Norfolk Southern (NSC) Morgan Stanley's 14th Annual Laguna Conference summary

Market and operating environment

• Elevated fuel prices have shifted from a tailwind to a significant headwind, impacting operating ratio by 250 basis points compared to two months prior.

• Freight is shifting from truck to rail due to high trucking costs, with gains seen across merchandise markets, including coiled steel, paper, consumer products, and lumber.

• Industrial demand remains strong, with manufacturing expanding for eight consecutive months and positive long-term outlook for industrial development projects.

• Intermodal demand is growing domestically, with the next major share gain opportunity expected during the January–April bid season.

• Extraordinary price differentials between East and West Coast ports are temporarily impacting East Coast volumes.

Productivity, service, and resource management

• Over $500 million in productivity cost reductions achieved in the past two years, with an additional $150 million targeted for the current year.

• Structural improvements, such as locomotive modernization and digital train inspection, are driving efficiency and not dependent on volume growth.

• Service metrics improved significantly by mid-summer, with on-time originations up 20% and the network positioned to handle additional volume.

• Resource allocation is closely managed, with ongoing hiring to fill attrition and ensure personnel are positioned for anticipated demand.

• Continued investment in infrastructure and technology, with approximately $2 billion in CapEx planned for the year.

Merger process and strategic outlook

• The merger application has entered the merits phase, with key milestones including comment periods in November–December, responses in February, and public hearings after March.

• Customer protections have been expanded, including Committed Gateway Pricing and reciprocal switching, in response to stakeholder feedback.

• Agreements with other railroads, such as Canadian National, provide additional access and are part of a broader strategy to address regulatory requirements.

• Standalone execution remains a priority, with focus on safety, service, cost discipline, and customer trust, regardless of merger timing.

• The merger aims to create a more customer-friendly, nationwide network, leveraging innovation and technology to compete with trucking and other railroads.