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January 2006
— by Jeff Stagl, managing editor
On Dec. 5, Norfolk Southern Corp. marked its 175th anniversary by opening a museum in the lobby of its Norfolk, Va., headquarters. Ten days later, the Class I continued the celebration by unveiling a display outside the building. Two employees, donned in 19th Century-era clothing, and battered by rain and a chilly wind, posed with the Best Friend of Charleston, a steam passenger train that made its inaugural run in 1830 — the starting point of NS' lineage.
The past is important to NSers. The museum's vintage track maintenance tools and predecessor logo-filled wall, and headquarters' paintings and photographs depicting key moments in the Class I's history offer a glimpse of what it took for the railroad to get where it is today. But the what's to come is crucial, too.
While workers and dignitaries braved the rain and cold to see the Best Friend of Charleston, two men holding court in the 19th floor chief executive suite represented a link to the past and future. On one side of the suite, former President and Chief Executive Officer and current Chairman David Goode met visiting dignitaries in his spacious office adorned with gallery caliber paintings. On the other side, Goode's successor and current President/CEO Wick Moorman greeted visitors and took phone calls in a smaller, less ornate office.
Although each is preparing to pursue different paths — at January's end, Goode will retire, ending his 13-year run in the top post, and Moorman will assume the chairmanship — both men are on the same page when it comes to understanding what it means to manage the railroad. They're trying to keep the Thoroughbred out in front on its financial and operational track while attempting to execute a smooth leadership transition that began in September 2004, when Moorman, 53, was named president, and accelerated in November 2005, when he became CEO.
With NS poised to cap off 2005 by earning $8 billion in annual revenue for the first time, lowering its operating ratio about 1 point to the mid-70s and increasing traffic more than 4 percent, the timing is right for the transition because Moorman will assume control of a well-performing company, says Goode, who turns 65 Jan. 13.
"NS is in the best shape in the 40 years I've been with the company and its predecessors," says Goode, who's spent his entire career with the Norfolk and Western, and Norfolk and Southern railways. "I've taken an organization with a lot of strengths and a strong culture when I started and am leaving the organization better than it was."
Moorman proved to be the best among several internal candidates for the top job because of his broad knowledge of the company, says Goode. Moorman's resume includes stints in engineering, transportation and corporate planning, personnel and labor relations, and information technology.
"He [also] has the right interpersonal skills to do a great job," says Goode.
Now, it's up to Moorman to keep the Thoroughbred at a full gallop. He's counting on NS' experienced senior management team to help him find ways to expand network capacity, change operating processes, maintain safety, boost productivity and implement technology to keep up with robust freight demand.
Moorman also will have to face the challenge of succeeding a leader whose accomplishments include landing a portion of Conrail in the mid-1990s, and turning NS around in the early 2000s after the railroad struggled operationally and financially to incorporate Conrail.
"Goode has led NS from a good company — with solid operating and financial capability — to the verge of a great one, in part by becoming a marketing and intermodal powerhouse," says Tony Hatch, an independent rail industry analyst.
Goode isn't one to trumpet his own horn. He'll leave it up to others to determine how he left his mark on NS.
But he's proud of his accomplishments during his tenure, such as implementing the Thoroughbred Operating Plan (TOP) or "scheduled" merchandise network plan, getting workers to understand and embrace their role in improving service performance, and employing more women and min- orities in management roles.
"We've come a long way in improving the service culture in the business and woven that into the fabric of our company," says Goode. "We've also seen a change in the breadth and diversity of our people."
Goode doesn't have any specific retirement plans ("I'm worn out," he jokes), but he expects to travel with his wife, work on his golf handicap and continue to serve on other companies' boards, including Caterpillar Inc. and Georgia-Pacific Corp.
Moorman knows it'll be difficult to follow Goode, as well as match the accomplishments of other past and present Class I CEOs.
"There have been so many leaders in the industry that have held this spot, they are big shoes to fill," he says. "You just hope your feet don't swell."
Moorman has his feet firmly planted on the ground and is the right person to keep the Thoroughbred in stride, senior executives say.
While Goode — a Harvard Law School and Duke University accounting degree graduate who completed Harvard Business School's advanced management program — is a master of railroading's business side, Moorman is a railroad operations expert who also understands business, they say. A Harvard Business School MBA, Moorman has served NS and a predecessor railroad since 1970.
"Wick has the advantage of being in so many aspects of the company's business, it rounds him out," says Executive Vice President of Operations Mark Manion, who's known Moorman for 20 years. "Not too many leaders have had an opportunity to be immersed in that many areas."
Adds Senior Vice President of Energy and Properties Danny Smith, who's also known Moorman about 20 years: "He's the smartest guy I know. Technology is changing and Wick knows it hands-on."
Moorman's also easy-going and approachable, senior execs say.
"He's the same way now as he was years ago," says Smith. "He's very personable and it's genuine."
Another word that might aptly describe Moorman is "humble." Leaning back in his chair, Moorman smiled after being asked if he always thought he'd become NS' chief executive, then tilted his head back and laughed.
