Okay, so we're going to keep things rolling here on the transports track of the Industrials Conference. Again, I'm Brian Ossenbeck, cover transports and logistics for J.P. Morgan. We're going to talk with Norfolk Southern here. We've got Jason Zampi, the CFO, John Orr, the COO. Thanks a lot, guys, for coming. Really appreciate your time today. Clearly, no shortage of things to talk about in railroading in the broader freight market in general, but we've got a nice full room, so if there's questions people want to throw in there, get my attention, we'll get you a microphone as well. Maybe we'll just start off a little bit kind of the state of the railroad, you know, how are things operating at this point in time?
Obviously, there's a little bit of a challenging—there's always weather, there's always winter, but this one felt like it was a little bit abnormal. How are things running, you know, at this point in time coming into what's usually the most important month of the quarter for freight in particular?
Yeah, thanks, Brian, for having us. It's a pleasure to be here. I'll tell you, you're right. Winter in 2025 had a different flavor than it normally has, especially in the United States. At NS, we've had over 17 major storms that include polar vortexes, and most recently, we had a two-inch rainfall that manifested into a 49-foot flood in West Virginia in our major corridor. You know, what do you do about stuff like that? As a Canadian, you prepare for winter. Some of my team were giving me a little grief that, "Hey, you're overpreparing us. We don't get winter like that that you're thinking about." You know, as luck would have it, we did.
For a short period, we had over a 100 mi stretch after that flood that we had washouts and at-risk where we had to take out the main line, put it back in, and then the floods came again, and we had to do it all over again. We spent—I believe in putting all the resources to getting restored. We restored ourselves twice over a period of four days, and we're back up and running to over a billion GTMs within a week. It is that capability to respond, respond acutely, prepare, overprepare in a lot of cases, and be ready to engage. That is kind of the transition that we've been leading NS into overall, not just winter, but you saw it during the hurricanes last year. We can't just say we're at the mercy of cold weather.
We can't just say that, you know, floods are going to shut us down. We have to be able to drive as deep into issues as we possibly can, come out of them as fast as we can. As the team matures and gets more capability and really gets confidence in speaking up to issues, we're able to respond a lot more quickly. I was just in Williamson last week, really checking in on the people affected by the flood. Thankfully, nobody was killed in our area, but there were several fatalities on both sides of the state line and really, you know, reinforced the emergency capability, but then challenged them to get back on track faster.
We called it March Madness and got into really pushing hard like a college team to focus on the prize at the end of the month, really restoring as much as possible for the quarter. Winter has affected us, in some cases affected our customers even more. Between Jason and I and Ed, we're really focused on what's out there, what can we recover, and I'm really, really proud of how we're picking it up.
Jason, you've been around for a little while at the network, and John kind of laid out some of the things that have changed or he's working on like right now, but what would have happened last year or prior to the plan if something like this similar would have happened at the network?
Yeah, so, you know, exactly like you said, you know, Brian, 18 months ago, two years ago, this would have put us down for quite some time. You know, we're not talking this incident, you know, kind of days. We'd be talking months that, you know, to kind of revamp from something like that. You know, it's really incredible the resiliency that we've been able to, you know, build into the network. You know, you've seen it with this storm, the series of storms this winter, the hurricanes last year, all kinds of disruptions that, you know, John and his team had this operational momentum that really helps us get out of these situations very quickly.
You know, the other thing when you think about resiliency, I think about, you know, the speed of recovery, but it's also, you know, the agility that John and his team have been able to show. Whether that's, you know, port strikes and, you know, freight completely shifting to a different coast, or it's, you know, things like the Baltimore Bridge outage and what we had to do there to continue to serve our customers, you know, that agility and resiliency never existed before. Both of those things are super important right now as we come into a time that's pretty uncertain with a lot of other things going on. It's really just incredible what the team's been able to accomplish.
You've talked about the number of days and the number of storms and whatnot. First quarter's always a bit tough from an OR and financial perspective. Are you able to put any more context or color or quantify what it's cost so far?
