Norfolk Southern reports $966M so far in Ohio derailment expenses

Quarterly profits decline in face of derail costs, reduced freight volumes and service disruptions
A Norfolk Southern logo is seen at the Norfolk Southern Headquarters building from W. Peachtree Street NE in Atlanta on Tuesday, April 4, 2023. 
 Miguel Martinez / miguel.martinezjimenez@ajc.com

Credit: Miguel Martinez

Credit: Miguel Martinez

A Norfolk Southern logo is seen at the Norfolk Southern Headquarters building from W. Peachtree Street NE in Atlanta on Tuesday, April 4, 2023. Miguel Martinez / miguel.martinezjimenez@ajc.com

Atlanta-based Norfolk Southern saw a decline in quarterly profit as it racked up more expenses from its East Palestine, Ohio, derailment, while seeing reduced freight volumes and service disruptions from technology outages.

Norfolk Southern CEO Alan Shaw acknowledged that this year has “presented a number of challenges,” during remarks on an investor conference call.

Shaw also said, “We are clearly not satisfied with these results,” and added that the company is making improvements to emerge “a stronger company.”

The railroad in the third quarter recorded another $163 million in expenses for cleanup and response to its February derailment of a train carrying hazardous materials in East Palestine.

In total, the company has tallied $966 million in expenses for the East Palestine derailment, including $803 million in the first half of the year. The company has paid $511 million of that so far, with $25 million of its expenses covered by an initial insurance reimbursement in the third quarter.

The expense amounts are estimates that could change in the future, including from potential insurance payments or other reimbursement over a protracted period.

“We will continue working through these issues for many quarters to come,” said Norfolk Southern Chief Financial Officer Mark George. “We expect that there will be additional costs that have not yet been incurred related to future settlements, fines and penalties, as well as legal fees, and we cannot predict the amounts at this time.”

Atlanta-based Norfolk Southern has been working to clean up the derailment site in East Palestine in the eight months since the wreck of the train carrying hazardous materials on Feb. 3.

The Environmental Protection Agency earlier this month said 98% of the excavation of the derailment site has been completed, but issued an order directing Norfolk Southern to continue its cleanup of creeks in East Palestine, where there are still visible effects of contamination with some sediment generating a sheen when disturbed or agitated.

“We will be completing soil removal from the derailment site shortly, but expect that there will be ongoing testing efforts to ensure the continued safety of the air, soil and water through April of 2024,” George said.

On Thursday, Norfolk Southern said it will remove the final truckload of contaminated soil from the site this weekend. That will be followed by backfilling of excavated areas.

The railroad’s operations were also disrupted by a software defect Aug. 28, and by an unrelated firmware maintenance issue Sept. 29. Shaw said the company is “taking measures to prevent a recurrence” and is doing a full review of its technology infrastructure.

For the third quarter, Norfolk Southern reported $478 million in net income, down by half from its $958 million quarterly profit a year ago.

Norfolk Southern’s revenue declined by 11%. It also has higher labor costs due to wage increases, and is making investments to improve service and productivity, driving increased expense.

Economic headwinds are causing concerns across the freight and logistics industry, as consumers cut back on spending.

“Although the macroeconomic environment of abnormally low volumes is an unwelcome headwind, it has not changed our approach, or diminished our confidence that our strategy is a better way forward,” Shaw said. “The market will recover and we will be poised” for it.

Norfolk Southern said it saw a bright spot from winning new business that improved volume in the last four weeks, driving hope for better profits in the future. But revenue is still expected to be down 4% this year.

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