Norfolk Southern: Ohio derailment costs rise after $600M settlement
- The railroad took a $592 million hit related to the Ohio derailment in Q1
- Total costs stemming from the East Palestine incident are now $1.7 billion
- Latest estimates include a recent settlement in a class-action lawsuit
FILE – This photo taken with a drone shows portions of a Norfolk and Southern freight train that derailed Friday night in East Palestine, Ohio are still on fire at mid-day Saturday, Feb. 4, 2023. Regulators say Norfolk Southern has made improvements since a fiery Ohio derailment but still falls well short of being the “gold standard for safety” it is striving to be. The Federal Railroad Administration released a report on the railroad’s safety culture Wednesday, Aug. 9. (AP Photo/Gene J. Puskar, File)
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(NewsNation) — The toxic train derailment in East Palestine, Ohio, has cost Norfolk Southern more than $1.7 billion after the railroad agreed to a $600 million settlement in a class action lawsuit earlier this month.
The company’s latest earnings report released Wednesday shows $592 million in costs related to the Ohio derailment in the first quarter of 2024 — a total that includes the settlement. The company previously reported $1.12 billion in costs tied to the incident for 2023.
During Wednesday’s earnings call, Norfolk Southern Chief Financial Officer Mark George said the railroad has recovered more than $200 million from insurance so far, lowering the total cost. The company’s insurance recoveries may go up in the future.
George said the recent settlement “addresses the most significant remaining legal exposures” for shareholders, an indication that legal expenses related to the derailment will likely be lower going forward.
The Atlanta-based railroad announced the settlement on Apr. 9 and said the agreement would resolve all class action claims within a 20-mile radius from the derailment, although it does not include an admission of guilt.
Up to 100,000 people in the area are eligible for some type of payment. Therefore the total, if accepted by the courts, averages out to about $6,000 per person, NewsNation previously reported.
Residents told NewsNation they’re upset the settlement is coming before the National Transportation Safety Board (NTSB) releases its final incident report, which will happen in June.
Last month, NTSB chair Jennifer Homendy said the controlled burn that released toxic chemicals into the air could have been avoided with a safer option. Since the Feb. 2023 derailment, neighbors have reported strange symptoms and many have lingering concerns about their long-term health.
Even without the settlement costs, Norfolk Southern underperformed analysts’ expectations in the first quarter. Next month, investors will decide whether to back CEO Alan Shaw as the railroad faces a takeover attempt from a group of activist investors led by Ancora Holdings.
“Our strategy is about balancing service, productivity and growth with safety at its core,” Shaw said on Wednesday’s earnings call.
All the railroad unions, as well as, multiple key regulators are backing Shaw in the proxy fight, in part, for labor and safety reasons.
That’s because Ancora favors an operating model that calls for running fewer, longer trains on a tighter schedule so the railroad won’t need as many workers, locomotives and railcars, according to the Associated Press.
Shaw emphasized the company’s recent safety investments on Wednesday’s call. The railroad’s accident rate is at 3.4 accidents per million miles traveled to start the year, down from 3.9 in 2023, according to the railroad’s presentation.
In January, Norfolk Southern became the first railroad of its kind to join a federal program that allows employees to report safety concerns anonymously without fear of discipline.
Earlier this year the railroad said it would be laying off 7% of its managers as a cost-cutting move.