an opportunity to continue our multilevel rebuilds.
Let me turn now to personnel. It takes people to run a railroad, and early in the economic recovery we started an active program to hire and train people to move the freight. People-wise, we are in great shape, and our workforce has become stable. We continue to calibrate the overall hiring plan on the basis of attrition forecasting and as market conditions dictate. Last year, we hired 1,318 conductors and trained 764 new engineers. This year to manage attrition we are considering hiring 1,100 conductors and training 630 new engineers.
Capacity Improvement Focus 2000 - 2005
Systems, locomotives, cars and people can take us only so far, and if we had unlimited track and infrastructure, they’d take us a long, long way. But we don’t.
During the first half of this decade, as we integrated our portion of the Conrail properties, our efforts centered on capacity and fluidity issues in the Midwest, specifically in Ohio, Indiana and Illinois. It was critical that connections, routes and yard capacities align with the rest of the system. That was our focus, especially as we had a little breather, courtesy of the high-tech slowdown.
The work we did then is paying off today. With high business levels, customer service and train performance in the northern half of our company are excellent. Rarely if ever do we experience episodic or systemic congestion there. This is a good story – no doubt about it.
Capacity Improvement Focus 2006 - 2007
Now it is time for us to expand our focus to the South. With TOP, it’s easy and fast to review system-wide performance, looking at all routings and areas for bottlenecks and congestion. TOP shows us that in the southern part of our transportation system our traffic lanes themselves are fluid, but certain locations are congested. With that in mind we are undertaking infrastructure capacity improvements to address bottlenecks in Tennessee, Georgia, Alabama and Mississippi.
Capacity Improvements – Infrastructure Listing
Here are some of the 2006-2007 projects:
These infrastructure installations will help relieve episodic congestion and choke points on our southern routes, improving transit times and reliability. We intend to keep our capital expansion consistent on an on-going basis.
Operating Metrics – Cars On Line
- Intermodal yard and improvements at Louisville, Ky., and at Austell near Atlanta;
- Five miles of double track on the north end of the mountainous track section between Atlanta and Chattanooga;
- Three new long passing sidings; and
- Six track extensions to existing sidings.
Let me turn now to some quick metrics. As car loadings have moderated over the past several months, our operating metrics collectively show fluid operations and favorable trends. This slide shows our daily cars on line since 1999. The yellow line shows a 12-week moving average. Cars on line currently stand at 185,324 cars (reported 1/17/07), 4.0% fewer than last year. (Last year same day – 1/17/06: 193,095)
Operating Metrics – System Train Speed
This slide shows the weekly average system train speed since 1999. Current train speed stands at 22.8 (1/19/07) miles per hour. It has been higher in recent weeks and is 9.1% better than last year. The moving 12-week average is shown in yellow. (Last year’s performance – 1/20/06: 20.9 mph)
Operating Metrics – Terminal Dwell Time
This slide shows terminal dwell at 20.3 (1/19/07) hours, which is a 14.7% improvement over the 23.8 hours reported last year (1/20/06). Again, the moving 12-week average is in yellow.
Markets aren’t static, and neither is our railroad. Every day we work to balance our operating assets against marketplace needs. Expectations from all quarters are high, so we are thorough and aggressive in striking the balance that best serves our constituencies.
Our goal is to place the right assets at the right place at the right time. This is the foundation of ensuring capacity for the future needs of our customers. The current slight dip in volumes gives us time to rebound on train speed and train performance, while taking advantage of opportunities to institute physical improvements.
Our people know what to do, and they are doing it. We continue to review and analyze our markets and customer needs as we are getting ready for the next wave. I look forward to telling you more about our progress in the coming year.
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