Remarks by:
Mark D. Manion
Executive Vice President and Chief Operating Officer
Norfolk Southern Corporation
Thank you Don.
We continue to reduce costs aggressively and do it in a balanced way so we provide good customer service. I’ll give you more detail on that but first let me bring you up to date on our safety performance.
Slide 2: Rail Industry Safety
As shown here on slide 2, our safety process remains strong with initiatives in place for continued improvement.
Our estimated injury ratio for 3 months 2009 is 0.94, which is 19.0% lower than first quarter last year which was a ratio of 1.16.
Slide 3: Carloads
Let’s turn to our operations for the first quarter.
On slide 3, the green bars represent carloads for ‘08 and you can see volumes were down about 20 percent. Furthermore, gross ton miles were down about 18%.
Slide 4: Road/Yard Crew Starts
With regard to the operating plan, beginning with slide 4.
For road trains, we have reduced crew stars quarter-over-quarter by 14 percent, and for yard assignments, we have reduced crew starts by 11 percent.
We will continue to monitor business conditions closely and we expect further reductions in crew starts, being mindful that this business is not necessarily a business where volume reductions equate to an equivalent number of train starts. While you can take a certain number of trains out of the network, you have to keep running some number of trains if you are going to maintain a scheduled operation and the level of service our customers want.
As we discussed at our last meeting, we have some terrific tools which enable us to respond to changing traffic conditions with revised operating plans which reduce trains without adding additional equipment expenses or delays, or any degradation in service levels. Clearly, the amount of variable cost you can reduce depends largely upon the type of business. Coal and Intermodal are the easiest to reduce variable expenses through the elimination of trains, while Merchandise tends to be the most difficult. Nonetheless, we are continuing to scrub our train and yard plans on a weekly basis, as we see changing traffic patterns.
Slide 5: Service Metrics
In the first quarter, our service metrics, shown on slide 5, improved significantly in terms of train performance, connection performance, plan adherence, and of course our composite service measure. Train performance increased nearly 16 percent, while connection performance and plan adherence increased to a lesser extent, but from already at exceptionally high levels.
Slide 6: Car Days per Carload
Illustrating operating plan efficiency, slide 6 shows our Car Days per Carload measure.
Car Days per Carload represents the number of days involved in moving foreign cars through the load/empty cycle on Norfolk Southern. While this calculation specifically measures foreign cars, for which car hire is paid, the velocity is generally indicative of all cars on the system. Despite a significantly reduced operating plan, car days per carload decreased quarter-over-quarter indicating an efficient and balanced plan.
Let me emphasize this point – maintaining an efficient and balanced operating plan and then following it, is of prime importance to us. One thing that we are always mindful of - is how easy it is to seriously impair the level of a railroad’s service, and how hard it then is to restore that service. Following the operating plan is key to service and cost control.
The benefit is further illustrated when we turn to slide 7, car rental expense.
Slide 7: Net Equipment Rents
As you may recall, due to traffic flows Norfolk Southern is a net payer of equipment rents. Through a solid operating plan and strong execution we were able to manage rental payments to produce a Net Equipment Rent reduction of $6 million.
Slide 8: Cars Stored
In addition to reducing our operating plan, we are also taking our asset base down shown here on slide 8.
We have about 32,300 cars in storage now, representing roughly 28% of our fleet.
Slide 9: Locomotives Stored
Additionally, as we see on slide 9, we have nearly 400 locomotives stored, which represent about 11% of our fleet.
Slide 10: Railway Employees
Slide 10 shows the total number of railroad employees for each of the last five months. As you can see, beginning in November 2008, we have reduced employees in the wake of volume declines through furloughs and attrition.
With regard to furloughed employees, we have approximately 1,200 total, with about 1,050 coming from train and engine service. The balance are primarily mechanical employees, as we have significantly curtailed our car repair programs.
Additionally, we have reduced overtime expenses 41 percent in the first quarter of 2009, and we will continue to take costs out wherever we can.
While we’ve reduced our employee count, it’s important to note the real savings comes from reducing crew starts and improving system velocity. Our T&E employees are essentially paid on an activity basis, so while we’ve furloughed 9% of our T&E forces, we don’t think there’s a good short term cost advantage to significantly increasing the T&E furlough pace. We’ll incur some additional costs in health and welfare benefits, but we think it’s more expensive in the long run to let people go, and then have to hastily try and rehire them when business recovers. The result of this is, some T&E employees aren’t making as many trips and consequently not earning as much.
Slide 11: Going Forward
Turning to slide 11, going forward we will continue our focus on safety. Using the tools available to us, we will ensure that the operating plan is correctly sized to the underlying traffic volumes and changing patterns.
As we have to date, we will approach the plan development in a balanced and customer focused framework – not just optimizing one or two elements to the detriment of the overall cost structure, but looking at it from a comprehensive perspective.
And finally, as our operating plan evolves, we will make sure we have correctly sized our asset base to support it efficiently.
Thank you, and I turn the program over to Jim Squires. |
