NS makes jobs threat as fed oversight looms
Written by Bob Sechler - The Wall Street Journal    Saturday, 06 June 2009 13:00    PDF Print E-mail
Norfolk Southern Corp. will have little choice but to further cut jobs and capital spending if new regulations cap its ability to raise prices, the railroad's top executive said Wednesday (June 3), according to The Wall Street Journal.

"We can shrink our way to profitability" in a worst-case scenario, Chief Executive Wick Moorman said. "It is not beyond the realm of conjecture that (advocates for new federal railroad regulation) would push us there."

But Moorman, speaking during Norfolk Southern's investor-day event, also voiced confidence that the rail industry can head off efforts to enact what it considers heavy-handed oversight.

"I still am very optimistic that at the end of the day we can defeat a bad bill," he said. "We have a lot of allies" on Capitol Hill and elsewhere.

The top freight railroads, including Burlington Northern Santa Fe Corp. (BNI), Union Pacific Corp. (UNP), CSX Corp. (CSX) and Norfolk Southern, have been enjoying substantial pricing power despite severely depressed freight demand amid the economic downturn. But the trend has fueled a backlash from some railroad customers and heightened calls for Congress to tighten industry regulation.

Earlier this week, a key vote on a Senate bill that would strip the rail sector of antitrust exemptions was canceled because the measure is being included in other railroad legislation.

Moorman called the development "a positive thing" Wednesday, saying "at least all of the issues in the Senate are in one committee" now. Still, he noted that it's unclear what the House will do or what additional legislative efforts might emerge.

"It is a stay-tuned story," Moorman said during his company's Webcast event. He added that their positions.

Moorman and other Norfolk Southern executives made clear Wednesday that they're seeing no let up in the decline in freight volumes plaguing the transport industry, although Moorman voiced some optimism that a bottom at least may be near.

The company's freight volumes through May were off 23 percent from a year ago, meaning volumes have continued to deteriorate in the second quarter from a 20 percent first-quarter drop.

In response to the trends, Norfolk Southern has taken a number of measures to reduce costs, including furloughing employees and cutting its capital-spending budget. The railroad said it will spend about $1.3 billion on capital projects this year, 8 percent less than its original forecast and 16 percent less than it spent in 2008.

Moorman and other rail industry executives have defended their price increases as justified because of the need to invest in high-dollar repairs and improvements. They also have argued that railroad prices remain cheaper than those of trucks and, adjusted for inflation, are lower than when Congress deregulated the rail industry 28 years ago.

Norfolk Southern shares were off 2 percent, or 79 cents, recently at $39.34.
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