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STB chairman takes a parting shot at activist investor’s plans for Norfolk Southern

CHICAGO — Surface Transportation Board Chairman Martin J. Oberman on Wednesday blasted activist investor Ancora Holdings, saying that its plans for Norfolk Southern are a threat to rail service and the U.S. economy.

Ancora and NS are trying to woo the railroad’s shareholders in a bitter proxy battle that will end May 9 at the NS annual meeting.

“It’s not my position to urge shareholders how to vote in this election,” Oberman told the North American Rail Shippers annual conference. “It is my responsibility to call out serious threats to the national rail network. And everything about Ancora’s campaign should cause serious concerns to all rail stakeholders.”

Ancora aims to reduce costs at NS and is ultimately targeting a 57% operating ratio within three years. NS CEO Alan Shaw plans to improve the railroad’s operating ratio to below 60%, as well, but has emphasized taking a slower approach that would take a year longer.

Oberman, who leaves office on May 10, said that maintaining adequate service should be top of mind for all railroads after CSX’s rocky transition to the low-cost Precision Scheduled Railroading operating model in 2017 and the widespread railroad service problems in 2021 and 2022 that were related to crew shortages.

Oberman says railroads should not try to cut their way to prosperity and should maintain an adequate buffer of crews and locomotives. “In order for railroads to maintain service and their obligations to both their customers and the public, they cannot operate with only enough people and locomotives to meet the needs of the moment when the sun is shining and there are no problems,” Oberman says.

As part of Shaw’s resilience and growth strategy, NS has adopted a no-furlough policy so that it has enough train crews on hand to handle an eventual rebound in freight volume.

Ancora has been critical of Shaw’s strategy, and says carrying extra people through a freight downturn is incompatible with lean PSR principles. Ancora’s CEO candidate, former UPS executive Jim Barber Jr., has said that the parcel company would never keep on the additional 100,000 workers it hires every year to handle peak holiday shipping volumes.

Oberman took issue with the comparison of seasonal parcel workers and railroaders. “Indeed, with all due respect to those hardworking folks at UPS, it doesn’t take as much skill and training to load a cardboard carton onto the back of a van as it does to drive a 3-mile-long train or handle complex railcar movements in the yard,” Oberman says, noting that it takes railroads six months to hire and train conductors.

The STB chairman said he was deeply troubled about comments that Ancora’s chief operating officer candidate, former CSX operations boss Jamie Boychuk, has made. “Just two weeks ago, he told a group of investors what we really need to do is really take it down to the studs,” Oberman says.

Ancora has touted Boychuk’s experience implementing PSR at CSX alongside CEO E. Hunter Harrison.

“What Ancora, of course, doesn’t tell us is that the abrupt radical changes across the CSX network beginning in the spring of 2017 … caused immediate and catastrophic consequences to customers, other railroads, both Class Is and short lines, the CSX workforce, and the public,” Oberman says.

After Harrison’s death in December 2017, CSX went on to post the industry’s best financial results and service metrics.

Boychuk has said Harrison moved too fast at CSX and failed to properly communicate with customers, regulators, and employees. Boychuk has said he would roll out operational changes more slowly at NS and with plenty of communication beforehand.

“To me, the best predictor of what a person will do in the future is what he has done in the past,” Oberman says.

Ancora, which has said repeatedly that it will not lay off NS employees and has not mentioned furloughs during its proxy campaign, says it plans to lower costs at the railroad by letting attrition reduce the workforce, by parking excess locomotives and freight cars, and by giving operations a complete makeover. The Cleveland-based firm also said Norfolk Southern’s plan calls for a reduction of 500 locomotives, which is 50 locomotives more than Ancora plans to store.

Oberman says he’s concerned about the potential service impacts of reducing employment levels at NS. The railroad has returned its workforce to pre-pandemic levels of 16,475, but that’s 35% fewer employees than it had before rolling out a PSR-based operating plan in 2019, Oberman notes.

And Ancora aims to return NS to 14,000 employees, which is just over the staffing low point during the 2022 service crisis, Oberman says. “So this is the railroad Mr. Boychuk wants to take down to the studs,” he says. “He doesn’t have far to go.”

NS claims that Ancora’s plan would require 2,900 job cuts in order to meet its operating ratio targets. “If that’s true, that would leave the railroad with just over 13,000 – a level below its worst service performance in years, a level which would likely be catastrophic for our economy and for all stakeholders,” Oberman says.

“So boiling down Ancora’s takeover plan, their goal of taking it down to the studs is not to rebuild it into a robust railroad needed for our economy, but to simply leave us with a much smaller railroad,” Oberman says.

“There is little doubt in my mind that if Ancora succeeds in taking control of NS and strips it down, as it promises, service will suffer a significant deterioration and the STB will undoubtedly consider even more significant regulation as necessary to protect the public,” Oberman says.

Ancora says it appreciates Oberman’s concerns around potential service issues, but says that providing reliable, efficient, and best-in-class service is the foundation of its plan.

After his speech, NARS presented Oberman with a lifetime achievement award.