For NS, a Final White-Card Push

Is Norfolk Southern President and CEO Alan Shaw resigning? NS photo.

May 8, 2024: With its Annual Meeting of Shareholders just hours away, Norfolk Southern in the past few days has ramped up its efforts to convince shareholders to reject the takeover attempt by Ancora Holdings and stay the course with President and CEO Alan Shaw and the team led by Executive Vice President and Chief Operating Officer John Orr, who was brought on shortly after Ancora announced its intentions.

The shareholders’ meeting commences May 9 at 8:30 AM EDT and is expected to last about an hour. Considering that many institutional shareholders may have already cast their votes (White Cards for NS, Blue Cards for Ancora), some analysts and industry observers expect NS to release preliminary results later that morning. Some have told Railway Age that Ancora will most likely gain a few board seats, but not enough to remove Shaw and replace him with former UPS COO Jim Barber, Jr. and remove Orr and replace him with former CSX COO Jamie Boychuk.

Meanwhile, NS has been releasing a barrage of customer testimonials, accompanied by publication of a letter from the U.S. Department of Transportation and an open letter from Orr to NS operating employees.

DOT Letter

“Norfolk Southern’s progress toward meeting key safety performance indicators is encouraging and demonstrates your leadership and the commitment of all of NS’s hard-working employees,” wrote USDOT Deputy Assistant Secretary for Multimodal Freight Infrastructure and Policy. Allison L. Dane Camden to Shaw. “We recognize the progress NS has made to-date toward attaining your own safety goals, as well as the goals we set for all Class I railroads following the East Palestine derailment: paid sick leave agreements, participating in C3RS and focusing on a safety-driven culture.

“However, there is still much work to be done. Continued focus and investment on safety, improved service and sustainable growth are critical to ensuring the long-term competitiveness and value of the railroad industry. This includes partnering with the U.S. Department of Transportation (DOT) to deliver on critical safety and passenger rail investments made available through the Bipartisan Infrastructure Law, as well as continuing to invest in your people, your operations, and your infrastructure. The nation needs a safe, resilient, and efficient freight rail network.

“The Department is grateful for Norfolk Southern’s swift response to the supply chain disruption caused by the collapse of the Francis Scott Key Bridge in Baltimore on March 26, 2024. In the immediate aftermath of the collapse, we began receiving questions from concerned stakeholders on the impacts the closure of the Baltimore harbor navigational channel would have on goods destined to be imported and exported via multiple major Baltimore port terminals. The Department’s Office of Multimodal Freight Infrastructure and Policy, tasked with providing regular updates to the White House Supply Chain Task Force, appreciated the willingness of NS to share their insight into the rapidly evolving situation. Moreover, its willingness to quickly offer expanded service to bring diverted imports back to the Baltimore area is helping to reduce highway congestion and provide work for Maryland-based truck drivers.

“DOT is encouraged by Norfolk Southern’s efforts to improve the timeliness and fluidity of its network, particularly for time-sensitive goods. Your efforts align with the goals of the National Multimodal Freight Policy, including improving the reliability of freight transportation and reducing the adverse environmental impacts of freight movement.”

Customer Testimonials

“From our perspective, NS currently stands out in terms of partnering with us to support our service and growth objectives. Specifically, NS’s investment in the 3B and the reconfigured yard in Jackson, AL in concert with work we did in our physical plant and yard has allowed us to grow rail volumes by ~25% and we have confidence in NS’s service to continue to grow into the future…We are very concerned that a major change [in] strategic direction could derail our ability to grow with NS, a partner we’re very much aligned with given the long-term strategy you and your team is driving.” – Ross Corthell, Vice President Transportation, Packaging Corporation of America

“As a significant partner of Hapag-Lloyd and in helping us move our East Coast intermodal cargo efficiently and sustainably, we stand behind Norfolk Southern. We recognize and appreciate the remarkable efforts led by you and your team to enhance returns through an unwavering commitment to service excellence. Your steadfast dedication to improving service delivery aligns seamlessly with our own objectives and bolsters our confidence in the strategic direction Norfolk Southern is undertaking under your capable leadership.” – Stuart Sandlin, President, Hapag-Lloyd (America) LLC

“Osage has shipped or received ethanol via NS in Virginia, North Carolina and South Carolina since 1986. During these 38 years, we have experienced steadily improving transit times and distribution terminal services in a safe and economically desirable manner. This has been particularly the case during the leadership of Alan Shaw and his management team.” – W. Earle Spruill, Jr., President, Osage, Inc.

“As a growing partner, investor and shipper, Lincoln emphatically supports without question Alan Shaw, the Norfolk Southern management team and its strategies. Recent activist statements are disturbing and hold no merit to a disruptive suggestion of management change.” – Lincoln Energy Solutions CEO Larry Burgamy, Jr.

