Norfolk Southern to cut jobs, routes and locomotives

Robert Wright in New York
Financial Times

Norfolk Southern the US railroad being stalked by Canadian Pacific, on Wednesday outlined plans to cut staff, close routes and mothball locomotives amid a series of measures aimed at cutting annual costs by $650m by 2020.
The company revealed the plans after publishing fourth-quarter figures showing net income down 29 per cent year on year to $361m, following a 20 per cent slump in coal revenues. Demand for high-quality metallurgical coal from the Appalachians — which makes up a high proportion of NS’s coal business — has been badly hit in particular by the worldwide fall in steelmaking.
Announcement of the plan boosted NS’s shares 2.5 per cent in New York to $70.54.
The savings plans elaborate on the company’s announcement on December 4 that it intended to make significant savings to cope with the challenges posed by sharp traffic declines across a range of commodities. The company has stepped up its efforts to cut costs since CP in November proposed a merger between the two companies designed to cut overheads and improve the two companies’ operations.
NS has rejected the overtures from CP — whose biggest shareholder is Bill Ackman, the activist investor — by saying that regulators would bar a tie-up.
Jim Squires, chief executive, said the company’s senior executives had already taken “significant steps” to improve financial and operational performance.
“While Norfolk Southern’s fourth-quarter results do not yet reflect the initiatives under way, we believe we have the right strategic plan to streamline operations, accelerate growth and enhance value for shareholders,” he said.
The company said it planned to reduce its staff — currently 30,000 — by 2,000 by 2020. It also planned to dispose of or downgrade 1,500 miles of secondary routes — including 1,000 miles this year — by the end of the decade. Some of the lines may be hived off to “shortline” operators — smaller rail companies that face less onerous operating standards than big Class I railroads like NS.
The company said it would reduce its active locomotive fleet by 300 this year and another 100 by 2020. It will replace the oldest, least efficient locomotives and step up a programme of fitting more modern, efficient traction motors.
NS’s revenue decline follows the announcement last week by Union Pacific, operator of the US’s biggest rail network, that its fourth-quarter net income had fallen 22 per cent following a 31 per cent fall in coal revenue.
NS’s coal revenue for the quarter fell to $433m against $543m in the fourth quarter of 2014, while general merchandise revenue fell 9 per cent to $1.52bn. Revenue from intermodal traffic — shipping containers and truck trailers — fell 13 per cent to $563m. Overall revenues fell 12 per cent to $2.52bn.
The coal declines were particularly sharp in the domestic metallurgical coal market, where sharp falls in US steel production sent traffic down 14 per cent year on year in the quarter.