"I never saw it coming," he says. "To become a top executive, it takes hard work and talent, presumably, and luck and timing."
Hard work and being in the right place at the right time have been recurring chapters in the career chronicles of Charles Wickliffe Moorman, who prefers to be called Wick like his great grandfather. His father also was named Charles and "I didn't want to be little Charlie," says Moorman.
Moorman began his NS career as a Southern Railway Co. co-op student in 1970. He later became a management trainee and track supervisor.
"At the time, I aspired to be a division engineer because I thought he sat at the right hand of the Lord," says Moorman. "When I got to that position, I thought vice presidents were the gods at Mount Olympus."
In 1987, Moorman took a gamble that later helped him attain a VP position. At age 35, he took a severance package from the railway and entered Harvard Business School to earn his MBA. His wife read an article in a Greensboro, N.C., newspaper that said the "streets are paved with gold if you get an MBA from Harvard," and she encouraged him to enroll, says Moorman.
After earning the masters degree in 1989, Southern Railway officials surprised Moorman by asking him to rejoin the railroad as director of transportation planning. His MBA coupled with his railroad knowledge made Moorman an attractive candidate.
"I left on good terms, but I did take the severance and got the MBA with no obligation to come back," he says.
In 1991, a senior officer at the newly merged NS offered Moorman the position of assistant VP of stations, terminals and transportation planning.
"I didn't know the job was vacant — it was a bolt from the blue," says Moorman.
Between 1992 and 2004, Moorman climbed the corporate ladder, eventually becoming president of NS subsidiary Thoroughbred Technology and Telecommunications, and SVP of corporate planning and services. Then, he was targeted by Goode and senior managers as a CEO candidate.
"I knew I was being looked at and CEO was always something to aspire to," says Moorman. "But it's important to be happy and comfortable where you are and not yearn too much."
After being named NS president and beginning the succession process in late 2004, Moorman felt "equal parts delight and terror," he says.
"You have an opportunity to do things and try things, but you also have this tremendous responsibility that went with it," says Moorman.
Now, he's more comfortable in the lead role. His even temperament, curious nature, sense of humor and trust in his management team are helping reduce his anxiety level, Moorman says.
"The greatest mistake you can make as a manager is taking yourself too seriously because you won't listen to people and think you're the font of all wisdom," he says. "You have to get advice and give advice, and rely on people."
Because he doesn't have a marketing background, Moorman expects to continue meeting with customers to better understand their needs. He'll also count on senior managers to help develop a strategy addressing a projected turnover of NS' workforce during the next decade. But to Moorman, top-of-mind is ensuring NS expands capacity and adopts technology to boost productivity and improve service performance — and maintain the Thoroughbred's gait.
"Key to our growth is making sure we aggressively roll out new technology to be more efficient and safer," he says.
Moorman will be overseeing the implementation of computerized systems developed under Goode's watch, including Locomotive Engineer Assist Display and Event Recorders, and Optimized Train Control. He'll also help guide the execution of TOP 2, a recently launched iteration of TOP, to boost service performance.
In addition, Moorman and his management team will try to ensure the Class I meets the terms of a recent Kansas City Southern agreement, which will enable his team to expand NS' capacity without building infrastructure. However, NS still will invest hundreds of millions of dollars in 2006 to build track and terminals, and meet operating objectives.
For just the second time in its history, the Class I is budgeting more than $1 billion for capital spending. The budget includes $735 million for roadway projects and $103 million for business development initiatives, such as increasing access to coal receivers and expanding intermodal capacity.
Because NS' intermodal traffic continues to increase — combined international and domestic traffic rose about 10 percent in 2005 compared with 2004 —Moorman and his team plan to beef up the railroad's intermodal network.
The Class I will invest tens of millions of dollars in the $150 million Heartland Corridor project. Slated to start this year and conclude in 2008, the project calls for creating a dedicated double-stack container line between Norfolk, Va., ports and Columbus, Ohio. Last year, Congress appropriated
$95 million in the highway bill for the project, which includes upgrading lines, reconstructing 28 rail tunnels, removing 30 overhead obstructions, and building intermodal ramps in Roanoke, Va., Prichard, W.Va., and Columbus.
This year, NS also plans to begin building a $16 million intermodal terminal in Charlotte, N.C., and open a $65 million intermodal facility near Rickenbacker International Airport in Columbus.
To accommodate growth in other traffic segments, the Class I will spend $22 million this year to build five miles of double track near Chattanooga, Tenn., construct two sidings between Chattanooga and Memphis, Tenn., and build a track at its Sheffield, Ala., yard to stage coal trains.
Although Moorman considers it critical for NS to have enough capacity to handle today's traffic volume, he also believes it's vital to keep trains moving and deliver freight on time. Since its launch in 2002, TOP has helped NS increase velocity, reduce terminal dwell times and boost on-time performance. But after traffic volumes rose dramatically in late 2004 and remained at a high level throughout 2005, the railroad's average velocity and on-time performance began to dip slightly.
