Ohio train derailment: What we learned this week from the Norfolk Southern hearing

Norfolk Southern (NSC) CEO Alan Shaw faced heated criticism on Thursday from the Senate over the Feb. 3 train derailment in East Palestine, Ohio, that left toxic chemicals in the area.

"I want to begin today by expressing how deeply sorry I am for the impact this derailment has had on the residents of East Palestine and the surrounding communities," Shaw said in his opening statement to the Senate Committee on Environment and Public Works. "I am determined to make this right."

Shaw pledged that Norfolk Southern would remain in East Palestine to assist in the clean-up process "for as long as it takes." Norfolk Southern and several state and federal agencies are still in the "emergency response" phase of the cleanup, which will continue for as long as "obvious, known contamination remains," according to the Ohio Environmental Protection Agency.

Chemicals that were spilled and burned off following the derailment — especially vinyl chloride and phosgene — have remained a top concern, as many of them are known carcinogens and irritants, particularly over long exposure.

The Norfolk Southern CEO said that when it comes to paying the health care bills of those affected by the derailment, "everything is on the table," though he did not reveal any specifics about the company's commitment.

So far, Norfolk Southern said it has committed at least $13 million to help the communities affected, including $1 million for initial relief, a $445,000 scholarship fund, and reimbursement for fire equipment used by emergency responders during the event.

According to Anthony Hatch, senior transportation analyst at ABH Consulting, the financial impact to the company won't be significant, but it has been a PR nightmare for the company.

"It's a reputational hit," Hatch told Yahoo Finance Live recently. "And it's just unfortunate that it comes after a period of which there were service issues and the supply chain issues that they were part of, very contentious labor negotiations that they just finished."

Hours before the hearing, another Norfolk Southern train derailed in Alabama. There were no people harmed or toxic chemicals involved. In 2022, railroads logged 1,168 train derailments, according to the Federal Railroad Administration, down 10% from 2013.

Norfolk Southern CEO grilled on safety

While the National Transportation Safety Board (NTSB) continues its investigation over the particularly catastrophic incident in Eastern Ohio, its preliminary report pointed to a wheel bearing that overheated as the cause of the derailment.

"The preliminary report found that the Norfolk Southern crew was operating the train below the speed limit and in an approved manner," Shaw said in his prepared statement. "Yet, it is clear the safety mechanisms in place were not enough."

Some senators, including Bernie Sanders (I-VT) and Sherrod Brown (D-OH), questioned the risks inherent to Norfolk Southern's use of precision-scheduled railroading (PSR), a model of operations aimed at cutting costs through fixed schedules, leaner staff, and longer trains.

The Norfolk Southern CEO pushed back against that criticism, noting that the company has shifted "away from a near-term focus solely on profits," but didn't commit to abandoning PSR or offering workers guaranteed paid sick days.

Under pressure from regulators and lawmakers — Ohio Sens. Brown and J.D. Vance (R) proposed a new bipartisan rail safety bill earlier this month — Norfolk Southern released a six-point safety plan that primarily focused on beefing up sensors.

Some experts contend that while better detection would be an improvement, PSR and staffing are the larger issues to be grappled with.

"In the short term it makes the bottom line look good, but in the long term it’s rolling the dice on safety," Jeremy Ferguson, SMART Transportation Division president, said on Yahoo Finance Live. "The impact on safety is that they have cut back on the workforce across all crafts when it comes to car inspections, when it comes to the amount of crews available to operate the trains... We've had a variety of issues because you're trying to do much more with much less."

Others, such as Hatch, argue that some of the recent scrutiny around railroad safety may be overdone, particularly when considering the alternatives for transporting hazardous materials, such as using highways and trucks.

"Their safety record is actually pretty remarkable — 99.99% get through," he said of Norfolk Southern. "I guess instead of being thankful that it could have been worse, we're sort of attacking them as being unsafe. And that seems unfair."

Similarly, Joseph Schofer, professor emeritus of civil and environmental engineering at Northwestern University, said that while the East Palestine derailment serves as "a wake-up call" for the industry, it's still too early to draw sweeping conclusions from the disaster.

"My concern going forward is: What are the causes?" Schofer told Yahoo Finance in an interview. "What's fundamental here, and what should motivate changes?"

"As I watch the news coverage," he continued, "it looks like every politician, from the local level to the federal level, is trying to jump in front of the camera and say, 'I'm gonna save your lives.' But we really don't have a good sense of the scope of the problem and whether what we're seeing, particularly the several events in Ohio, are in any way connected."

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