Norfolk Southern Corporation — 2024 Q1

Yes, I'll start. First, I think the amendment was just really formalizing with the SEB who had requested that things get filed, the whole exchange that we want -- that we had the 8-K and some of the other stuff. They just wanted to see it formally filed. So we did exactly that. That's all it is, nothing new than what's already been communicated. ISS, we don't control it. We would imagine that comes out likely at the end of this week, early next week, but we don't know.

And Scott, recall in John's prepared remarks, you had a chart that said about $250 million in productivity over the next 6 months.

Tom, thanks for the question. Let me be really clear. We we're still focused on that same strategy that we laid out a couple of years ago. And that's that balance between service productivity and growth with safety at its core. And we made a lot of improvements last year in service. We made a safer road even safer, but we weren't delivering the productivity. We weren't running fast enough, and we weren't running efficiently enough.

Yes. And as I've said in my prepared remarks, they're not mutually exclusive. In fact, they're complementary to each other. And my approach is, as I evaluate the network, and restructuring our yard and local plans, what are basically on-ramps to our corridor that touch our service, touch our customers and creating efficiencies, new standards and accelerating through our current dwell times, making improvements year-over-year, but also making improvements on the individual cars and the handoffs on those cars, it drives performance.

John, why don't you talk about that? And then, Ed, why don't you talk about the market?

Yes. I think that the most imperative thing we can do is to close the gap on performance, reliability and drive the value of the network. As far as the capacity, we're unlocking capacity in the existing terminals by being more efficient, more effective and driving those on-ramps to the network more effectively. What are in that pipeline? We have ample capacity to grow more trains or grow longer trains to get yield out of that even a single line capacity.

Sure. And you're absolutely right, John. We've seen volume so far this month and we're encouraged by that. Our customers are encouraged by the level of service that we're delivering. And to be clear, in Intermodal, the level of service we're delivering is the best in a generation and it's sustainable and it's going to continue to be that way, and we're earning trust from our customers to do that. We're seeing very good response on the bid front for new volume converting from the highway, which we're very encouraged by in Intermodal.

I'll talk about the Intermodal piece first. I think that was your first question. Look, we took a very, very disciplined view of our Intermodal network and did a couple of things. Looked at lanes that were very low density, looked at lanes that were not strategic in terms of their capability for our customers, and then thirdly, looked at lanes where we did not believe that there was going to be long-term growth potential that we have line of sight on.

And I would say with regard to kind of the mix question. Intermodal is going to grow because that's where the growth is. We serve the consumers. But at the same time, merchandise has probably suffered more in the past couple of years from the service challenges we have. So just unlocking the network and doing everything that John is doing, should enable Merchandise to really return to better growth rates as we start to recover, and of course, that will help mix.

Absolutely. And the -- as I said, the sales pipeline approach that we're taking has a very disciplined view toward conversion from the high labels in the Merchandise as well as the Intermodal space.

And I would say as far as capacity is concerned, we're improving execution and plan compliance, and that facilitates blocking deeper into our network, which ultimately increases car velocity, train speed and really drives performance. That applies to Intermodal, Merchandise and [ Boat ]. And we're actively engaging and challenging every asset that we've got out there. Just in the last 30 days, I've approved the elimination of over 487 turnouts that were redundant. We're turning over every rock, big or small, to look for improvement and consistency.

Yes. Obviously, the sick leave is a national issue. I think no different than any other regulated or introduced crew limitation, we all have to deal with it. What I'm really focused on is crew productivity and yard productivity and increasing the capabilities of each assignment to do more within the time frame they've got to work. And so delivering more, getting accountability to connections, getting yield on our trains, that's the most important piece, and we're balancing that.

Well, that's a great question. I'm glad you asked it. I'll tell you, in my first official act with boots on the ground was to go to East Palestine and really understand the scope of that issue. I'll tell you, I've been a railroader for over 40 years. I've been the incident commander at a number of derailments, some very consequential and some that I've had to make those same decisions that were made here to resolve imminent safety concerns. And understanding the scope and scale of the commitment that NS has made to that community, I've never experienced anything like that.

