NORFOLK SOUTHERN CORP NSC

The company highlighted its PSR 2.0 transformation, delivering measurable outcomes in safety, service, and cost structure. Examples include a 26% year-over-year improvement in Amtrak host delays and the launch of "Clarity Camps" for business excellence. The focus is on creating a safer, more reliable, and efficient network, with a new zero-based train service plan (version 3) contributing to these efforts.

Norfolk Southern emphasized continuous improvement in safety, with FRA personal injury ratio improving 7.8% and train accident ratio improving 27.7% year-to-date. Investments in next-level field technology, such as new wheel integrity systems and machine vision portals (8 total, 6 new algorithms), have led to the positive identification of over 40 wheel integrity defects, preventing potential derailments. These technologies feed war rooms staffed with employees for real-time problem solving.

The company achieved significant productivity, moving 4% more Gross Ton-Miles (GTMs) with 6% fewer qualified T&E employees, representing a 7% spread. Key highlights include a 19% reduction in recrews and a 12% decrease in intermodal train starts since the beginning of the year. Fuel efficiency reached an all-time quarterly record of 1.01, a 5% year-over-year gain, driven by strategic sourcing and logistics, with a 23% reduction in horsepower per ton year-to-date vs. 2019.

Intermodal volumes decreased 2% due to ongoing trade/tariff uncertainty^🌐, oversupplied truck capacity, and intensified competitor activity following the proposed merger announcement. Management noted this impact began manifesting in late Q3, primarily in the Southeast, and is expected to grow in Q4 and persist in the near term. The company is leveraging its superior route structure and terminal network to compete vigorously and aims to win back freight.

Merchandise volume grew 6% year-over-year, driven by strong auto, chemical, and metals/construction markets, with revenue less fuel growing 7%. However, mix headwinds from commodities like natural gas liquids, sand, and scrap metal diluted overall RPU. Coal markets faced significant headwinds from weakening seaborne coal prices, leading to a 7% decline in RPU less fuel, which is expected to persist through Q4 and potentially early next year, though sequentially it should stabilize.

Management stressed a deliberate and cautious approach to the proposed merger with Union Pacific, aiming to avoid integration hiccups. The focus is on maintaining strong safety and service performance at both companies as a foundation for a smooth integration, leveraging talent and learning from past lessons. The goal is to ensure the integration is done right, with an emphasis on preserving employment and retention.

Despite overall safety improvements, claims expense was elevated due to the resolution of older claims and "social inflation," leading to higher costs per incident. Management acknowledged this volatility but highlighted ongoing efforts to mitigate incidents through safety programs, such as the Thoroughbred Academy, and technology, like the wheel inspection devices that have prevented over 40 derailments.