Norfolk Southern will continue investigating East Palestine, OH spill for 'as long as it takes': CEO

Norfolk Southern CEO Alan Shaw discusses the train derailment that occurred in East Palestine, Ohio, and breaks down the company's plans to prevent derailments and ensure customer safety in the future.

Video Transcript

- Norfolk Southern has faced a challenging few months after train derailments in East Palestine, Ohio released millions of gallons of hazardous materials, leading to a rail safety bill from the Senate and $387 million in cost from Norfolk Southern. Alan Shaw, Norfolk Southern CEO, joins me now. Alan, good to see you. I know this was a long time in the making. Appreciate you joining us.

ALAN SHAW: Yeah, I appreciate the opportunity. We were scheduled to get together in February. I really wanted to be here, but I needed to be in East Palestine. So thanks for your flexibility.

- Of course. We appreciate that. So I think a lot of questions from investors and regarding where the state of the company is. But first and foremost, why are these derailments happening? Another one this week. Why are investors seeing this?

ALAN SHAW: I think it's important to note that rail is the safest, most sustainable, and most efficient form of transporting goods across land. We can do better, right? And last year in Norfolk Southern, our number of derailments was the lowest in two decades. We can do better.

We're looking at this stuff. We're working very closely with the NTSB. And you see me on the Hill advocating with Democrats and Republicans for additional safety measures.

And you look at just the East Palestine derailment. It's going to require an industry response. And here's why. The NS crew is doing exactly what they're supposed to do. There were no track defects. The wayside detectors were working.

And the NTSB is looking at a rail car that no railroad owns and touched three railroads before it got to Norfolk Southern. So it's going to require an industry-wide response. I understand my role there. And I'm embracing that role and taking an industry-leading position in advancing safety in rail.

- So is it an equipment thing? Is it the trains you are running? Is it a process thing? Why does this continue to happen?

ALAN SHAW: What we saw in East Palestine is the NTSB is looking at a catastrophic failure on a wheel bearing on a car that is owned by one of our customers.

- What is the presence on the ground now for you in East Palestine?

ALAN SHAW: We've got 300 people, NS employees and contractors, who are there, seven days of work, working on the environmental remediation, working on community assistance, and helping to invest in the community, to help it thrive. And I really appreciate what they're doing.

Here's what I see, Brian. When they come home and take some time off, they want to get back up to East Palestine. And I've heard reports of people cutting vacations short.

And that tells me two things. That tells me the NS team knows that they're having a positive impact on the community. And that tells me the community has given our team a lot of positive reinforcement.

I was there in the immediate aftermath. I've been there almost every week since. And I'm taking it as an opportunity to sit down with the community, find out what we're doing well and what we can do better to help the community thrive and monitor our work.

- How long do you plan to be there?

ALAN SHAW: We're going to be there as long as it takes. We're not going to be bounded by time or money. Each and every day, we're going to do the next right thing. And I'm going to see this thing through, no matter how long it takes or no matter what happens.

- I think one of the questions is-- and it's not just a Norfolk Southern thing, it is the railroad industry that has moved to precision railroading. And that is something that I came in contact with by Hunter Harrison, legendary railroad figure. Now, this is something you guys have adopted. Are we committed to staying that route, given the concerns about longer trains and speeds?

ALAN SHAW: Brian, I became CEO about a year ago. And in my first year as CEO of Norfolk Southern, I was really proud to announce a new strategy and chart a new course within the industry. There are some components of PSR that we're going to continue to endorse. And that's developing our people, working safely, investing in our assets.

We are now focused on long-term growth. And we have got a vision for doing the right things over the long term for our customers, our employees, the communities we serve, and our shareholders. Since I became CEO about a year ago, we've been on a hiring spree, which is different from what you've seen in the past in the rail industry. And right now, the number of employees at Norfolk Southern is 1,500 higher than it was a year ago. And our pipeline of conductor trainees is amongst the highest on record.

