Coal Struggles Continue for Norfolk Southern
The State Journal
2 May 2014
By Jim Ross
The coal business continues to be a problem for Norfolk Southern
Corp., but its container train business through southern West
Virginia continues to increase.
Those were among the observations and revelations made by company
executives last week as the railroad released its first-quarter
earnings report, followed by a conference call the executives had
with investment analysts.
In the first quarter, Norfolk Southern reported net income of $368
million, down from $450 million a year ago. Coal revenues totaled
$541 million, down from $635 million in the first quarter of 2013
and $766 million in the first quarter of 2012.
Coal shipments in the utility market were down 12 percent in the
quarter. Export shipments were down 23 percent and domestic
metallurgical coal shipments were down 21 percent. Industrial coal
shipments were up 10 percent. Total coal tonnage hauled on the
railroad was 14 percent lower than last year’s first quarter.
During the conference call, NS Chairman and CEO Wick Moorman said,
“Coal continues to be a wild card, with utility volumes more
stable, but export volumes more uncertain.”
Donald Seale, the railroad’s chief marketing officer, told
analysts, “We’re very encouraged with respect to utility coal. We
think it’s going to be better than what we thought it was going to
be in December, for sure.”
“The export coal market has deteriorated in general, and we are
not as optimistic about that, so that will be a deflater in
volume, but in the merchandise and intermodal segments, we feel
optimistic and encouraged,” he said.
Extreme winter patterns in the first quarter improved the demand
for utility coal, with stockpile days at power plants served by
Norfolk Southern falling an estimated 34 percent from December,
“In terms of our mix of coal sourcing, Illinois Basin was about 18
percent,” he said. “(Powder River Basin) was about 16 percent.
Central App was a little over 40 percent and Northern App made up
As utilities replenish their stockpiles coming off a hard winter,
Norfolk Southern expects to see more Illinois Basin coal going
South, Seale said.
“We will see more Northern App coal flowing into the South, into
North Carolina in particular,” he said. “PRB coal will expand on
the margin to replenish stockpiles, primarily in the Southeast for
“And as far as the margins go, the overall mix should be favorable
in utility on that incremental business as it moves longer haul
from the Illinois Basin, as well in Northern App. Central App
utility business (is) still higher cost, but we do expect some
volume increases out of Central App. We believe that increase will
be less than from Northern App and from Illinois Basin.”
While coal is having troubles, shipments related to gas and
natural gas liquids drilling in shale regions will provide a
growth market, Seale said.
“We anticipate continued strength in crude by rail, as well as
shale-related liquid petroleum gas shipments,” he said. “Frac sand
and other materials used for natural gas drilling in the Marcellus
and Utica shale regions are also expected to increase.”
Seale also said Norfolk Southern continues to see strong growth
opportunity in NGLs.
“Our first quarter volume was up 42 percent in that business,” he
said. “Some of that was weather-related, but we see continued
opportunities both in Marcellus and Utica, not only for shipments
to the Gulf, but shipments within our network from the South to
the North and a developing export market for butanes and propanes,
Container shipments on the Heartland Corridor, which includes
track from Bluefield to Kenova, were up about 9 percent in the
first quarter, Seale said. Norfolk Southern has sufficient
capacity on its intermodal corridors to grow more over the next
four to five years before it will have to invest significant
amounts in capital improvements to accommodate heavier volumes, he