Yeah, so, you know, I would say just, you know, starting off, we're super focused on our full-year guidance, right? And just as a reminder, that's, you know, at least $150 million of productivity savings. And it's 150 basis points of year-over-year operating ratio improvement with about 3% revenue growth. That is our key focus. Like you said, Brian, you know, first quarter is typically the high watermark from an operating ratio perspective. You know, if you think about it sequentially from fourth quarter going into first quarter, it's, you know, probably about 200 basis points of headwind there. With these winter storms that we've just gone through here, and, you know, yes, winter happens every year, but I think John, you know, kind of pointed out these were really abnormal impacts on us.
From an expense perspective, you know, kind of incremental to that seasonality, we probably have upwards of $40 million of expense that's going to hit us this quarter. And, you know, obviously, it's going to have some top-line impacts as well. Now, you know, John and Ed and the whole team are really focused on, and we are recapturing a lot of that, you know, volume that was lost over those couple weeks, months where we had these big disruptions. But, you know, we won't be able to get all that back by the end of the quarter. What it's really created is kind of a timing challenge. We will get that revenue. You know, we're confident we'll recapture all of it, but most likely not all within the first quarter. That adds kind of another headwind to the first quarter.
I think you're going to see some elevated, you know, results in the first quarter from an OR perspective. But, you know, having said that, all in, we still feel very confident in our full-year guide.
One of the other big pieces of uncertainty, obviously, is just tariffs and the on-and-off nature of that. I do not know if anything's come on or off since we've been speaking, but possibly. In your conversations with shippers and, you know, John just preparing the network for that, I imagine, you know, railroads historically do not do, or freight in general just does not do well with on-and-off. I guess firstly, have you seen any behavior changes? Have you seen or felt any sort of impact from those on the network side?
Yeah. Brian, I've had the privilege of working in Canada, the United States, and Mexico. You know, a lot of those are, you know, import-export operations. I can tell you this, that uncertainty in any environment is not healthy, whether it's a relationship or a business. We saw that even with the East Coast port strike threat and a three-day strike manifested into a lot of disruption in the supply chain. I think we took a lot of pages from that. Number one, even though there was some repositioning of freight to the West Coast, we were able to interchange and effectively move it within our catchment, whether it came from the East Coast or the West Coast. We had enough capacity and capability and line of sight and trading relationships with our West Coast rail exchangers to be very responsive.
It is very much the same. Right now, we're jumping on everything. We've got locomotives in reserve. We've got them hot and ready, and we've got them deployed wherever we need them. We've got a resource in cars that are still parked, and we're pulling them out. You know, one of the most front-and-center commodities is steel. We've been very responsive to our steel producers in pulling out some cars that are stored to help them move as much as they can. We're ready to do that with any of our customers. We want our customers to win in their markets. We're willing to use the resiliencies that we've accrued to be as agile and responsive as we can. We've got the resources ready to go.
I think despite all the turbulence on the surface of water, there's steady state underneath it, and I think those steady states will come. For all of the reasons that the tariff talks are on, there will be a healthy outcome at some point. We're ready to work through the turbulence as well as the steady state. I think when you have a railway working as closely as we are and as customer-centric as NS is, we've got, what I would say, a unique ability to be more responsive than perhaps others. That's our wheelhouse. We'll continue to serve our customers, be really agile, and help them win despite the turbulence.
Jason, from a, I guess, end-market perspective or financial and volume side, are there any commodities or trade flows that you're watching in particular that could be, as written, the tariffs are going to cover a wide range of things, but like export coal, for example, possibly export agriculture, obviously steel, autos. What do you look at kind of like the exposure as they stand right now on the network?
Yeah. You know, first, adding on to your previous question, I think, you know, like most people, you know, customers, manufacturers, everybody's kind of in a wait-and-see approach, right? Just seeing how all this uncertainty plays out, obviously, you know, keeping a close handle on what's going on. You know, from our business perspective, about 75% of our business is domestic. You know, we move the U.S. GDP. So wherever, you know, the manufacturing occurs, wherever our shippers are, you know, we stand ready to serve them. I think that's the great part about the agility that I just, you know, mentioned and what the work John and his team have done. You know, if the volume's there, we're ready to move it. We've got the capacity, the resiliency, and the agility to handle it.
You know, we'll see how it plays out, but I think we've, you know, we've got a good line on being able to move that traffic.
