Jamie Boychuk, the activist investor candidate aiming to lead operations at Norfolk Southern, says improvements the railroad has made in recent weeks under new Chief Operating Officer John Orr — like increasing train velocity, reducing dwell, and removing 75 locomotives from active service — are low-hanging fruit that will help reduce the operating ratio by a point or two.
“What really needs to be done there, though, is we got to strip this thing down to the studs — and that’s the difference,” Boychuk told investors on a webcast today. “What our plan is, our plan is to really take it down to the studs. It’s got great, great bones and a good foundation as a franchise, as a railroad, but it needs to be redesigned.”
Boychuk was a key player in E. Hunter Harrison’s 2017 Precision Scheduled Railroading makeover at CSX and went on to become the railroad’s executive vice president of operations. He was dismissed from the railroad in August under new CEO Joe Hinrichs.
Activist investor Ancora Holdings has launched a proxy battle at NS, and is proposing a majority slate of directors. Ancora wants former UPS executive Jim Barber Jr. to replace NS CEO Alan Shaw. And it wants Boychuk to implement the low-cost Precision Scheduled Railroading operating plan at NS.
Aiming to fend off Ancora, NS last month brought PSR operating experience to its management team by hiring Orr, a former Canadian National and Canadian Pacific Kansas City operating official, to accelerate change.
Ancora released a detailed presentation today on its plans for the railroad. Among the proposed actions to reach a 62% operating ratio goal within 12 months: An $800 million cost improvement plan that involves storing 450 locomotives, idling 35,000 freight cars, improving fuel consumption, and reducing switching through a complete network redesign.
“None of this can really be done … through tweaking the operation through pulling unproductive pieces here and there,” Boychuk says. “This is what the full redesign gives you.”
Ultimately Ancora says its management candidates can produce a 57% operating ratio at NS. NS says it will reach a sub-60% operating ratio in three to four years partly through $550 million in productivity improvements.
Boychuk says the Ancora plan hinges on equipment- and operations-related cost reductions — not job cuts — because of the wave of workforce downsizing the Class I railroads have undertaken since 2017. Instead, the plan initially will rely on attrition to reduce the workforce by 800 positions. Ultimately, Ancora would use attrition to eliminate a total of 1,750 jobs.
Barber says NS needs to commit to operational excellence in order to improve service for customers and financial results for shareholders. “The foundation of that happens to be PSR,” he says.
The UPS and Norfolk Southern networks are similar, Barber says. Jim Casey, who founded UPS predecessor American Messaging Co., preached that the company should always have the best service at the lowest cost – which Barber says is applicable to railroads.
The NS resiliency strategy — which relies in part on not furloughing train crews during freight downturns to that the railroad can maintain service and capture volume during an economic rebound — is flawed, Barber says.
“That would be like us at UPS hiring a hundred thousand people at peak season and keeping them on for the next nine months, even though I don’t need them to be resilient,” Barber says. “And who do you think loses in that world? The shareholders do.”
That’s why it’s critical for NS to fully implement Precision Scheduled Railroading, cut costs, improve financial results and then bring on volume growth, Barber says.
NS shifted to a PSR-based operating plan under investor pressure in 2019. But Ancora says that transition didn’t go far enough and that Shaw’s better way strategy has reversed key tenets of PSR, especially its emphasis on operating with just enough locomotives, cars, and people.
CSX experienced a bumpy PSR transition under Harrison, who moved quickly and created widespread service problems that prompted shipper complaints and scrutiny from regulators.
Boychuk says Harrison moved too fast at CSX and failed to properly communicate with customers, regulators, and employees. Boychuk says he would roll out operational changes more slowly and with plenty of communication beforehand.
NS shareholders will vote on the dueling plans offered by current management and Ancora during the railroad’s May 9 annual shareholder meeting.
Barber, Boychuk, and Ancora board candidate Sameh Fahmy spoke with Deutsche Bank analyst Amit Mehrotra during today’s webcast.
The new CSX management got rid of upchuck for a reason. He drove the place into the ground and NOW it is finally turning around with a customer oriented operation. Hinrich has the ground people on his side. Defiantly not the same as with the previous management team.
Get the popcorn ready and watch a company fail with a former worker in charge, along with;
“That’s why it’s critical for NS to fully implement Precision Scheduled Railroading, cut costs, improve financial results and then bring on volume growth, Barber says.”
Been there done that as the industry will repeat, looks good on paper yet cannot sustain long term in the field.
increase your business, control costs. invest in programs that increase business further. All I see is cut costs. Nothing excites me less in a company. I wonder if the real plan is to break the company sell the assets and leave town. But, what do I know……..
