Inside This Issue
· Anc Spank: Ancora Lays into NS and its Chief; Details Revival Plan
· Slowly but Shawly: NS Board Defends Current Plan; Cites Improvements
· Washington Worry: STB’s Oberman, Primus Put Off by NS Drama
· Warren Affairs: BNSF’s Earnings Not Good. Buffett Not Happy.
· Feb and Flow: January Was a Rough Month for RRs. February is Much Better
· Kingdom Chem: RRs Getting a Lift This Year from Chemical Rebound
· Kick in the Keith: Teamsters Rebuff CPKC; Creel Pessimistic On Talks
· You Choose, You Lose: CSX Says it Can Improve BOTH Growth and OR
· Sam’s Sub: Walmart Selling its IM Assets to J.B. Hunt
Publisher’s Note: Railroad Weekly is a proud sponsor of CILTNA’s 2024 New York Rail Summit on March 5th. Hope to see some of you there. -Jay
Track Talk
“I’m always surprised if we talk about growth, everybody thinks we’re talking negatively about margins, and that’s just not the case.”
-CSX’s chief commercial officer Kevin Boone
Shawfare: Ancora’s Attack on Norfolk Southern
· It’s open warfare now. The investment firm Ancora, based in Ohio, launched a blitzkrieg offensive against Norfolk Southern’s chief Alan Shaw, seeking to oust him and replace the company’s board of directors. Ancora released a scathing 58-page presentation entitled: The Case for Leadership, Safety & Strategy Changes at Norfolk Southern. It paints an unrelentingly critical portrait of Shaw and his tenure: His response to the East Palestine tragedy was “abysmal” (despite being a “supposed” expert in relationship building). He’s simply “unqualified,” having never held a senior position in operations before becoming CEO. He’s “a 30-year insider who failed to deliver growth in his prior role as chief marketing officer.” NS corporate culture under his leadership “lacks intensity.” He championed “clever but flawed and misleading accounting leading to erroneous strategic direction.” He tolerated high overhead costs just to gain market share. He reversed key elements of an earlier business plan that was working well. He instead pursued an “unneeded, untried and wildly expensive growth strategy based on driving increased low margin intermodal business.” He’s lost confidence with both the public and elected officials. He’s now “wasting money on self-serving lobbying and public relations strategies, rather than allocating that stream of funds to safety initiatives.” And so on. And so on.
· The NS board of directors, Ancora charged, is “defensive and insular,” tolerating a “lax operating culture and associated lack of discipline.” Why, the Ohio investment firm asks, is Shaw flying private jets and collecting one of the industry’s highest salaries? Why is the company employing 41 lobbyists?
· Its larger point is that NS is grossly underperforming its peers—most relevantly CSX—both financially and operationally. Ancora’s presentation provides detail after detail supporting this assertion. The railroad’s operating ratio, for example, was worst among all Class Is last year. And of course, Ancora blamed Shaw for what happened in East Palestine, both the derailment and its aftermath.
· Ancora says it can do much better, trumpeting what it calls its “Network of the Future.” It makes mention of “stronger growth,” to allay concerns about the industry’s past practice of shrinking to boost margins. Ancora wants to replace Shaw with Jim Barber, who formerly ran operations at UPS, the railroad industry’s largest customer. It would also install Jamie Boychuk to run NS’s operations, as he did until recently at CSX. As for the eight directors Ancora wants to appoint, they include a former governor of Ohio (John Kasich), a former STB vice-chair (William Clyburn Jr.), and longtime industry figures Sameh Fahmy and Gilbert Lamphere. Ancora, by the way, stresses that it’s long been a supporter of union labor.
source: Ancora
· If successful in convincing a majority of NS shareholders that its overthrow of Shaw is warranted, Ancora would respond with a 100-day transition plan, accompanied by a detailed strategy overview. It already sees potential to improve productivity, regain lost market share, price more effectively, remove cars from the network, and end Shaw’s over-emphasis on growing lower-margin intermodal traffic. On the latter point, it explained how intermodal trains must be prioritized, forcing merchandise trains into flat classification yards and reopened hump yards. “Using yards increases the number and… probability of missed connections and delays, hence damaging the company’s lower-growth but higher-margin base business.” Heavy use of yards, it said, “is expensive [and] difficult to manage internally, necessitating exceedingly high external connections that become choke points.”
The Response
· Norfolk Southern’s current board of directors acknowledged receipt of Ancora’s proposal, specifically the plan to nominate eight candidates to stand for election at the company’s annual shareholders meeting later this spring (the exact date hasn’t been scheduled yet). The current board consists of 15 members including Shaw. It’s
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