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As Norfolk Southern battle nears climax, STB head Oberman backs management

In World
May 07, 2024
Activist investor Ancora Holdings wants to replace much of the leadership of Norfolk Southern. (Photo: Jim Allen/FreightWaves)

Activist investor Ancora Holdings wants to replace much of the leadership of Norfolk Southern. (Photo: Jim Allen/FreightWaves)

It’s uncertain whether it will change any minds this late in the game, but the outgoing head of the Surface Transportation Board has made it clear he supports keeping Norfolk Southern’s existing management in place.

In a speech at the North American Rail Shippers Association’s annual meeting, STB Chairman Martin Oberman said he wasn’t trying to influence a vote set for Thursday — a day before Oberman leaves office — on Ancora Holdings’ effort to oust Norfolk Southern CEO Alan Shaw through a proxy battle.

“It’s not my position to urge shareholders how to vote in this election,” Oberman said at the meeting last week. “It is my responsibility to call out serious threats to the national rail network.”

Railroads cannot operate with “only enough people and locomotives to meet the needs of the movement when the sun is shining and there are no problems,” he said, according to a transcript of the speech. “But we are now confronting a situation where one group is either completely ignorant of these recent past lessons or has willfully chosen to ignore them in an effort to make a quick buck. Of course, I am talking about the proxy battle initiated and being fiercely — I might even say viciously — waged by Ancora against the current leadership of Norfolk Southern.”

Whether Oberman’s comments would have made any difference weeks ago is questionable. It is even less certain whether they had an impact just nine days before Norfolk Southern’s (NYSE: NSC) annual meeting, as many proxy votes presumably have already been cast.

Ancora is seeking to oust Shaw as well as Norfolk Southern’s newly appointed COO, John Orr, and several members of the board of directors, including Chair Amy Miles. Ancora’s picks to replace Shaw and Orr are, respectively, Jim Barber, a former UPS executive, and Jamie Boychuk, a former CSX executive.

While Oberman has often discussed railroad staffing levels in his critiques, one of the first issues he raised in his Chicago address was what he said was a plan by Ancora to deemphasize intermodal traffic in favor of manifest trains, which have multiple cars carrying different types of freight.

“They want to deemphasize intermodal — for only one reason,” he said. “Manifest traffic is carried at a lower OR than intermodal. Not that intermodal isn’t profitable. It’s just not as profitable, Ancora says, to make their shareholders richer faster. This is a short-sighted strategy which cannot be sustained in the long run.”

Oberman said intermodal is crucial. “Intermodal now accounts for about 50% of all rail traffic, and that is where the future is,” he said.

He cited the work of well-respected rail consultancy Oliver Wyman, which he said sees $177 billion in revenue that would be jeopardized if trains keep losing business to trucks at the current pace.

“If railroads just hold on to their current percentage of intermodal, they will keep that $177 billion,” Oberman said. “But most importantly, if they simply employ their existing capacity, they can not only keep the $177 billion but add an additional $61 billion in intermodal by 2030. And that is profitable traffic.

“Rather than detailing plans for adding carloads to the railroad, what you find in the endless pages of Ancora’s presentations are detailed spreadsheets how they are going to cut, cut, cut resources and how fast their [operating ratio] is going to come down in the next few years if they prevail.”

Oberman said Norfolk Southern “has made more progress in building a resilient railroad” than any other Class 1 railroad in recent years.

“But Ancora has missed the boat on resiliency,” he added. “Indeed, its attack on NS is centered on its view that resiliency is a huge mistake and needs to be eliminated.”

He then turned his attention to Barber. According to Oberman, Barber, a former executive at UPS, has boasted of hiring 100,000 employees around Christmas who would then be let go, with the idea that a new round of employees could be hired the next holiday season. According to Oberman, Barber will seek similar “resiliency” at Norfolk Southern.

And in characteristic bluntness, Oberman said, “Indeed, with due respect to the hard-working folks at UPS, it just doesn’t take as much skill and training to load a cardboard carton into the back of a van as it does to drive a locomotive or handle complex rail car movements in a yard.”

NS published a press release Monday touting Oberman’s comments.  That press release became the basis for a proxy statement filed with the Securities and Exchange Commission.

Proxy filings submitted to the SEC by either Ancora or Norfolk Southern total 16 just since May 1. Eight were filed on Monday alone.

In a sign that Ancora considers everything fair game, one of the activist investor’s two filings Monday called for the resignation of board member Claude Mongeau because of his role as a board member of TD Bank. TD Bank is the subject of a recently launched money laundering probe.

Meanwhile, the six proxy filings from Norfolk Southern besides Oberman’s comments also included pro-management statements from several shippers, including such companies as Lincoln Energy Solutions and Centennial Energy. It included a pair of tweets posted by the railroad as well.

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