On a related topic, I guess with agility, if we do have a share shift back to the East and Gulf Coast, which I assume we would, but it's hard to say for sure, would that be net positive, negative, neutral? Is it a different way of trade flows, obviously, or the freight flows rather, but would you be happier having more back on the East and Gulf Coast, or does it not necessarily matter because you're getting some of that interchange from the West Coast anyway?
Yeah. I don't know if you have an opinion operationally, John, but just, you know, the way I think about it is, you know, to your point, we'll see how it shakes out, right? I mean, tariffs may impact that, but assuming freight does kind of come back to the East Coast, which makes sense for, you know, certain things instead of going from LA to New York, you know, comes in on the East Coast. You know, I'd say we're kind of agnostic to it. You know, there's puts and takes, benefits and detriments each way. As an example, something comes in on the East Coast, you know, where we've got a lot of density there that we can serve, but we've got shorter length of haul.
If it comes in West Coast, we've got longer lengths of hauls, but you could have some traffic leakage in, you know, some of the gateway cities like, you know, New York or Kansas City. I think there's, you know, there's puts and takes to both. We've shown that wherever that traffic wants to come in, we'll move it. I think we're, you know, we'll take it wherever it comes.
Yeah. And for me, you know, I invest in generational railroaders, really focus on terminal performance and first mile, last mile capability, and of course over the road. When their first mile starts on our territory, you've got the opportunity to really set the clock on, you know, PSR 2.0 really relies on a lot of accuracy and then stability. If they're coming on to us, then you don't have a, you know, multi-thousand-mile journey that could be plus or minus several hours to make a connection or to make, you know, to optimize your train yield. When they're coming to us, then we can really have more influence on that and more of the quality of the first touch into the country and then the last touch into the marketplace. Either way, you know, we've got some really good railways that we interchange.
We've got a very, very robust network that includes, you know, a lot of sophistication on how we move cars from one company to another. You know, from a financial position, I agree with Jason. Just from an operating person, I like to control what I can control. I'd prefer it to be on me, but we take it either way.
One more kind of operational freight flow question. If we see these fees, levies, whatever you want to call them, on port calls for vessels that are tied to China in some shape or form, what I've heard is that's going to create more bunching, potentially more congestion as these vessels just visit the larger ports on the East and the West Coast. I don't know if you've heard anything different from your conversations with your ocean carrier partners, but would that be something you think the network would be able to handle, just broadly speaking, rail network in general? I tend to think of more stuff at one place at one time, potentially causing some congestion.
I will not work in hypotheticals, but just, you know, constructively, I would think that density helps rails. The frequency of departure and how we manage that is not a bad thing. It is the consistency and stability of what that event is happening. I can tell you this as a railroad person, if I am looking at competing modal competition and I am a producer, I am looking for the lowest cost, most reliable system of moving it. A lot of times, due to our service in the past or other economic drivers, including just-in-time supply, people have chosen other modes of transportation. I think the threat of increased cost or the reality of an increased cost really would drive me as a logistics person to go to the lowest cost transportation and shave money so I can provide end user a better product at a lower cost.
I think railways are positioned, especially us who really work in that industrial complex of the Eastern United States, to really be responsive and support, you know, the control over the net effect of cost within the country. I think, yeah, it depends on how much capacity you have. We've got capacity to serve. We can manage through frequency of departure, any kind of surges. We do. We saw it during port strike. We see it as vessels recover from ocean-borne storms and the sequencing gets out of kilter. It's nothing we don't do. The longer, if it becomes a part of our landscape, we just adjust to it.
I would just add too, wherever, you know, if that concentration does occur, I mean, we serve every port on the East Coast and the Gulf. I mean, we are well positioned from that perspective. Like John said, we are ready to handle it.
Maybe talk a little bit more about truckload conversion. We've seen that pick up here, especially on the East, which is a little surprising considering the truck market's not recovering anytime soon, it looks like. Maybe you can talk just approaching that market. I think in the past, you've called it more flexible freight. How to get that to come to Norfolk, come to the railroad, and then stay and not just go back and forth, you know, when it suits whatever that supply chain is that we're talking about.
