Remarks by:
Stephen C. Tobias
Vice Chairman and Chief Operating Officer
Norfolk Southern Corporation
Good morning.
As we began 2007, our operations were impacted by severe weather conditions in both the Midwest and Southeast. However, as you will see, we quickly recovered from these conditions and finished the year strong. Our network is fluid and operations remain strong as we continue to emphasize improvements in service and safety.
Our performance measures continue to show improving trends as we increase focus on consistency of operations and service delivery.
Unit Train Network Scheduling
Before I get into our service performance, let me briefly tell you about our Unit Train service initiates. In October, Don Seale briefly mentioned the benefits of one of our initiatives, the 75 car unit grain trains, but allow me to give you a little more detail.
As we got further along in analyzing our operating plan, we determined the network scheduling of unit trains was a key element in reducing variation in the day-to-day operation of the network, with benefits to be had in both the unit train side as well as the rest of the network.
Under our traditional approach, unit trains were essentially treated as a separate network, and train schedules were controlled by the divisions initiating the train and operated without much consideration for the overall network impact.
Scheduling unit trains to run in defined slots enhances capacity and better utilizes crews and locomotives by integrating the unit trains into the overall network operation.
Power generally remains with the train in order to facilitate expeditious movement, return of empties, and completion of the shipment cycle.
Unit Train Scheduling Network
Where service has been initiated, some benefits we have seen include improved cycle time, such as an 18% reduction in loaded transit times, and a 40% reduction in the time loaded units are holding awaiting power assignment.
In addition, reduced transit cycles have improved asset utilization, allowing us to store 4,500 cars since July 2007 and reducing 2008 car orders by 800 units.
Although a much smaller network, we have seen similar improvements in the unit grain operation. So far, cycle time improvements have allowed us to turn in 210 leased grain cars.
Total Cars On-Line
Now looking at our service performance, all measurements clearly point to continued improvement. However, going forward, keeping the lead in service means higher expectations in service delivery . In the next few minutes, I’ll review some of our traditional service metrics. I’ll also introduce you to some new, internal measurements we are using in our efforts to raise the bar on service delivery, including our plan to tie service performance to compensation.
First let’s look at the measurements you’re familiar with.
This slide shows our daily cars on line since 1999. The orange line shows a 12-week moving average. Cars on-line represents the active cars on Norfolk Southern, including both loads and empties. Fluctuations in cars on line can be influenced by several factors, including business levels, but is generally a good indicator of network fluidity.
As this chart indicates, improvements in cars on line continue to reflect overall network fluidity.
Average Train Speed
This slide shows the weekly average system train speed since 1999. This measure represents the average transit speed between terminals and, combined with terminal dwell, reflects the two major components of service delivery. Average train speed for the fourth quarter was 22.0 miles per hours, just slightly below (less than 0.5%) 4th quarter 2006. Train Speed can be impacted by changes in traffic mix and traffic volume. For example lower automotive volume, which moves in faster train service relative to other bulk commodity trains (which move in heavier, slower trains), can impact average overall network train speed.
2007 Train Speed was 21.59 vs. 21.71 for 2006, down 5.5% - primarily due to network issues, flooding in the Midwest and fires in Georgia/North Florida in the first half of the year.
Most recent train speed was 22.5 for the week ending January 18.
Terminal Dwell Time
This slide shows continuing improvement in terminal dwell time, the second major component of service delivery. Terminal dwell represents the average time a rail car spends in an terminal.
In the fourth quarter 2007, average terminal dwell was 21.3 hours, an improvement of 2.6% over 4th quarter 2006 and almost 11% below the same period in 2005.
Improvements in terminal dwell are a success story at Norfolk Southern due to our focus on terminal operations and connection performance.
For the most recent week ending January 18, average terminal dwell was 20.3 hours.
Connection Performance
This graph provides more detail on the improvements in Connection Performance. Connection Performance measures the percentage of railcars making their scheduled connections and is one of the primary internal measurements we use in evaluating our overall service delivery.
The measurement covers nearly all connections made at 284 locations across the network. Improvement over the last three years is evident by the trend line shown in red, with reduced variation particularly in the latter half of 2007.
At the end of 2007, our Connection Performance stood at 92%.
TOP Adherence
TOP Adherence measures the percentage of scheduled work events (pick ups and set offs) executed by road trains. It is another one of our primary internal measurements used in monitoring our service delivery.
The execution of work events is a critical component of service delivery since failure to execute scheduled events can result in shipment delays and slower shipment cycles.
Train Performance
Train Performance is an obvious and traditional measurement of service delivery. Beginning this year, we are significantly “raising the bar” on this measurement by expanding its scope and redefining what it means to be “on-time.” This is part of our broader goal of reduced variation in service delivery.
In order to better measure variation in train performance and improve the measurement to include a broader view of the network, we are changing the Train Performance measurement to include more trains, in fact, all scheduled road trains. The additions include Amtrak and the newly scheduled coal, grain, and other bulk commodity trains.
In addition, the measurement is now bounded on both the early and late side, and for the first time establishes excessively early trains as a defect.
The two graphs illustrate the defined windows of on-time performance under the old and new measurement. As shown, under the old measurement, all early trains were considered on-time (shown as green) regardless of how early they arrived at final destination. Under the redefined measurement, excessively early trains (shown in blue) are no longer considered “on-time.”
We believe this will be the most rigorous internal measurement criteria in the industry.
Composite Performance Measure
The three-component measurement I’ve mentioned–Connection Performance, TOP Adherence, and Train Performance–are now part of a new, composite performance measurement. The intent of the composite metric is to provide a single, direct measurement of service delivery that is comprehensive, plan driven, accurate, robust, transparent, easily understood and actionable. In short, our employees positively impact these measures daily.
In 2008, this new composite measurement will be tied directly to compensation as part of our bonus calculation, along with pre-tax net income and the operating ratio.
The composite metric will represent 20% of the bonus calculation.
Composite Performance Measure
In order to achieve a comprehensive measure, the Composite Performance Measure combines the three components into a single composite measurement. The components are weighted in order to provide a more balanced view of all traffic. Since many intermodal and bulk commodity unit trains are point-to-point in nature and therefore not fully represented in the Adherence and Connection measurements, train performance is weighted heavier at 40% of the total.
It goes without saying that the focus of these initiatives is the improvement of consistency in service delivery. Consistency of service delivery yields both higher customer satisfaction and more efficient operations and, along with Safety of operations, remains our highest priority.
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