“Centennial Energy wants to reiterate our full support of Alan Shaw and the entire management team at Norfolk Southern. Your balanced strategy is what not only Centennial needs, but what all rail customers, shareholders and the US economy needs … Norfolk Southern needs to stay the course and have time to execute on your long-term vision to produce balanced results which will drive the company and their customers forward.” – Centennial Energy President Elise Maskell.

“We at Associated Asphalt are in support of [Alan], your current management at Norfolk Southern and your strategy.” – Associated Asphalt Partners Director of Sales and Logistics Daniel Moran

“Smart Sand is 100% behind the NS management team … we feel the NS management team has been excellent in building a sustainable large volume sand business to the Northeast and are looking forward to growing together in the future.” – Smart Sand CEO and Founder Charles Young

“Hub Group continues to value its long-term partnership with Norfolk Southern that allows us collectively to deliver a cost-effective, environmentally sensitive intermodal service offering to shippers throughout the eastern United States. The commitment that you and your management team have made to maintaining consistently strong service levels is critical to our mutual success in converting over-the-road shipments to rail which is leading to significant growth. We appreciate that a sustained dedication to maintaining strong service levels is a key element of your strategic plan … We support you and your management team in the ongoing execution of your strategy.” – Phillip Yeager, President, CEO and Vice Chairman, Hub Group, Inc.

“Arrowhead (now part of Waste Connections) has been [a] customer since 2019. During that time our annual freight volumes have increased thirty-fold, and we are looking to doubling that in the next twelve months. [The Norfolk Southern] team – from the CEO down to the local operating folks – have been extremely helpful and supportive these past five years. A large part of our success has come from their team and our partnership. Although we would never presume to tell your shareholders how to vote, and we will always remain a good NS customer, they should be aware that we would be concerned if the existing operating and marketing support changed.” – Bill Gay, Division Vice President, Arrowhead Environmental Partners/Waste Connections

“As one of the key logistics partners, I want to express my confidence and support for Norfolk Southern’s current management team headed by Alan Shaw. CONSOL has been a beneficiary of some of the operational and safety improvements made by Alan. This has allowed us to grow our export business and benefitted thousands of direct and indirect workers in Southwest Pennsylvania, West Virginia and Maryland. – Jimmy Brock, Chairman and CEO, CONSOL Energy Inc.

“HC Minerals (formerly Hi-Crush) unequivocally supports Alan Shaw and the rest of the NS management team, as well as the NS strategy.” – Will Barker, General Counsel and Chief Commercial Officer, HC Minerals

“Norfolk Southern has made significant service improvements following the implementation of their new operating strategy. Consistent and rateable manifest service is critical to the success of our processing business. It allows us to meet our customers’ needs and supports our growth initiatives. We support NS’s strategic vision for service improvements while maintaining a customer centric approach.” – Gordon Russell, Executive Vice President, Louis Dreyfus Company

“The ‘new’ focus on smart expansion opportunities was truly refreshing and had been lost since 2008-2010. Since COVID, all departments have been focused on ‘the customer’ which is critical to success in any business. While I have never personally dealt with Mr. Shaw, I know that I can see and feel a very positive change that has been evident to me over the last few years. I truly did not think that a CEO or COO could impact the overall organization the size of NS, but in the past three or so years, something has changed. From what my NS contacts tell me, it comes down from the top. So based on this feedback, Mr. Shaw must be having this positive effect on the performance and attitude of the organization. I have been a witness to it.” – Von Friesen, Principal, Strategic Transload Services, LLC

“One Earth Energy LLC has been a customer of Norfolk Southern raiload for 15 years, prior to that, I was General Manager from 1990 to 2007 with Alliance Grain Co. … Norfolk Southern’s enhanced service has enabled us at One Earth Energy to expand our rail business and invest in additional track space to accommodate our growth in production capacity along with rail shipments. I have full confidence in Alan Shaw and the entire management team of Norfolk Southern. Our Board of Directors believes Alan and his team have our best interest in mind and their approach will yield positive outcomes for both Norfolk Southern and customers like One Earth Energy. On behalf of my Board and myself we look forward to continuing [this] mutually beneficial relationship into the future.” – Steven Kelly, President and CEO, One Earth Energy, LLC

“These reactions from multiple key customers underscore a recent rail shipper survey conducted by Wall Street research firm Stephens Inc., which found customers overwhelmingly support Norfolk Southern’s strategy and are concerned about the negative effects of Ancora’s plan,” NS noted.

The Association of American Railroads has not, as expected, said anything publicly about the proxy battle, but its Class II and Class III counterpart, the American Short Line & Regional Railroad Association, weighed in wioth a carefully worded statement from Chuck Baker, President and CEO: “As a group we are focused on fostering long-term volume and revenue growth for the rail industry. To that end, we support strategies from our Class I partners, including the current Norfolk Southern strategy, dedicated to these same goals. We believe growth is most effectively achieved through a commitment to providing operating resilience and consistent customer service, and to do so over a full business cycle.”