Yeah. I think about that kind of in two pieces. One, I would call share recapture. That is, you know, freight that we used to move and no longer do. Then share growth, right? Just new opportunities there. I think the foundation for both of those is a, you know, a really good, consistent service product. That is something that, you know, we've talked about here, but, you know, that is what John and his team have built. That is the key to either, you know, picking back up freight that we had lost or, you know, just growing with new customers. I think that's key.
The next step in that is then how do we enhance the, you know, the ease of doing business with us and whether that's, you know, becoming a rail customer for the first time or it's providing that, you know, consistent, reliable service that, you know, the customer can trust that is more truck-like. I think those are the key components for us, but really the good service product is the thing that really unlocks all of that conversion.
Yeah. Brian, you would have seen last year in 2024, we spent a lot of time stabilizing the level of service, creating a lot more reliable service product and a couple of cranks of the operational improvement wheel on our planning, our structure, and our train service plan in general. This year, as talked about in December or January, I guess, we're taking now that capability that we've developed and turning up the heat a little bit more on ourselves, greater length of haul for our trains. That means our assets are going to be turning faster, the tighter standards within terminals so that our cars dwell and the utility of the cars are optimized. We are taking what we've done as a base last year and turning it up. As we did that, we started with safety and capability. Now we're looking at safety, capability, and business acumen.
Really helping our leadership across all the stratas understand the business outcomes that they're driving. If you can do that and still have a balance on your cost structure and your truck-like service, which that's the goal, that's one of the goals, is that's going to help us now have a competitive front view and reputation from people who want to convert. They really want a lower cost, better choice to move or hedge a little bit. We're going to really go strong on our service quality, still on our cost structure and our top and bottom line focus, but it's really about what do our customers need? How can we be more inclusive to onboard more people?
Maybe Jason, you can offer some comments on how the domestic channel partners are doing during bid season. Obviously, the truck market, as I just mentioned, is not really going up anytime soon. At least it does not look like it is bouncing around with seasonality, so that is a good sign. How are the folks with the private boxes, maybe even the rail-on boxes, feeling as they go into that sort of market? Service is certainly helping, but the competition probably not.
Yeah. I think, you know, I'd say I think we're around like 70% of the way into that process. We're hearing, you know, good things from our channel partners. I think a lot of positivity out there. You know, I would say, you know, you talk about truck pricing. I mean, you see the same metrics that we do, and, you know, we're not really expecting a big rebound there anytime soon. That's not in our base case scenario. Obviously, we'll take it when it comes. You know, I think so far from, you know, where we are in the bid season, we're feeling pretty good about things as our channel partners and our beneficial owners as well.
Maybe you can talk a little bit more about pricing, Jason, as you get into, again, come back to the service product, which is improving.
Sure.
The time lag of catching up with inflation. Certain contracts probably work that way, but still not the best market from a visibility perspective. I think you guys are a little bit unique in terms of how you're able to approach that market and approach pricing, which has been a little difficult for the industry to get ahead of cost recently. What is sort of your base case for the year and your sort of tracking along that to start?
Yeah. I mean, I think, you know, as you said, it's, you know, pricing conversations are always tough, but when you have a great service product, you know, it makes that a little bit easier. You know, we can show the value that we're bringing to them. I think from an overall perspective, it's kind of hard to talk about pricing at the high level because it is so, you know, there's so many different moving parts. I think if, you know, you start with coal, you think about, you know, that's kind of tied to, you know, seaborne benchmarks and you see what's happening from that perspective.
On the IP side, you know, we've really done a really good job of, you know, strong pricing there, been very disciplined on our pricing side, and have, you know, I think beat our own pricing plan there as we moved through last year. We expect to continue that momentum. I think what the service product does is it allows us to, like I said, number one, continue that momentum, but two, add additional volume from those customers, whether existing or new. That is what's going on, I think, in the IP side. On the intermodal side, you know, kind of like I just talked about, really, because that is so truck competitive, we're really, you know, focused on what the truck pricing environment is.
As I just mentioned, we do not have any kind of significant rebound built into our base case plan there. I think it is, like I said, easier to think about the pricing across those three big commodities separately and what we can do there. I think we have been really proud of what we have been able to do on the industrial product side from a pricing perspective. Now, with this consistent service product, we are adding volume to that as well.
