(The following story by Gregory Richards appeared on The Virginian-Pilot website on April 23.)
NORFOLK, Va. — Norfolk Southern Corp. executives anticipate being able to raise rates at least 4 percent this year on average, with the expectation that the demand for moving freight with trains will remain high despite a weakened economy.
“If the economy continues to kind of hold on where it is and our business conditions look strong, we hope we can do better than that,” Wick Moorman, Norfolk Southern’s chairman and chief executive, said Wednesday. “But we’re comfortable that we’ll get at least four.”
Traditionally, railroads have served as a good barometer of the economy because they move so many pieces of it, lugging vehicles, building supplies, agricultural products, consumer goods and coal, among other items.
On Wednesday, Norfolk Southern’s stock fell 3.9 percent to close at $58.74, a day after the Norfolk-based railroad reported that its first-quarter profit rose 2.1 percent over the same period in 2007, reaching $291 million. The railroad increased rates an average of 7 percent in the January-through-March period, helping it offset a 2.3 percent drop in freight.
The railroad sees the trends that occurred in the first quarter extending through the rest of 2008: less business tied to the housing, automotive and retail sectors and increases in the coal, agricultural and metals segments.
Coal export shipments shot up 64 percent in the first quarter over the same period, amid strong global demand and a weaker dollar, said Donald W. Seale, Norfolk Southern’s executive vice president and chief marketing officer. Shipments through its Lamberts Point coal terminal in Norfolk were up 60 percent, he said.
Moorman said he anticipates strong growth in coal exports for the foreseeable future. The railroad plans to hire about 40 more employees at the facility to handle coal.
“The more we go into this export boom, the more we think that this really has legs – not just for one or two years but for multiple years,” Moorman said.
Overall, coal revenue increased 18.9 percent in the first quarter as the railroad moved 1.6 percent more coal.
Shipments of intermodal containers – the metal boxes that move between ships, trains and trucks carrying many consumer goods – declined 4 percent in the first quarter, Seale said. However, more of the boxes are moving through Hampton Roads and other East Coast ports, rather than being unloaded at West Coast ports and moved via train across the country. Norfolk Southern moved 8 percent more containers through East Coast ports in the quarter as container shipments originating on the West Coast fell 16 percent, Seale said.
Quarterly intermodal revenue climbed 5.2 percent to $486 million in the quarter.
In Norfolk Southern’s merchandise freight category, agriculture shipments grew 4 percent for the quarter, mainly because of increased ethanol shipments along with more shipments of grain to overseas markets. Agriculture revenue was $299 million, 24 percent more year-over-year. Automotive shipments were down 10 percent, producing revenue of $228 million, about the same as in the first quarter of 2007.
“We believe that the factors that support long-term growth in rail freight remain in place,” Moorman said.