My take: Rail safety and pleasing the Wall Street gods

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Norfolk Southern photo
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It now appears that Norfolk Southern will adjust some of its safety practices following a trio of derailments, including the disastrous mishap on the Ohio-Pennsylvania border, CNBC and other media outlets reported.

The rail behemoth will take common-sense measures, including shorter trains and broader use of distributed power -locomotives in the middle and end of long trains that assist braking and stability.

It should be noted that derailments have been on the decline as technology and other practices take hold.

Still, Norfolk Southern remains under pressure from Wall Street to reward stockholders and last year bought back $10 billion in stock. The proceeds could have been used to upgrade its system and perhaps better detect failing wheelsets that can trigger fires and derailments. Investigators suspect that contributed to the Ohio derailment.

NS is not alone in feeling the heat from the street. Shareholder pressure has been building to the west at Union Pacific. The CEO is stepping down under pressure from a hedge fund that owns a large chunk of stock. It doesn’t take a genius to figure out that all but the most necessary upgrades or maintenance take a backseat.

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In working to take the heat off management, Norfolk Southern unloaded short lines, including its neglected Delmarva route to Pennsylvania-based Carload Express. With the help of federal funds, the new owners are upgrading the vital route that carries grain for the region’s $5 billion chicken industry. Carload Express, now operating the railroad under the Delmarva Central name, has stepped up marketing efforts in an effort to attract customers.

Norfolk Southern is not afraid to spend money when opportunities arise. It upgraded tracks from Newark to the Delaware City refinery when PBF Energy spent $100 million on an unloading site for crude oil from North Dakota and Canada. The investment was made despite an off-and-on market for North American crude. The improvements reduce the chances of an environmental disaster when crude oil cars leave the tracks. The route also carries propane, another potentially dangerous cargo.

Norfolk Southern’s Palestine, Ohio derailment has turned into a political circus with much finger-pointing and posturing. U.S. Sen. Tom Carper of Delaware will enter the fray by holding a hearing.

On the plus side, the disaster has the potential to raise awareness of the need to improve infrastructure and shorten trains, even if bottom lines take a temporary hit. – Doug Rainey, chief content officer.

Correction: Earllier versions of the column put the stock buyback at $22 billion.

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