John, one question I wanted to ask you for a little while now is car miles per day because we see that from typically the longer length of haul networks, like one we spoke to this morning where it's over 200 to 215, which sounds, you know, great on an absolute basis relative to Easterns, which are a bit shorter. How do we put that? It's relatively new for Norfolk to talk about that. How do we put that into context? Like where do you have a view on where that can go and what that would mean?
Yeah. It probably is a reflection of my roots. Car miles per day are important, but it's a massive asset that reflects not only on the use of a car, but the product in it and how fast it's getting to where it needs to go. I'll tell you, Brian, I don't fall in love with any one particular metric. I certainly won't allow my team to talk vanity metrics. It has to have a business reason why we're focused in on it. That is so tied into how effective we are over the road and how really precise we are within a terminal. That's what I'm focused on. I just want to keep pushing myself and incremental improvements. We haven't touched the value proposition for this network yet. I don't know where the ceiling is.
I know we've created a lot of capacity for both trains, train length, train yield, throughput, and terminals. Car miles is one of those things that you've seen a lot of improvement. Even despite the headwinds that we've had this winter through the storms, we're still improving across the board on our train speeds, our car miles, our dwell gets impacted probably more than anything else, and even our locomotive utilization. I look at it as a balance. As I talk through it, I always talk through our internal assets of car, car miles, our network productivity, you know, horsepower per GTMs, et cetera, and then as the customer sees it. I'm always trying to have that balance. Now there's probably lanes, especially in the northern corridor, where we could really crank it up, but then at what cost and what value.
I really want to make sure when I'm going in the pit to change the tires, I'm going to get faster lap times and win the race. We just got to be balanced in how we look at that. I think car miles are very instructive to how we're running, how our network is planned. More importantly, it's the deltas between expectation and reality that we have to drive into. Those help us and guide.
Another area that seems like a potential upside for Norfolk is just on the fuel economy and fuel efficiency. I know you've brought in some people to help out with that. It's always been interesting that CSX, given the shorter length of haul, has been able to lead at least the U.S. rails in that perspective. Is that achievable in your view over some period of time? Is there a mixed differential because you have a bit more intermodal? Where does that stand? I guess you can use a baseball analogy in terms of innings.
What innings? We're the home team or the away team?
We'll give you the home team.
The home team, perfect. It is the top of one inning or another. I would say there are a couple of pieces to that. I am absolutely committed to being the best we can be in fuel. I think we can meet and exceed our competition in the East on that. It is early days, and we have made a lot of improvements, but there are administrative controls. How do we account for fuel? What processes do we have in place? How do we reconcile, right? How quickly? We have really worked at speeding all of those things up and creating as much automation as possible. There are investments that we are prepared to make. We are in the midst of a 100-day review of all of our purchases and services and category management of those things. Front and center is fuel.
That is why I brought Mina and Carlo and other people into the company. They are absolute experts at this. You will see deeper dives on that, a reconstruction of how we source fuel, how we deploy it, even some capital investment around managing those things. I would say that the nice thing is probably in the early innings of the World Series. You know, there is, you know, not just nine innings, it is up to 63 innings, but we are making a lot of progress. We are really looking at sustained improvement, and then we will see, you know, inflection points where we get a lot of value and then the next iteration and improvement. You saw that last year. We are really challenging ourselves.
Absolutely.
Really aggressive improvement, and we're tracking fairly close to that. I'm excited by it. Really, really excited by it.
Great. One question we're asking everybody here this week is we've seen more reports, and the AAR came out with one on cargo theft and how much that costs the industry. And we hear more from shippers at conferences we go to as well. It does seem like it's not just any specific railroad, and it's getting more organized, more challenging for freight in general. Has that reached a level of, you know, heightened focus from your conversations, and how is the industry, you know, trying to address that?
Yeah. I'll say this. Police report to me at NS, and I take it very seriously. I want to give them all the tools and skills and support that they need to effectively protect our infrastructure, our people, and of course, cargo. I do not want places like Atlanta and Chicago to experience the same kind of theft and disruption that we saw in other parts of the country. We have really been focused on how do we do that. For me, a train at rest is a train at risk. The faster we move them, the better we are going to be to insulate, especially through risk areas. We know where our risk areas are.
