Company Reports

As anticipated, the International Longshoremen’s Association has implemented a work stoppage across US East Coast and Gulf Coast ports. As we understand it, the dockworkers union initially wanted a more than 70% increase in wages over a six-year period in order to return to the negotiating table. Before the strike, it sounded to us as if the Biden administration was signaling hesitancy to intervene via the Taft-Hartley Act. Thus, the potential duration of the strike remains uncertain.

From the start of the rail renaissance in 2004 through 2008, Norfolk Southern posted the highest margins among US Class I railroads. Its operating ratio (expenses/revenue) deteriorated in 2009 during the great recession, and remained stuck between 69% and 73% from 2010 to 2015. This fell short of progress made by Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 Norfolk was back on track, improving to an adjusted 60.1% OR in 2021 as it bolstered pricing execution and adopted precision railroading principles, which have yielded more efficient use of locomotive assets and labor.

Canadian National and Canadian Pacific Kansas City implemented a worker lockout across Canada on Aug. 22 in response to a stalemate in labor contract negotiations with the Teamsters Canada Rail Conference, or TCRC. We are under the impression that the TCRC would have initiated a strike either way. This work stoppage is somewhat different than others because both railroads are simultaneously affected, which means some Canadian shippers (especially those needing to move commodities like grain and potash) will experience more of a headache than in the past.

Eastern Class-I railroad Norfolk Southern’s second-quarter top line swung positive, rising 2% year over year on higher volumes, led by international intermodal recovery, partly offset by mix headwinds and lower benchmark coal pricing, which pressured yields. Revenue was modestly below our anticipated run rate as coal fell more than we expected and domestic intermodal pricing remained depressed due to persistent truckload-sector competition.

From the start of the rail renaissance in 2004 through 2008, Norfolk Southern posted the highest margins among US Class I railroads. Its operating ratio (expenses/revenue) deteriorated in 2009 during the great recession, and remained stuck between 69% and 73% from 2010 to 2015. This fell short of progress made by Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 Norfolk was back on track, improving to an adjusted 60.1% OR in 2021 as it bolstered pricing execution and adopted precision railroading principles, which have yielded more efficient use of locomotive assets and labor.

From the start of the rail renaissance in 2004 through 2008, Norfolk Southern posted the highest margins among US Class I railroads. Its operating ratio (expenses/revenue) deteriorated in 2009 during the great recession, and remained stuck between 69% and 73% from 2010 to 2015. This fell short of progress made by Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 Norfolk was back on track, improving to an adjusted 60.1% OR in 2021 as it bolstered pricing execution and adopted precision railroading principles, which have yielded more efficient use of locomotive assets and labor. Of note, in late 2019, former Canadian National CEO Claude Mongeau (2010-16) joined Norfolk's board of directors to help bolster PSR efforts.

Eastern Class-I railroad Norfolk Southern’s first-quarter revenue fell 4% year over year on easing storage income, lower fuel surcharges, unfavorable mix, lower benchmark coal pricing, and elevated truckload sector competition for intermodal. On the other hand, consolidated volume growth accelerated and merchandize carload core-pricing remains healthy—similar to peer CSX. Revenue mostly met our expectations, though intermodal pricing deteriorated more than we anticipated on truck competition.

From the start of the rail renaissance in 2004 through 2008, Norfolk Southern posted the highest margins among U.S. Class I railroads. Its operating ratio (expenses/revenue) deteriorated to 75.4% in 2009 during the great recession, and remained stuck between 69% and 73% from 2010 to 2015. This fell short of progress made by Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 Norfolk was back on track, improving to an adjusted 60.1% OR in 2021 as it bolstered pricing execution and adopted precision railroading principles, which have yielded more efficient use of locomotive assets and labor. Of note, in late 2019, former Canadian National CEO Claude Mongeau (2010-16) joined Norfolk's board of directors to help bolster PSR efforts.

