Industries

Another golden age?

For railroad companies, the pressure is on to expand facilities

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Print this page by Paula C. Squires

Railroad buffs would feel right at home in Wick Moorman’s office.  Behind the desk of Norfolk Southern’s chairman, president and CEO hangs a large oil painting of a vintage steam locomotive. “That class of locomotive was called a PS4, Pacific-type steam locomotive,” volunteers Moorman. 

It was the same class of locomotive, he adds, that pulled the funeral train of President Franklin Roosevelt in April 1945 from Warm Springs, Ga., to Washington D.C. 

When it comes to railroad trivia, Moorman knows his stuff. But he talks just as easily about the recent acquisition of the Burlington Northern Santa Fe Railroad by Warren Buffet’s Berkshire Hathaway and about rail’s fastest-growing markets: ethanol and domestic intermodal facilities.

It’s a challenging time to be the chief executive of a major transportation company. As America wrestles with higher fuel prices, growing traffic congestion and greenhouse gas emissions, there’s pressure to update facilities and to move more passengers. 

Norfolk Southern’s railway subsidiary operates 21,000 route miles in 22 states.  The company employs 28,168 people, including 4,104 in Virginia, and in 2009 had revenues of $7.9 billion. That’s a decline of 25 percent compared with 2008 as NS struggled through a recession that reduced traffic volumes by 19 percent.

This year’s picture is much brighter. At the end of the second quarter, Norfolk Southern posted solid earnings. Then on Sept. 9 it opened the much awaited Heartland Corridor. The three-year, $320 million project creates the shortest and fastest, double-stack route for goods traveling from the port in Norfolk to the Midwest.

Moorman has served as CEO since 2006.  During his interview, the self-effacing personality he is so well known for came shining through when he recalled his reaction to landing the top job.  “My first reaction … elation, ‘hot damn.’ There was probably 10 seconds of that. And then all of a sudden there was this ‘Oh, my God’ feeling of ‘Can I do that?’ And the jury is still out.” Click here for a complete transcript of the interview.

VB: In the second quarter, Norfolk Southern had one of the best performances in the railroad industry.  Can the company sustain this momentum for the rest of the year? 
Moorman: We feel reasonably confident about the rest of the year … Our domestic intermodal business, which is the conversion of truck load traffic to the rails, in the second quarter was up 32 percent over the year … Our metallurgical coal franchise —  the coal that goes out through the port to make steel overseas — that has continued to be good for us over the past nine to 12 months … Ethanol is a big, growing business for us. 

Our second quarter 2010 was up 22 percent [in traffic volumes]. But if you do the math, it’s still down about 10 percent from 2008. So while we’re back and results are good, our volumes still aren’t anything like they were two to three years ago.

VB: What’s your take on the recent acquisition by Berkshire Hathaway of the Burlington Northern Santa Fe Railroad? Do you think there will be more mergers and acquisitions in the industry? 
Moorman: It’s a tremendous vote of confidence when [Warren Buffett], the leading investor in the country, if not the world, makes a huge bet … on buying a railroad.  That argues that our industry is very strong, and its best days are ahead.
I don’t think that it portends any other M&A activity in the near future … And I certainly don’t foresee that we’d be a target in an acquisition like that.

The thing about Berkshire buying BNSF is it was absolutely clean from a regulatory standpoint because there were no other railroads involved.  And, in fact, Mr. Buffet owned a little of our stock, and he owned some UP [Union Pacific] stock as well.  And he sold them both to do the deal … I hated that he sold it.  I always kind of took it as a little point of pride that Berkshire had some money in us.

VB: How important was September’s opening of the Heartland Corridor?
Moorman: It’s a big deal … It’s going to make a significant difference to our company and to the Port of Hampton Roads and the Midwest … It’s going to be a much more efficient route to take goods from what is one of the premier East Coast ports into the middle of the country.

VB: Could the project have gotten done without a private/public partnership?
Moorman: Quite frankly when we put the project together and we looked at it, we couldn’t make the numbers work … Might we have done it at some point in the future as business grew, who knows.  But it wasn’t going to happen quickly unless it was a public/private partnership. 

VB: How are things going with the Crescent Corridor, another [public/private partnership] expansion project that will be coming through Virginia?
Moorman: The Crescent Corridor is a much bigger project.  It’s all the way from Louisiana to New Jersey … To really do a huge first phase, you’re talking $2 to $2.5 billion. But it’s going well. We were fortunate enough to receive a substantial block of money through what’s called the Tiger Grant process, [a federal program] that will help us build two of the intermodal terminals for the route in Memphis and Birmingham.

VB: What about the I-81 corridor?  Is it part of the Crescent Corridor?
Moorman: If you look at the traffic flows, I-81 is right in the middle … The original concept has always been trucks off of I-81 and its feeder interstates, 40 or whatever way you want to go up North.

VB: In terms of relief, is there a timetable when people can expect a reduction in traffic on I-81?
Moorman: It’s really a question of the funding and construction … If there were a funding mechanism available to come up with all the money, we could do it in a three- or four-year timetable.

VB: I’d like to switch gears now and talk about passenger rail.  Will Norfolk Southern or other major railroads return to moving large numbers of passengers again? 
Moorman: I do not ever foresee a time when Norfolk Southern will be the operator of passenger trains itself … We are happy to talk about running passenger trains anywhere on Norfolk Southern. There are three primary issues that have to be resolved before we’ll do it.

The first is capacity.  There has to be enough room out there for us to run all of our freight trains without delay and run the passenger trains without delay as well.  And that quite often means you have to add sidings, you have to add double track, you have to put money in the railroad.  If somebody wants to run those trains, they’ve got to bring that money … 

Issue number two, which is a very thorny issue, is liability. We’re not in the business of transporting people today.  When you start putting more people out on trains, there is much more possibility of an accident, which could create significant liability concerns for us … 

And the third thing is we’re owned by our shareholders. We’re a private company, and we do expect some return for the use of our assets.

VB: Can it be argued that things are falling into place that could usher in a rebirth for railroads?
Moorman: There’s a phrase that’s been circulating around for the past five or six years called the “rail renaissance.” Leaving passengers aside, if you look at what’s happening with this domestic intermodal business, in a world in which there are systemically higher fuel prices, in which the nation’s highway system is in a state of increasing disrepair and congestion, competing against an industry — the motor coach industry — which has its own set of problems … And then on top of that, a public and a shipping community more and more interested in sustainability and environmental responsibility, all of these things point in the direction of the railroad.  So yes, almost every public policy leader that I talk to believes that and thinks we have to do more and more and more.


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