In order to really energize our police, I've brought in a group that I worked with in Mexico who were very skilled at assessing and action orientation around, you know, concentrically protecting key areas. We're really looking at how do we do that. How do we then do what we can ourselves and bring our partners in other railways that we interchange in some of these areas, even groups that have interest, including BCOs and other people that may want to be a part of that. We're taking it very seriously. We're able to work through it very well right now. I just don't want to give any kind of opening to further disruption.
Right. We have a couple of minutes left. If there's anybody in the room who wanted to ask a question. If not, I've certainly got a few more in the back there.
The three-day port strikes that happened, you touched on that a little bit and how it didn't really have a huge disruption to your network. One of the issues with the port strikes was the automation at the ports and the union's desire to have that kind of kiboshed in some ways. How does automation at the ports affect your business? Does it affect how much you can load, when you can load? If they were to become 60-80% automated, would that change in what way or another your business?
I think globally we've seen the impact on progress through technology, but progress through technology doesn't itself lend to optimization or improvements. It's how it interfaces with people and that willingness to engage in it. Ports are going to do what they're going to do. When they load the rail cars and if they can find more efficiencies, whether it's traditional or new ways, then we're ready to jump on that. I've worked in areas where they're more technologically advanced and others where it's more traditional. Either way, we're able to provide effective service and move the goods. I think that where the benefit could or the thesis could be is how effective things move on that port in a constraint on acreage or, you know, limitations that are terrestrial.
That'll be up to the ports on how they deal with that, but we're agnostic one way or the other. We have great partnerships with our ports, and they've been able to respond to changes that we've made and headwinds that we've faced. We're ready to support our trading partners in any way we can. I don't think I've got a position one way or the other.
John, maybe I'll wrap up with a kind of related question. When you look at staffing, engagement, bench strength of the team, there's been a lot of operational changes. We've seen pretty contentious negotiation with industry and labor. We've seen work rest rules change. How are you feeling, you know, right now in terms of how all that's positioned and being able to execute down to the field level?
Brian, one of the things that one of the first things I did was take the field leadership out of Atlanta and put them where they belong in the field. Our Vice President, operational vice presidents, general management, superintendents, that top three tiers of management that were not necessarily in the field where they were able to make decisions, influence people, push them out. That has allowed us to decentralize some of the decision-making and put in controls into Atlanta to validate the decisions. That has helped us tremendously in the agility, the responsiveness. It has helped in safety. Our safety performance last year improved over 35% in injuries and accidents. We are on track to around 37% right now on top of that as we move through the year. Stability, safety, and engagement has been improved tremendously. I am still looking to build up the bench.
That's why I'm spending a lot of time this year on clarity camps. It will be a business acumen, communications, and capability and safety for, you know, the top 30% graduates from my safety camps will advance into business clarity camps to really drive home that need and build the bench and create that capability. We are finding ways to really develop people more rapidly within NS. We have got a great host of people with talent all over the place and finding those nuggets and moving them out into the field. We have got a group of PhDs in our operations research department. I have brought them into my war rooms now. They still work for Anil. We are looking at the, you know, trending of traction motors and outputs of, you know, locomotives and any kind of erosion in power and traction.
Sending them out into the field, they're actually riding trains and feeling what they're actually experiencing in the academic world into a practical world and connecting to our team. They're elevating. The business is improving from places I didn't even anticipate last year. We will continue to do that. I think it supports us. We're early days into this transformation. I would think that it's important to tell you across the board, whether it's the finance department, the commercial group, the back office, or the operations teams, we're really focused on improving NS, creating top and bottom line growth, closing performance gaps to our peers, and providing the best service we can possibly provide. We're moving along that purposefully with deliberate practice.
We know that we do not have all the answers yet, and we are really, really focused on developing that capability even more fully so we can compete and we can win.
Okay, great. We're out of time, so we're going to have to wrap it up there. John, Jason, thank you very much for spending your day with us.
Thanks, John.
Appreciate it.
Thank you, everybody.