So, NS rolled out TOP 2 in late summer under Goode's and Moorman's guidance. TOP 2 "bulked up" TOP, and incorporated intermodal traffic and some unit-train business into the operating plan, says Manion. The railroad added 17 general merchandise trains to its operation and lengthened the miles of several scheduled train trips to provide more frequent service to busy areas.
"We were moving big trains, and there was so much change in our traffic mix and lanes, the plan felt full," says Manion. "TOP 2 allows us to take on additional volume and still maintain good performance. Now, we're sticking to our scheduled plan religiously while we didn't always before."
Last year, senior managers also oversaw enhancements to Operating Plan Developer, computer modeling software designed to analyze train blocks and routes to optimize blocks operating between origin/destination pairs. The changes enabled the railroad to eliminate several manual processes.
"What's the best way to build a train?" Manion asks. "The tool helps us schedule and slot trains."
Although senior managers continue to tweak NS' operating plan, the team doesn't need to drastically alter the Class I's over-arching strategy, says Moorman. He plans to build upon a strong corporate planning foundation and solid management structure put in place by Goode.
At no other time has NS had such talented and experienced managers from top to bottom, adds Goode.
"I feel we have a deep management team and bench strength," he says. "We have young managers ready to step in."
Because he believes NS and the entire rail industry are in the midst of a renaissance — a period of unprecedented freight volume with the potential to add more — Goode is finding it difficult to move on.
"There's been policy change at all levels of government, which now see the value of freight rail," he says. "Part of me wants to stay, but there's that other part that wants to go."
As Goode departs, Moorman intends to make sure the Thoroughbred stays its course by following rather than redrawing the railroad's road map.
"Our company is doing very well and there isn't a need for a radical rethinking of our plan," says Moorman. "We just need to execute it."
Norfolk Southern Corp. has found a way to expand intermodal capacity without building its own infrastructure. Last month, the Class I reached an agreement with Kansas City Southern to form a joint venture aimed at increasing intermodal traffic and improving service performance on KCS' 320-mile Meridian Speedway between Meridian, Miss., and Shreveport, La.
During the next four years, NS will invest $300 million, which KCS will use to improve the Speedway by installing computerized train control and signal systems, and extending sidings and double-track segments. Some projects might begin this year.
NS' capital investment will provide the Class I a 30 percent interest in the Speedway; KCS will retain a 70 percent interest. KCS will continue to operate trains on the Speedway while NS will be the sole provider of certain intermodal moves.
The Class Is are seeking Surface Transportation Board approval for the joint venture.
"We've had a haulage agreement with KCS, but it was constrained and not service reliable," says NS Vice President of Strategic Planning David Brown. "Paying for infrastructure on another railroad is an effective way to address capacity."
Within five years, the railroads expect to double the number of trains operating daily on the line from five to 10.
"This partnership allows us to offer shippers fast, competitive rail service along the shortest rail route into the southeast from both Mexico and the southwest," said KCS Chairman, President and Chief Executive Officer Mike Haverty in a prepared statement.
As KCS installs train control systems along the Speedway, NS will be able to speed up trains and eliminate waiting time, says Brown.
"This is an interesting model that we might do again," he says.
— Jeff Stagl
After testing a locomotive computer system for two years, Norfolk Southern Corp. is ready to begin deploying the technology on its road locomotive fleet next year.
NS has reached an agreement with New York Air Brake Corp. (NYAB) to implement Locomotive Engineer Assist Display and Event Recorder (LEADER®), a computer system designed to determine optimal train handling based on topography and improve fuel efficiency.
Developed by NYAB, the system provides locomotive engineers real-time information on operating conditions. An on-board computer calculates and displays optimum speed based on topography, track curvature, train length and weight, and other operating conditions.
In 2003, NS began testing LEADER under a pilot project involving 15 locomotives moving coal trains between Winston-Salem, N.C., and Roanoke, Va. Results from the two-year pilot — a joint effort among NS, NYAB, GE Transportation-Rail and the Federal Railroad Administration — showed NS cut fuel consumption about 6 percent on all trains, reduced longitudinal forces on train handling and minimized braking.
"It's a real-time coaching tool," says John Samuels, NS senior vice president of operations planning and support. "Over time, it will change how engineers operate trains."
Next year, NS plans to install 75 LEADER systems on locomotives pulling Virginia Division coal trains. Beginning in 2007, the railroad will install 300 to 400 systems annually; eventually, more than 2,000 road locomotives will be equipped.
NS and NYAB now are developing the system's second phase, the onboard display unit that's being designed to mirror a system used on train simulators.
"The system looks several miles out from the train and determines the best way to operate over the next three or four miles," says Samuels. "It also gives us an analysis of how well the engineer did following the optimal run."
NS officials plan to make LEADER an integral part of Optimized Train Control (OTC), a positive train-control system designed to combine data communications, positioning systems and onboard computers tied to a train's braking system to automatically enforce speed and operating limits.
The Class I currently is testing OTC — which NS, Lockheed Martin and GE continue to develop — on a 115-mile dark territory line between Charleston and Columbia, S.C. During the next two years, NS will roll out OTC on other lines.
"It's a way to make the railroad safer by eliminating human error," says Samuels.
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