And I can do that because of the confidence I've got and the strength of our powerful franchise, the customers we serve, and the markets we serve. We're focused on long-term growth.

- Is PSR still viable for the industry?

ALAN SHAW: Norfolk Southern has a different strategy. We charted a new course. And we're going to deliver on it.

And it was working. Our customers saw it. You look at our service levels in December and in January, they were the highest they've been in a couple of years. And our volumes were outperforming normal seasonality.

- So it's a hybrid system?

ALAN SHAW: Yes, yeah.

- And what does that mean? Do you run shorter trains than competitors? How does it work?

ALAN SHAW: We invest in resiliency, right? We take a long-term view of things. And there are a lot of secular trends that were accelerated by the pandemic that really support growth on Norfolk Southern. We see a lot of onshoring. And we see forward positioning of inventory next to the ultimate consumer, right? We see more manufacturing in the United States.

And when you look at our franchise-- and this is why I'm so confident in what we're doing-- we serve 60% of the consumption in the United States. We serve more than half the manufacturing. We serve more than half of all US vehicle production. Every day, we ship 8,000 vehicles.

And we serve more than half of the energy consumption in the United States. So that gives us the confidence to invest in the long term. And we've got, as you know because you've covered this space, the most powerful intermodal franchise in the East that serves the US customer. So we've got a powerful franchise that faces the fastest growing segments of the US economy. And I fully intend to leverage that by engaging with our people, hiring people, and investing over the long term.

- We recently caught up with Transportation Secretary Pete Buttigieg. You mentioned regulators. Take a listen to what he had to say. I would love for you to get a reaction.

PETE BUTTIGIEG: Look, we have a lot of concerns about the business models that the railroads have adopted. They strip out the human factor. Employment at some of these major railroads is down 30%, 40%. They've become wildly profitable but have not been able to dramatically improve their efficiency or their fluidity in moving goods.

And it's really come on the backs of workers who are now overworked, stressed out. And this is part of what led to so much concern last year as workers were insisting on sick leave, something that we still believe these railroads need to provide. Some of them have negotiated it with some of their unions. But they should all be doing more right now. We're also concerned about railroad safety.

- Now, your reaction to that. And Buttigieg, he also advocated for improved braking systems. Do you want to see that?

ALAN SHAW: So I've been engaged with the secretary on a number of occasions. We've had a lot of constructive dialogue. And I continue to engage with him. I respect his opinion.

There are a lot of things that Norfolk Southern does that are absolutely aligned with the administration's goals-- high-paying union jobs-- I told you the hiring spree that we're on-- investments in the nation's infrastructure, pulling trucks off the highway, and the sustainability advantage of rail relative to truck. So we're aligned on that. Relative to our long-term focus and our pivot away from that traditional rail model and hiring, that's exactly what we're doing, as I talked about in the new strategy Norfolk Southern charted in the industry.

And then relative to rail safety, I've been on the Hill a number of times. I'm advocating with Republicans and Democrats for many of the provisions that are included in the rail safety bills.

- Is braking part of that one?

ALAN SHAW: ECP brakes, I think, is what you're referring to. We tested that. We were one of the first testers of it, about 15 years ago. And we couldn't get it to work reliably for us.

- Lastly, real quick, what removes the regulatory overhang on your stock?

ALAN SHAW: I think what is important for folks to know is there are a lot of things in these bills that make sense. And they will not create an undue burden on our cost structure or the cost structure of our customers. And as I engage with the Service Transportation Board-- I'm very close to them as well-- what they're really looking for from me and from the rail industry is my ability to execute on that unique strategic plan that we outlined last fall that's going to drive service and drive growth.

- All right, we'll leave it there for now. Thank you for doing this. I know this is a very busy time for you and your company. We appreciate the time. Thank you so much. Norfolk Southern CEO Alan Shaw.

ALAN SHAW: Brian, my pleasure.