It is interesting to see the focus on shares and management of the Meridian speedway infrastructure investment of almost 20 years ago but are not proposing any other investment of a similar type.
“Who’s gonna buy them refrigerators? We got to move those MTV’s”
Maybe the stockholders should let NS fail. That would be the final nail in the PSR coffin.
“That would be like us at UPS hiring a hundred thousand people at peak season and keeping them on for the next nine months, even though I don’t need them to be resilient,” Barber says. “And who do you think loses in that world? The shareholders do.”
There is a significant difference in UPS peak season operations and the railroad. The “peak season” employees at UPS are typically runners on the local delivery trucks or extra grunts loading various trucks. They are the lowest paid employees with marginal KSAs to begin with; they are not the sharpest tools in the shed.
Peak season employees can be hired quickly and given a day or so of training and sent into the field. They can be terminated just as quickly.
That operating organization model does not lend itself to railroad operations. We only need to look at Dick Anderson of Delta as the head of Amtrak for an example.
I think Boychuck and Barber need to get the hell out of the railroad industry and find a pickleball club to join to occupy their time.
David C. Lester
Editor-in-Chief
Railway Track & Structures
I must strongly differ with you my friend. If the current collection of clowns and buffoons running NS had been doing their jobs in the first place, we would not be having this conversation. The reality check here says that NS is now the WORST run Class 1 railroad in the industry, based on every single metric available. Shaw & Company sound just like the old Chicago Cubs baseball team, who used to love to say, “Wait til next year.”
And now all of sudden when faced with an admittedly hostile takeover Shaw & Company start running around in a panic like the proverbial chickens with their heads cut off. Where has Shaw & Company been for the last six months??? With their heads buried in the sand???
Even if Shaw wins now, in the long-term NS shareholders and investors will still be stuck with a bunch of losers.
On thing I do remember very well is that one of the most famous marketing slogans in the history of transportation came from UPS. It read, “We run the tightest ship in the shipping business.”
As a fellow railfan remember it was UPS who came to Santa Fe more than 30 years ago with the inspired idea of purchasing a Santa Fe switching yard and building the largest parcel sorting facility in North American located immediately adjacent to the ATSF mainline.
So, we seem to have a choice here between Tweedledum and Tweedledumber. Not sure which is which.
My good friend and fellow UT transportation alum, you need to consider the pressure that’s been on Alan Shaw since East Palestine. As I’ve written before, I wonder how the dudes at Ancora, and their “choices” to run NS would hold up in this situation. Shaw and his team, essentially just after Shaw assumed the CEO chair, East Palestine happened. What a mess. What a response from NS. This industry does need any more OR predators looking for a quick buck. Recent history shows what this can lead to. The PSR advocates have had their 15 minutes of fame. It’s time to keep the railroad business in the hands of real railroaders who respect their colleagues and see the big picture.
With all due respect it seems to me that Mr. Shaw is in way over his head. Mr. Orr’s appointment may be a case of too little too late.
For six years I had the privilege of working for arguably the finest railroad CEO in the post-deregulation era, a gentlemen named Robert D. Krebs. Kerbs became CEO of Santa Fe Southern Pacific in 1987 and President of the railroad in 1991. From 1987 to 1995 he encountered and successfully overcame more challenges and hurdles than any railroad leader in modern history.
Then he became BNSF CEO and got to clean up the mess Gerry Grinstein left.
This my friend is what real leadership looks like.
Hmmm? Boychuk gets canned by CSX, and then the investor group picks him up? Sounds like he’ll do great things at NS! Do yourself a favor and let’s keep the Shaw team in there. OR doesn’t help the railroad, service, customer service and growth make a railroad go!
Start at page 132 of that 193 page ‘fluff’ deck. The amount of BS they jammed in there is amazing. I also enjoyed how on page 107 of the deck when they asked for ‘endorsements’ for Boychuk they didn’t list Joe Hinrichs. I wonder why.
And who do you think loses in that world? The shareholders do.”
That quote says it all about who he is interested in.
Liar, Liar, Liar!!!!!!!!!!!!!!!!!!!
You can’t store that many locomotives and freight cars and say you are not cutting any jobs.
And, you are not going to cut down to the studs, so to speak, without killing service.
Shaw has it right. The OR can’t be the be-all, end-all.
This guy sounds like the guy that killed the goose to get all the golden eggs all at once. Can you spell failure, boys and girls?