By Dan McCue
Staff Writer

As a result of a willingness to consider new ideas and new ways to move cargo to inland markets, officials with the Norfolk Southern railroad believe they’ve perfectly positioned the company to help the Port of Charleston shoulder the burden of a tidal wave of imports from Asian markets.

In the process, and at a time when surging oil prices are making other transport options more costly, the railroad with Charleston roots is challenging rival CSX to become the East Coast leader in the growing rail boom.

More than 175 years after making its maiden run on a six-mile route near Charleston on Christmas Day, 1830, the railroad’s embrace of 21st century technology and old-fashioned customer service has led to a 17% growth in company revenue over the four quarters ending in Sept. 2005, rising to $8.2 billion.

At the same time, profits have grown 66% from $700 million to $1.2 billion.

But there’s more afoot than the railroad simply having the capacity to take on more Asian goods, said Jeff Heller, Norfolk Southern’s assistant vice president of international marketing.

The company’s proprietary software, which it now leases to other rail carriers, has allowed it to ship more goods more efficiently by identifying the shortest routes and fewest handlings for its clients’ containerized goods, he said.

As a result, while its carload volume is up 14% since 2000, the average speed at which its trains move is up 7% to 22 miles per hour and the average time at a train yard or intermodal facility, known as dwell time, is down 8% to just under 23 hours.

“The Asian trade phenomena is real, but it’s something we’ve been planning for three or four years, and that’s how we’ve been able to achieve these numbers,” Heller said.

Although Norfolk Southern is primarily thought of as an eastern seaboard carrier, until 2002, as much as 70% of its business traveled to or from a West Coast port.

“Then there was a labor situation (at ports in Southern California) and a lock-out that resulted in massive congestion issues,” Heller said. “As a result, a number of customers stepped back and said, ‘Maybe it will take a little longer, but we really should start pushing cargo through the Panama Canal and finding alternative routes to East Coast markets.’”

Today, as a result of such thinking, the container cargo pendulum is more balanced, with West Coast goods accounting for 55% of Norfolk Southern’s cargo, and 45% traveling to or from East Coast ports like the Port of Charleston.

U.S. rail volume

Norfolk Southern isn’t the only railroad that is watching its cargo volumes grow. In total, U.S. railroads did nearly 1.7 trillion ton-miles in traffic last year, a number 2.4% higher than 2004.

While a large part of that is due to an increase in trade from China, India and other Far East trade partners, demand for rail service is also being driven by international companies that have opened manufacturing facilities here and need their parts and materials taken from ports to facilities inland.

According to the South Carolina Chamber of Commerce, more than 7,000 companies announced new manufacturing facilities or expansions of existing facilities in South Carolina during the past decade, with more than 500 of them being internationally headquartered companies.

Revenues for CSX, which, like Norfolk Southern, services the Port of Charleston, were $8.6 billion last year. The United State’s leading railroads, in terms of revenue in 2005, were both West Coast lines; Union Pacific, with revenues of $13.2 billion, and Burlington Northern Santa Fe, with revenues of $12.4 billion.

Mired in inefficiencies

Norfolk Southern’s moves provide a window into how the railroads are responding to the new demands. Shortly after the railroad’s new CEO, Wick Moorman, took the helm of the 29,000-employee company, an in-depth analysis of the carrier’s traffic pattern was conducted.

What it found was an aging line that was rife with inefficiencies. But before anyone had time to start brooding over the matter, Moorman, whose background is in technology, brought in Multimodal Applied Systems to help develop innovative software to guide long haul moves.

The company’s goal, Heller said, was to get its trains to run on a tight schedule and, by extension, to move more trains through the system faster. Further refinements allow the railroad to adjust to changing or temporary conditions and suggest new trains, routes and schedules.

“Before, customers were kind of left guessing as to when their cargo would arrive,” Heller said. “This technology allows us to communicate with the customer in real time as to where their freight is and when it is being delivered—and we’ve got it down to being on time within two to four hours.

“This helps our customers plan better and pick up their goods faster, which in turn helps us create capacity in our terminals,” he added. “The system also allows us to price our services better because of the efficiencies we’ve been able to achieve.”

Markus Mainka, a spokesman for the Michigan-based Chrysler Automotive Group, which moves much of its freight through the ports of New York/New Jersey and Montreal, said such proactive planning goes a long way toward assuaging the concerns of major manufacturers.

“For us, the challenge (in moving goods and supplies) has been the constraint in rail capacity and also gasoline and oil prices,” Mainka said. “It’s something we’ve dealt with on a situation-by-situation basis.”

The goal of Chrysler, as a shipper and recipient of containerized cargo, is “to put it on rail and get it as close as possible to where we need it. Then we’ll truck it the rest of the way,” he said.

Asked if Chrysler preferred intermodal facilities to inland ports, Mainka said the latter is “nothing that we’re in favor of because it adds an additional step for us. As I said before, what we prefer is having a train deliver our cargo as close to our facility as possible and then relying on trucks to take it that last mile.”

Point-to-point interface

Creating that point-to-point interface is very much on the mind of Norfolk Southern planners as the South Carolina State Ports Authority prepares to build a new terminal at the former Navy base.

“It’s very early in the planning stages for that particular site, but our vision for the future of the company as a whole is to expand our intermodal offerings substantially,” Heller said. “Ideally, we’d like to see a situation develop where the cargo container would come off the ship and be placed either directly on a train or transported across the terminal to a rail staging area.

“It’s more simply said than done, however, because if you’re going to serve the Navy yard in that way, you also have to think about moving cargo from the Columbus terminal, and then you have to determine how you’re going to pull all that together into a train.”

Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charelstonbusiness.com.

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