Remarks by:
Mark D. Manion
Executive Vice President and Chief Operating Officer
Norfolk Southern Corporation
As Don pointed out, business volumes continue at historically low levels. In response to these volumes, we continue to pursue cost reductions in order to “right size” the operation. We are, however, mindful of the need for a focused and balanced approach to those reductions . And, therefore, even with volume down, we continue to push for improvements in the safety of our operations, as well as improvements in service delivery.
Consistent service delivery is critical to both customer service and efficient operations.
I will outline some of the results of our efforts, but let’s first begin with a review of our safety performance.
Rail Industry Safety – 6 Months 2009 Preliminary
(Injury Ratio per 200,000 Employee-Hours)
As shown here on slide 2, based on preliminary estimates, we continue to lead the industry in safety of operations and remain committed to pursuing initiatives to drive further improvement.
Our estimated injury ratio for 6 months of 2009 is 1.13.
Road & Yard Crew Starts – By Quarters 2009 vs. 2008
As we discussed last quarter, our train and engine employees are paid on an activity basis. And, turning to slide 3, with adjustments to our operating plan, both in reduced train operations as well as reduced yard operations, we’ve been able to significantly reduce crew starts.
Looking at the slide, road crew starts were reduced 20%, year-over-year, and yard assignment starts were reduced 19%. We continue to monitor business conditions and make adjustments to the operating plan accordingly. But, these adjustments have to be carefully balanced to assure both continued service delivery for our customers as well as to maintain network velocity to maximize network operating efficiency.
Some of you may have had the opportunity to hear about some tools we employ for analyzing and modeling changes to the network operating plan, at our Investor Day presentation in Atlanta. These tools – particularly OPD or Operating Plan Developer – have enabled us to respond quickly to changing business conditions, reducing operations and costs, without adding delays to customer shipments or additional costs associated with less efficient use of key assets such as railcars and locomotives.
Train & Engine Employees – By Quarters 2009 vs. 2008
As volumes started to fall late last year and as we adjusted our operating plan, we began reductions in our T&E workforce. On slide 4, you can see that further plan changes have diminished our need for T&E employees. Second quarter, year-over-year, we have reduced our T&E employee count by 14%.
Composite Service Performance – By Quarters 2009 vs. 2008
Let’s now turn to service delivery. As shown on slide 5, we continue to drive better performance even as we have taken costs out of the operation. A key measurement of overall service delivery is our Composite Service measure, which combines the key service drivers of Train Performance, Connection Performance, and Plan Adherence.
We continue to push toward higher levels of service and service consistency, with a gain of 5 points in the second quarter as compared to the same period in 2008.
Service Metrics – Percent Improvement – 2nd Qtr 2009 over 2nd Qtr 2008
Turning to slide 6, we drill-down to the individual components of the Composite measure. As you can see, we are driving service improvements in all of the key components of service delivery. Second quarter performance includes, a 14.7% improvement in Train Performance, a 0.9% improvement in Connection Performance, and a 3.7% improvement in Plan Adherence. While the improvements in Connection Performance and Plan Adherence seem modest, they are improvements above already very high levels.
Train Speed & Terminal Dwell – Quarterly Comparison – 2007 to 2009
As I mentioned earlier, network velocity is a key driver for savings in the areas of rail cars and locomotives.
As shown in slide 7, second quarter average train speed improved 13% and, as Wick mentioned, was an all-time best. Terminal dwell time increased less than 2%, as our models anticipated, and was an appropriate trade off for the record-setting velocity as well as the crew start improvements I previously mentioned.
Car Hire Days per Carload – By Quarters 2009 vs. 2008
Looking at network velocity a slightly different way, let’s turn to slide 8 which illustrates Car Hire Days per Carload.
As a reminder, car hire is the rent that we pay for the use of other carrier’s rail equipment and car hire days is the total amount of time those cars are on Norfolk Southern.
As you can see, car hire days paid per carload has remained largely unchanged – overall, less than a 1% increase in the second quarter, indicating that we have maintained network velocity as we make changes to the train and yard operations. This is critical in keeping car hire payments in line with changes in volume. Loss of velocity results in longer equipment cycles and higher car hire expenses per carload.
Cars Stored
Due to continuing low demand, we continue to increase the number of railcars in storage.
On slide 9, at the end of June we had just over 35,000 cars stored. This includes about 28,000 cars owned or leased by Norfolk Southern as well as Norfolk Southern's allocation of stored national pools managed by TTX for automotive, intermodal as well as TTX flats and some box car equipment (RBOX and TBOX). It also includes about 900 cars stored under car hire agreements with various short lines.
Locomotives Stored – January 2008 – June 2009
Turning to slide 10, at the end of June, we had just over 600 locomotives stored – about 16% of our fleet. You will notice, that in June we started to reduce the number of locomotives stored from a high of 700 at the end of May. This reduction represents, in part, a need for more locomotives to handle an increase in coal trains from May to June, but more importantly to support a new effort to cycle our stored locomotives.
In the past when storing locomotives, it has been for periods of time less than a year. With the uncertainty of the economy, we are taking additional preventative maintenance action to assure that our stored power remains in good working order. So, when demand justifies their return to service, we can do so smoothly and with minimal delay.
Locomotive Fuel Consumption – By Quarters 2009 vs. 2008
On slide 11, the impact of a greatly reduced operating plan is reflected in locomotive fuel consumption – a 26% reduction in the second quarter of 2009, versus the same period in 2008. Fuel consumption was also aided by conservation efforts in the areas of – train pacing, idle reduction efforts, and ensuring that the locomotive consist is correctly sized for the train.
In addition to reductions in locomotive and other fuel, we are also seeing significant expense reductions in other areas of our operations, including our maintenance of way, locomotive repair, and railcar programs.
Going Forward …
Much like in the first quarter, moving forward, we will continue to build on the basics – safety, commitment to service, and operating efficiency.
More than anything else, we want every employee to end their work assignment in the same condition they started it.
Beyond that, we will continue to right size the operating plan for the business delivered to us and make sure our asset bases are also correctly sized.
And concurrently, we are going to maintain network velocity and service throughout this effort. However, we really view this environment as an opportunity to raise the bar on both (network velocity and service) – now, and going forward. |
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