From the start of the rail renaissance in 2004 through 2008, Norfolk Southern posted the highest margins among U.S. Class I railroads. Its operating ratio (expenses/revenue) deteriorated to 75.4% in 2009 during the great recession, and remained stuck between 69% and 73% from 2010 to 2015. This fell short of progress made by Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 Norfolk was back on track, improving to an adjusted 60.1% OR in 2021 as it bolstered pricing execution and adopted precision railroading principles, which have yielded more efficient use of locomotive assets and labor. Of note, in late 2019, former Canadian National CEO Claude Mongeau (2010-16) joined Norfolk's board of directors to help bolster PSR efforts.

Eastern Class-I railroad Norfolk Southern’s fourth-quarter revenue declined 5% year over year on lower all-in yield. That said, total volume flipped positive and core carload pricing remains healthy. Revenue was in line with our expectations.

Norfolk Southern is a well-managed enterprise, and from the start of the rail renaissance in 2004 through 2008, it posted the highest margins among U.S. Class I railroads. However, its operating ratio (expenses/revenue) deteriorated to 75.4% in 2009 and remained stuck between 69% and 73% from 2010 to 2015. This fell short of progress made by peers Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 the rail was back on track, improving to an adjusted 60.1% in 2021. In recent years, Norfolk renewed its commitment to pricing discipline and adopted precision railroading principles. Despite setbacks in 2022 linked to labor constraints and service issues, PSR has yielded more efficient use of locomotive assets and labor. Norfolk is grappling with derailment disruption, wage hikes, and sluggish U.S. industrial production in 2023, but we look for OR gains to resume longer term as the firm optimizes network service and refines its PSR playbook. Of note, in late 2019, former Canadian National CEO Claude Mongeau (2010-16) joined Norfolk's board of directors to help bolster PSR efforts.

Eastern Class-I railroad Norfolk Southern’s third-quarter revenue declined 11% year over year primarily due to lower fuel surcharges, persistent intermodal weakness, easing storage income, and soft energy end markets for merchandise volumes. Revenue missed our forecast slightly on greater-than-anticipated intermodal yield pressure. We suspect core carload pricing remains positive.

Norfolk Southern is a well-managed enterprise, and from the start of the rail renaissance in 2004 through 2008, it posted the highest margins among U.S. Class I railroads. However, its operating ratio (expenses/revenue) deteriorated to 75.4% in 2009 and remained stuck between 69% and 73% from 2010 to 2015. This paled in comparison to progress made by peers Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 the rail was back on track, improving to an adjusted 60.1% in 2021. In recent years, Norfolk renewed its commitment to pricing discipline and adopted precision railroading principles. Despite setbacks in 2022 linked to labor constraints and service issues, PSR has yielded more efficient use of locomotive assets and labor. Norfolk is grappling with derailment disruption, wage hikes, and sluggish U.S. industrial production in 2023, but we look for OR gains to resume longer term as the firm optimizes network service and refines its PSR playbook. Of note, in late 2019, former Canadian National CEO Claude Mongeau (2010-16) joined Norfolk's board of directors to help bolster PSR efforts.

Norfolk Southern is a well-managed enterprise, and from the start of the rail renaissance in 2004 through 2008, it posted the highest margins among U.S. Class I railroads. However, its operating ratio (expenses/revenue) deteriorated to 75.4% in 2009 and remained stuck between 69% and 73% from 2010 to 2015. This paled in comparison to progress made by peers Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 the rail was back on track, improving to an adjusted 60.1% in 2021. In recent years, Norfolk renewed its commitment to pricing discipline and adopted precision railroading principles. Despite setbacks in 2022 linked to labor constraints and service issues, PSR has yielded more efficient use of locomotive assets and labor. Norfolk is grappling with derailment disruption, wage hikes, and sluggish U.S. industrial production in 2023, but we look for OR gains to resume longer term as the firm optimizes network service and refines its PSR playbook. Of note, in late 2019, former Canadian National CEO Claude Mongeau (2010-16) joined Norfolk's board of directors to help bolster PSR efforts.

Eastern Class I railroad Norfolk Southern’s second-quarter top line flipped negative, falling 8% year over year, due to the East Palestine derailment disruption, weak intermodal container demand, easing accessorial income, and falling fuel surcharges. Revenue missed our forecast due to noise from the derailment disruption and greater-than-expected intermodal demand deterioration.