Orr Open Letter

On May 3, John Orr wrote the following letter to Norfolk Southern operations employees:

“Today marks just over a month since I joined the Norfolk Southern team. From the first time I met Alan Shaw, to stepping onto the ballast, I have been incredibly impressed. Thank you for welcoming me so warmly and helping to get me up to speed.

“The balanced strategy that Alan developed, and we are driving, represents the future of our industry. I am confident that together we have an incredible opportunity to unlock the full potential of our network. Everything I’ve seen from this team to date has only made me more excited about our opportunity.

“My vision for Operations is for our team to be the benchmark of collaboration, creating value and continuous improvement for the transportation industry. This vision is shaped by my four-decade career in railroading, learning from and working alongside teams like this one. I’ve worked at every level of our industry, and I’ve seen how organizational silos can stifle potential. I began my career as a brakeman and union leader, and I’ve seen organizations stall in their progress because of us-vs.-them thinking. We will be different. I know that there are opportunities for all of us to learn from each other in a way that we foster stronger relationships while we drive better results. You will start seeing some of those ideas take shape in the next 60 days and I look forward to hearing your creative solutions as well!

“I respect and appreciate how integral relationships with craft partners are to Norfolk Southern’s success. I want feedback from my craft colleagues, both formal and informal. So, in addition to regularly being on the ballast, I’m setting up a formal council with labor leaders. This will be critical to ensuring there is a structured dialogue and forum for discussion. It will be something unique to Norfolk Southern that does not currently exist in the industry. I’m also establishing an open and easy way to reach me directly, and I look forward to sharing that with you in the coming days.

“You’ve heard Alan reference our strategy, a balance of service, productivity, and growth. In Operations, everything we do starts with safety by each of us looking out for one another. We depend on the talent of everyone in this entire organization to be successful and achieve our goals. I am committed to engaging, getting your feedback, and working together to find new ways to deliver safe, reliable, and resilient service. I am pleased to report that we are already executing on opportunities to enhance the productivity of our network. In addition to safety, we are focusing on these big rock issues:

• “Identifying and eliminating corridor bottlenecks.
• “Targeting large-volume Merchandise terminals for improved velocity and efficiencies.
• “Driving standard processes across all workstreams.
• “Right sizing locomotives and cars.
• “Replicating these best practices across the network.

“So far, we have assessed terminals, engaged with our stakeholders, and implemented a 48-hour safety blitz to lay the foundation for our safety priorities and industry-leading culture. I’m meeting with railroaders across the system to get to know our team and get feedback. The passion and dedication that I have seen is impressive, and I look forward to continuing these conversations to hear how we can further enhance safety and service.

“We are working swiftly and are already seeing meaningful results. I’m most proud to say our year-to-date accident rates across the board are the lowest they have been in years. In just 30 days we have already:

• “Lowered terminal dwell by 8%.
• “Increased Merchandise train speed by 8%.
• “Created over-the-road efficiencies to improve on-time performance.

“These results tell me is our strategy is working on all fronts. Not only are we improving our performance, but we’re also doing it in a way that supports our employees and our customers. Without either group, we wouldn’t have a railroad. This is our strategy and approach in action. It’s informed by history, and grounded in solid data, all to create a path for long-term success.  

“Let’s speak candidly. Uncertainty is difficult and the reality is we are all facing some uncertainty right now. It would be understandable if feelings of fear or frustration begin to emerge. I invite you to consider a few other realities. The railroaders I have interacted with since starting at Norfolk Southern are some of the most passionate and dedicated professionals I’ve met during my career, and the commitment to moving forward is stronger than I’ve witnessed in other organizations. Therefore, I have the unwavering faith that we are better together, and we will be the benchmark for collaboration, creating value and continuous improvement in the industry.

“The progress we’ve made is a direct reflection of our talented team, and it’s just the beginning! There is still a lot of work to be done, and measuring our results will be critical to making sure we stay on track.

“You are a vital part of this network, doing meaningful work. Over the next several months, your operational leaders and I will be identifying metrics to track our performance and ultimately become a more safe, efficient, and effective railroad. We have also laid out a clear plan with phases that we will build on over the next 24 months to drive efficiency throughout. We will do so while never wavering on our commitment to our customers and to each other while leading the industry in safety.

“We each have a stake in our future and we each have a stake in this railroad. I know that the team is fully committed to delivering on these priorities in 2024, and I cannot thank you enough. It is my honor and privilege to work together to set the gold standard of safety and service in North America.”

Watch: 47th Street Intermodal Facility, Chicago

Alan Shaw and John Orr recently visited with our team at the 47th Street Intermodal Facility in Chicago, which primarily handles premium and domestic intermodal traffic between Chicago and the Northeast. It serves as NS’ largest intermodal corridor. During their visit, Shaw and Orr met with local leaders and craft colleagues to discuss how NS “can continue to provide safe, reliable, and resilient service for customers.”