Norfolk Southern lays out dramatic transition to PSR

Dive Brief:

Norfolk Southern laid out its plan to implement precision scheduled railroading (PSR) Monday at an investor conference at the railroad's new headquarters in Atlanta. The plan includes centralizing operations, reducing staff, running fewer, heavier, faster trains and optimizing the network in order to increase efficiency.
In order to achieve an operating ratio of 60% by 2021 (currently at 65.4%) the railroad will cut reduce headcount by 500 people in 2019 and 3,000 by 2021.
Some of these changes have already begun, particularly train speed and dwell improvements, which is part of the reason the railroad is laying out such a tight timeline for transition, reaching full PSR implementation by 2021.

Dive Insight:

In the presentation, Norfolk Southern executives hit all the greatest hits of PSR: faster and heavier trains, train and employee productivity, higher train speeds and reduced dwell. The railroad is attempting to implement these principles while also improving customer service, traditionally a sticking point in past PSR transitions.

Norfolk Southern launched a digital customer portal last year to help manage shipments and increase visibility. It is "adopting a mantra" around doing what it says it's going to do — even if that means doing less. CEO Jim Squires said the railroad will change its service and prioritize loads differently in a move toward "being clear about what we can and can’t do," which will lead to some shedding of customers.

"Service, as we go through PSR, will change. A network that takes into account the needs of most customers won’t be ideal for every customer," said Squires.

The chairman explained success will be judged by three metrics:

Service Delivery Index (SDI), which is a metric based on whether the railroad delivers on the commitments it makes to its customers — a more customer-focused measure, COO Mike Wheeler implied, than the common PSR standard Trip-Plan Compliance (TPI).
Train and employee productivity measured by the tonnage of traffic moved per active crew member.
Cars-on-line measured in tonnage per train.

The end-all-be-all of metrics will be the operating ratio (OR) — a single figure that speaks to the overall efficiency of the railroad. With the goal of 60% by 2021, Norfolk Southern looks to fall in line with the other railroads that have adopted PSR, all of which had OR's below 62% last year.

COO Mike Wheeler explained that PSR will be a company-wide initiative engrained in the culture. Unlike the new COO at Union Pacific, also recently transitioning to PSR, Wheeler is a Norfolk Southern veteran and not a student of the former CEO of CSX Corporation and father of PSR, the late Hunter Harrison. Norfolk Southern's relatively new Senior Vice President of Transportation Mike Farrell, however, spent years at Canadian Pacific Railway during its transition. Farrell joined Norfolk Southern as a consultant in 2017, when he helped the railroad establish its "clean sheeting" strategy of taking a completely fresh look "without preconceptions" at local lines, terminals and yards to find undiscovered efficiencies and increase velocity.

Alongside implementing the principles of PSR, the railroad has a plan to simultaneously boost margin and drive growth by more frequently adjusting pricing to reflect changes in the market, sending assets where they can be most productive and "understanding the cost of service."

"We are also going to try to grow even as we implement PSR. We are simply not willing to forgo the growth opportunity at this point in time," said Squires.

Analysts at the event questioned whether PSR can really be good for both railroad and customer — since some would argue that has yet to be the case with previous conversions. Norfolk Southern insists it will be able to thread that needle.