Norfolk Southern is a well-managed enterprise, and from the start of the rail renaissance in 2004 through 2008, it posted the highest margins among U.S. Class I railroads. However, its operating ratio (expenses/revenue) deteriorated to 75.4% in 2009 and remained stuck between 69% and 73% from 2010 to 2015. This paled in comparison to progress made by peers Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 the rail was back on track, improving to an adjusted 60.1% in 2021. In recent years, Norfolk renewed its commitment to pricing discipline and adopted precision railroading principles. Despite setbacks in 2022 linked to labor constraints and service issues, PSR has generally yielded more efficient use of locomotive assets and labor. We expect Norfolk and its peers to grapple with wage hikes and easing industrial production in 2023, but we look for OR gains to resume longer term as the firm optimizes network service and refines its PSR playbook. Of note, in late 2019, former Canadian National CEO Claude Mongeau (2010-16) joined Norfolk's board of directors to help bolster PSR efforts.

Eastern Class-I railroad Norfolk Southern’s first-quarter top line grew 7% year over year—not far off our expectations. While slowing, growth came from core pricing gains and higher fuel surcharges, and total yield expanded 7.5% (yield rose 15% last quarter). Total volume, which was roughly flat, was mostly in line with our forecast as merchandise activity came in ahead but intermodal underperformed.

Norfolk Southern is a well-managed enterprise, and from the start of the rail renaissance in 2004 through 2008, it posted the highest margins among U.S. Class I railroads. However, its operating ratio (expenses/revenue) deteriorated to 75.4% in 2009 and remained stuck between 69% and 73% from 2010 to 2015. This paled in comparison to progress made by peers Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 the rail was back on track, improving to an adjusted 60.1% in 2021. In recent years, Norfolk renewed its commitment to pricing discipline and adopted precision railroading principles. Despite setbacks in 2022 linked to labor constraints, service issues, and wage inflation from the new union contact, PSR has generally yielded more efficient use of locomotive assets and labor. We expect Norfolk and its peers to grapple with wage hikes and easing industrial production in 2023, but we look for OR gains to resume longer term as the firm optimizes network service and refines its PSR playbook. Of note, in late 2019, former Canadian National CEO Claude Mongeau (2010-16) joined Norfolk's board of directors to help bolster PSR efforts.

The U.S. Surface Transportation Board announced that it has approved the merger of Canadian Pacific and Kansas City Southern. CP bought KCS in December 2021 for an implied enterprise value near $31 billion but placed the shares into a voting trust (with KCS run independently) pending regulatory approval. We'd been expecting STB approval, but there was incremental uncertainty recently, given political pushback on the deal following Norfolk Southern's East Palestine derailment. The press release said CP is reviewing the decision and "in the coming days will announce its plans with respect to the creation of CPKC [Canadian Pacific Kansas City]," but we expect the rail to take control of KCS on or around April 14, when permitted.

Norfolk Southern is a well-managed enterprise, and from the start of the rail renaissance in 2004 through 2008, it posted the highest margins among U.S. Class I railroads. However, its operating ratio (expenses/revenue) deteriorated to 75.4% in 2009 and remained stuck between 69% and 73% from 2010 to 2015. This paled in comparison to progress made by peers Union Pacific and Canadian Pacific, which lack Norfolk's exposure to Appalachian coal. However, by 2017 the rail was back on track, improving to an adjusted 60.1% in 2021. In recent years, Norfolk renewed its commitment to pricing discipline and adopted precision railroading principles. Despite setbacks in 2022 linked to labor constraints, service issues, and wage inflation from the new union contact, PSR has generally yielded more efficient use of locomotive assets and labor. We expect Norfolk and its peers to grapple with wage hikes and easing industrial production in 2023, but we look for OR gains to resume longer term as the firm optimizes network service and refines its PSR playbook. Of note, in late 2019, former Canadian National CEO Claude Mongeau (2010-16) joined Norfolk's board of directors to help bolster PSR efforts.