LITTLE ROCK, Ark. — A vast majority of Norfolk Southern customers believe an activist investor’s plans for the railroad would worsen service and prompt them to shift some of their freight to truck or rival CSX, according to a Stephens, Inc. shipper survey released today.
The Arkansas-based investment bank found that 91% of shippers believe that Ancora Holdings’ strategy – which includes focusing on the most profitable traffic and reducing the railroad’s operating ratio to 60% within 14 months and to 57% within three years – would hurt Norfolk Southern’s service.
None said Ancora’s plan would improve NS operations.
In contrast, 86% of shippers backed Norfolk Southern’s service resiliency and growth strategy — and none supported Ancora’s plans to fully implement the low-cost Precision Scheduled Railroading operating model at NS. And 72% of shippers believe current NS management will improve service over the next year.
If Ancora wins the proxy battle and executes its plan at NS, 80% of shippers said they would take 4% to 9% of their freight off Norfolk Southern and put it on trucks or CSX. Some 5% of shippers said they have already shifted traffic away from NS due to the proxy battle.
“We believe this is partially being driven by memories of prior activist campaigns at Class I rails, some of which involved service disruptions during the implementation of PSR. And while the activists have stated a priority of its leadership slate is delivering dependable, high-quality service to customers (at committed levels), the initial response from most shippers has been skepticism,” Stephens analyst Justin Long wrote.
Shippers took a dim view of Ancora’s plans.
“We have seen solid improvement with NS service over the past two years, for both carload and intermodal,” one shipper said. “After reviewing the plan by the activist, I am convinced it is a short-term attempt to squeeze cash out of the NS network.”
Said another: “I have been through this with the other railroads, and it is a complete disaster. Rates go up. Service goes down.”
“The NS has been doing a really nice job of balancing cost and service,” another shipper said. “If the activist moves forward, it will be bad for everyone except for a few profiteers.”
The shippers who participated in the survey spend approximately $25 billion on transportation annually.
Ancora has proposed a majority slate of board candidates and wants to oust NS CEO Alan Shaw. The Cleveland-based activist group is touting former UPS executive Jim Barber Jr. as CEO and former CSX operations boss Jamie Boychuk as chief operating officer.
Ancora has been critical of Norfolk Southern’s lagging financial and operational performance, as well as its response to the Feb. 3, 2023, derailment and hazardous materials spill in East Palestine, Ohio.
Absent a settlement, NS shareholders will vote on the matter at the company’s annual meeting on May 9.
Rail labor has signaled its support of NS and its management team, while federal regulators have expressed concern about Ancora’s proposals.
“The outcome of this activist campaign will ultimately be in the hands of shareholders, and we continue to see the opportunity for meaningful service/productivity improvement with or without activist involvement,” Long wrote. “But based on this survey, we think shippers are initially skeptical of the activist plan based on scars from the past … so if the activists prevail, we think turning this sentiment will need to be a top priority in the initial 6-12 months of the transition.”
To understand PSR, I suggest a look at its roots. Trains had an article ages ago which laid-out where EHH’s original view of successful railroading was dispelled by having the (expletive deleted) scared out of him by one exec who visited his facility. It’s that fear that still is at the core of the allure of PSR.