Remarks by:
Stephen C. Tobias
Vice Chairman and Chief Operating Officer
Norfolk Southern Corporation
Thank you, Jim,
Railroads by design tailor operations for consistent service performance by planning for non-standard events to ensure operational continuity. This includes train plans, maintenance practices, all aspects of the human element and computer support systems. Over the years we have reported on a number of successful events, examples of our ability to adjust to the expected and unexpected.
The economic scenario in the second half of 2008, and especially the final quarter, presented challenges and opportunity to improve service consistency in a volatile business environment. While we, like many, have seen a drop off in car loadings and business levels, the dynamics of our Thoroughbred Operating Plan has enabled us to quickly adjust operations to fit the ebbs, flows and change of mix as the markets transform.
I will elaborate more in a few moments on the what and how of variable operations and cost control, but first, I would like to bring you up to date on our safety performance.
Rail Industry Safety
Employee Injury Ratios: 12 Months 2008 Preliminary Comparison
Employee safety is the critical element of all operations. And I know we talk about it a lot, and we should because a safe workforce is a consistent one that enables plans to execute as intended. While performance for 2008 will not be officially reported until next month, this graph shows comparison with last year.
Current 2008 injury ratio per 200,000 man hours, shown in green is 0.93 which is 20% better than the 2007 actual ratio of 1.16.
Composite Performance
2008 Year to Date Performance: 79%
In 2009, we are putting even more focus on service. Last year service became a component of our annual bonus calculation and in 2009 we will increase the service component from 20% to 25% of the total bonus calculation. We will also expand calculations for two key components to include more network trains, and tighten measurements on connections.
The Service portion of the bonus calculation is based on Composite Performance. Composite Performance is a weighted average of the three primary service component measurements – Train Performance, Connection Performance, and Plan Adherence.
Thoroughbred Operating Plan
Response to Business Changes
As the pronounced reduction in shipments began several months ago, we relied on planning tools within the Thoroughbred Operating Plan to meet these challenging times. Keep in mind that we use these systems everyday and we’re able to maintain consistency of operations while meeting a series of goals as we adjust our rail system to “right-size” with the evolving economy. Those goals are safety of operations, consistent customer service and scalable cost control. On all three we have not let up and our TOP system allows us to work all three in concert with each other in a near realtime.
Let’s look at what we’ve done…
Train Reductions
Starting in mid-October and accelerating in mid-November, we systematically removed train starts from our operating plan driven by the falling number of shipments.
Over Thanksgiving, we curtailed operations for the first time in over a decade. As traffic volumes continued to fall, we analyzed the plan and took capacity out where traffic could no longer support the existing train plan.
At the end of 2008 going into 2009, we had reduced the operating plan by over 60 network trains, plus locals and yard jobs totaling 43,800 train starts.
Terminal Plan Reductions
We also began to reevaluate switching requirements at terminals on the system, using OPD, or our Operating Plan Developer technology. We were able to quickly analyze and adjust yard operations while continuing to meet customer requirements. We have been able to substantially reduce the operations at Buckeye Yard-Columbus, Ohio, Sheffield, Alabama and Reading, Pennsylvania. We continue to analyze all of our yards and are making adjustments as appropriate.
OPD is at the center of strategic and tactical network planning. With OPD we are able to react to changing traffic patterns and act accordingly. While it is relatively easy to remove trains from the operating plan, it is important to do so and not negatively impact – car handling, car miles, car days and train size. OPD allows us to do this – evaluating all components simultaneously and making the optimal network decision. In a rapidly changing environment, the ability to migrate from operating plan development to implementation is a significant advantage. Along with OPD we have also built models to determine the required locomotives and crew base – all dependent on the requirements of the operating plan. We feel our Operating Plan Developer at the moment is a competitive advantage.
Rail Cars: in Storage Status
In addition to adjustments to the operating plan for trains we also use OPD to manage equipment assets as business conditions change. This slide shows in orange our daily number of stored merchandise cars through the end of 2008. Stored cars are staged at locations that enable quick return to service without excessive handling once market conditions improve. Combined with coal, intermodal, and multilevel equipment, we now have approximately 20,000 cars stored across the network as depicted in the pie chart. Our coal stored number benefited from efficiencies made in our coal operations that required fewer cars.
Our timely car storage focus enables us to right size our car types to customer requirements and minimize our costs.
Comparison: Train Hours & Road Locomotive Units Operated
Further, as the operating plan was reduced, the requirement for locomotives decreased. The red line in this graph represents locomotives operated, while the blue line indicates train hours operated. As you can see train hours and locomotives operated remain relatively constant, albeit with day of week variation, through November of last year. As we started to make significant reductions to the operating plan throughout November and into December, the requirements for locomotives also declined. Over a two month period, we have reduced in service locomotives by 127 units – 79 in short-term lease turn-backs and 48 NS units placed in storage.
Train & Engine Service
2008 Active Employees by Month
We constantly monitor our manpower needs throughout our system. Our personnel management systems within the Atlanta Crew Management Center allow us to manage train and engine service needs directly with current operations, in connection with marketing forecasts and focused, localized business level projections, all matching the needs and planning geared with the Thoroughbred Operating Plan. Given the economics, our TOP train plan redesign gradually reduced train counts and crew needs. As a consequence, our active train and engine service employee level gradually declined in 2008, accelerating during the fall and into 2009 with the exception that we continued to find opportunity for our recently hired employees for retention and training.
Early on we slowed train and engine service hiring as some softening in business levels became apparent, notably in the automotive sector. And since December have curtailed hiring.
From a high of 12,380 Train and Engine service employees in April 2008 to a current 11,622 last week. A curtailment in hiring and the furloughing of train and engine service employees drove the reduction.
Train & Engine Service
Employees in Furlough Status
We began furloughing in October and we anticipate furloughing an addition 100 T&E employees in the next 30 days bringing the total to over 500 T&E employees. Generally as reductions in train operations are made, they are followed by reductions in other departments like Mechanical.
New Technologies
Realizing the benefits we’ve derived from the technology developed over the last ten years, has only reinforced our commitment to future opportunity. UTCS, LEADER, Pacesetter and LARS are only four of our current initiatives that will improve our operation, our service delivery and reduce our costs. There are many others in the planning and pilot stage.
Deb Butler will now cover the capital budget and technology initiatives.
We are all concerned about the volatility in the marketplace like everyone. But as you can see, reacting responsibly. We are able to act and will on circumstances as they evolve.
Thank you. |
