NS defends carrot-and-stick approach to speed customers' freight car handling

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WASHINGTON — Norfolk Southern is taking a balanced approach to encouraging shippers to more quickly load and unload freight cars, CEO Jim Squires wrote in a letter responding to the concerns of federal regulators.

The railroad announced in October that it would increase penalties on customers who failed to meet certain standards for unloading and loading cars at their facilities.

“On the one hand, we are increasing certain demurrage charges to ensure efficient freight car distribution and an efficient supply of rail cars,” Squires wrote in a Dec. 4 letter to Surface Transportation Board Chairman Ann Begeman that was posted to the agency’s website today. “We are also reducing certain credits related to the loading, unloading, and storage of freight in rail cars to incentivize customers to unload cars more quickly and return them into service. The faster these cars return to service, the more efficiently the nation's supply of railcars is being put to work.”

Begeman wrote to the chief executives of NS and Union Pacific last month, questioning the fairness of the changes to certain car charges and penalties as both railroads look to become more efficient.

“On the other hand, because we are confident in our plan to improve our service, Norfolk Southern has balanced these changes by increasing the demurrage credits earned for certain NS failures,” Squires wrote. “By making these enhanced demurrage credits available to customers, we are demonstrating to them our increased confidence in our service product, which should, in turn, cause them to further improve asset utilization, creating a virtuous cycle.”

The changes take effect on Jan. 1 and are part of NS’s move toward a new operating plan.

Squires’ letter did not use the term Precision Scheduled Railroading, although it did mention the same five core principles of railroads that use the operating model developed by the late E. Hunter Harrison.

“Our goals are to improve service to customers through more efficient operations, improve our cost structure, and help our customers grow,” Squires wrote. “We are also making these changes in a methodical way to minimize the disruption on the network. When we are done, we expect to have a railroad with more capacity for our customers to grow their freight with us.”

Begeman also had asked NS to hold weekly conference calls with STB officials, who want to monitor the railroad’s operational changes. Squires wrote that the railroad would be happy to provide regulators with weekly updates.

NS announced on its third-quarter earnings call in October that it is in the early stages of adopting a new operating plan that will incorporate elements of Precision Scheduled Railroading.

NS is redesigning local service, a process that will last into early next year before the railroad focuses on system-wide changes to through train operations. NS will detail its plans at an investor day set for February.
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