Ed, why don't you address that?

Sure. And thank you, Stephanie, for the question. As I said earlier, our customers are encouraged by a couple of things. Number one, the velocity of change that they see happening in terms of service improvement. And you think about our first quarter, we absorbed double-digit growth in our international book as well as low single-digit growth in our domestic book, held serve on our merchandise freight and improved service throughout that time and into April. So they're encouraged.

You know, I've had a number of customers approach me, Stephanie, over the last month since John was announced, encouraged by our approach, encouraged by our direction and supporting our strategy. Our customers, as John noted, in the east are familiar with John in large part. And they've seen what he's done, wherever he's been to enhance service and enhance safety and enhance productivity, and that's what customers are looking for.

I was just about to close that. Thank you for another week of excellent service. You know who you are out there.

And we've had to make hard decisions. Ed and I have had to try to take very decisive decisions on car flows, even on how customers are interacting with some of our service facilities. It is -- but having the work on the front end, engaging with people, helping them understand what we're doing, helping them understand where they fit into that, whether it's union leaders, it's regulatory leaders or our customers, that really, Stephanie, helps them understand what we're doing, why we're doing it and how we're going to work together to create these standards.

And Stephanie, that is our strategy, is making sure that we bring along our customers and our employees and our regulators and our shareholders with us as we transform Norfolk Southern into a more profitable organization with a safe and service product that is poised for growth.

Well, I'll tell you this, that all across Canada, the U.S. and Mexico, I've been a change agent and an architect of PSR. I haven't had the luxury of looking in the rearview mirror very often. And so I don't spend a lot of time looking at what could have been or what was rather than what the current situation is and how fast can we get to the desired state. Desired state is having -- closing the gap for sure, having an operation that is focused on asset management with speed and accuracy to reduce the cycle times, reduce the dwell times and drive out waste.

Walter, that's our strategy. That's what we're committed to doing. We're going to implement and we have been implementing PSR in a responsible and sustainable manner. We saw what happened in our peer in 2017. And we're not tearing this thing down to the studs. John knows how to do it without tearing it down to the studs as the activist COO has said he would have to do.

And I think Walter, by the way, it's nice to hear from you. I would say, it's what we said at the very onset, that we're taking a balanced approach. I've laid out really challenging and urgent near-term and midterm targets and I'm taking an aggressive disciplined approach to manage it. And I view as the George Foreman Grill example, you don't set and forget operations. You sweat it out and you can't drive this alone.

And just to close a loop, Walter, on say the locomotive specifically. Remember last year, we actually had to add locomotives back into service. We spent a fair amount of money in materials, trying to get locomotives that have been stored, back up and running so we could dig out of the top hole we were in following the East Palestine derailment.

And to summarize, the service level improvements, the dramatic service level improvements and what the customers are reacting to, and that is across our markets and across our customer base.

Actually, I'll handle the headcount question before John talks to you a little bit about his assessment of the challenges. You may recall, we guided last time where we said overall headcount would likely be flat over the course of the year. We were taking 300 non-agreement people out, but we would likely have to add some agreement folks that would offset it. We actually see now with John in the room here, a pathway for total headcount to be down around 2% by the time we end the year. So that's the path on headcount. John?

Yes. And just to add emphasis to that. As we get more productivity out of our yard and locos and more accuracy on our over-the-road transits and performance, we'll see more people virtually come alive, and we'll be able to have more availability and more crew flexibility. And I have frozen all hiring from operations. There may be 1 or 2 critical paths like C&S where -- signals and communications. That's a very specialized scale that we will need to continue to evolve as we bring our OT and IT and that kind of perspective into -- more into our safety plans.

Thanks, Rob. Appreciate everyone's time and joining our call this morning. I recognize there's a few folks that didn't get a chance to ask your questions. I want to let you know Investor Relations is here through the rest of the day. Please feel free to reach out to us. We look forward to seeing everybody through the quarter.