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John Orr

Good morning. Thanks, Mark. I'm excited to update you all on our safety and operating performance.
Turning to Slide 6. Safety is the value through which all operating decisions are made. Our entire team is committed and engaged in our pursuit of safety excellence. The improvements to date are a testament to the rigor of our safety protocols and a strong indication of the positive outcomes we can achieve in 2025.
Our FRA reportable injury ratio increased from 1.1:1.15. And I'm encouraged that our Q4 results improved by 13% compared to the same period last year. In fact, in December, our FRA ratio was 0.61 and was the lowest reportable injury ratio since December 2020.
Our FRA train accident rate for the full year improved by 27%. And in both cases, we are carrying positive momentum into Q1 and building on these strong results. For example, we finished 2024 and started 2025 injury-free for over 1 million man hours across all operations. At Norfolk Southern, people are at the heart of our strategy.
Our Thoroughbred Academy is educating thousands of leaders, its curriculum offers an integrated approach that combines technical training with skill building and operational readiness, business planning and management engagement. We are proactively driving safety performance and enterprise excellence. We are building generational railroaders.
Turning to Slide 7. Our PSR 2.0 approach is delivering simultaneous efficiency and service improvements. In 2024, our network performance progressively gained traction, anchored by dwell and velocity. We are growing less in yards, moving faster between terminals and rightsizing the fleet. This is generating fluidity and capacity, aligning our active fleets to volume, decreasing fleet maintenance expenses and reducing capital.
Year-over-year, our system speed improved by 10%, taking it down a level. In the quarter, intermodal train speed gained 3.1%, and the true success stories were the remarkable gains in merchandise and unit train speeds, up 11% and 17%, respectively. As we drove up velocity, we took out assets, grew the business and we did more with less, ultimately, growing volumes by 5%.
For example, year-over-year car miles per car day rose over 13%. We are seeing similar benefits in our locomotive fleet. Velocity allowed us to store more locomotives, decrease our material expenses, increase our fleet reliability and drove overall fleet productivity. Year-over-year GTMs per available horsepower improved by 19%. And we also delivered record dual efficiencies, both for the quarter and the full year.
As we drive operating efficiencies, we are also delivering a quality product for our customers. After all, we're a company committed to outstanding service. We finished the year very strong, culminating with a successful intermodal perfect peak season, year-over-year, handling 7% more parcel volume per day with zero controllable failures.
Turning to Slide 8. Speeds matter. In 2024, we committed to tackle network underperformance and to close our margin gap. As Mark said, through our total team effort, we exceeded. For example, our car maintenance will room meticulously drilled down to root cause, fine-tuned our repair processes and provided near real-time feedback for the field.
As a result, year-over-year running repair and repaired well were down 31% and 23%, respectively. Improvements are also coming from our need for speed war room, whose mandate includes design speed into the network, overcome historic speed barriers and drive out infrastructure bottlenecks. The need for speed war room has contributed to our year-over-year 10% AAR speed increase.
They are now turning their attention to challenging every permanent and temporary slow order to actively reduce stops and drive additional fuel efficiencies. Over-the-road interruptions decreased by 25%, delivering significant gains in crew productivity and crew availability. For example, year-over-year, crew overtime and terminal detention costs were both down 19%.
When I say this is a team effort, I'm talking about every NS reorder. We are working cross-functionally, cross structurally and broadly across the entire enterprise ecosystem to eliminate waste, increase revenues and drive efficiencies.
These disciplines have allowed us to restructure our capital requirements, being up funds for key projects without compromise. We are entering 2025 with tremendous momentum. And we are unlocking productivity value for our network.
The next phase transformation of our operating plan is in development. The new plan will roll out in Q1. It will further reduce handlings, introduce tighter standards for terminal times and connections and will require us to continue stretching for improvement in our operating processes.
In 2025, we will focus on fuel and mechanical infrastructure. These are big rocks for efficiencies and savings. I'm incredibly proud of the results the operating team has achieved in 2024. They rose to every challenge, showing NS grit, tenacity and drive. Coupled with PSR 2.0, their capabilities are driving net value creation in closing the service and productivity gap with our peers.
I will now turn it over to Ed.

Claude Elkins

Thank you, John, and good morning, everyone. I -- upfront for my cold and ask that you bear with me here. Let's start on Slide 10. Overall volume for the fourth quarter improved 3% year-over-year. That was led by our intermodal and agriculture groups. Our total revenue and RPU declined primarily due to lower fuel surcharge revenue, along with negative mix within the portfolio and rate pressure within intermodal and coal that we've noted for most of the year.
Merchandise volume improved slightly from higher soybean and corn shipments driven by new business and some spot opportunities, but these gains were offset by declines in automotive, metals and energy-related markets. The quarter saw a 2% increase in RPU less fuel , which marks another quarterly record in that metric with 38 out of 39 consecutive quarters of year-over-year growth.
We also set quarterly RPU less fuel records for both industrial products and for automotive. In Intermodal, we realized a 5% year-over-year volume increase with gains in both domestic and international through sales pipeline wins, increased freight demand and empty container volumes.
Premium continues to face market headwinds. Truck prices remained low, causing domestic intermodal rates to be generally in line with last quarter. However, note that RPU less fuel finished up 2% due to a lift from contract recoveries and rate true-ups.
Let's turn to coal. Volume decreased 1%, with coal prices driving a 9% decline in revenue. Utility experienced reduced burn demand due to continued low natural gas prices, while lower seaborne prices impacted our export business. Okay. Moving to Slide 11, let's talk about full year results.
We achieved a strong 5% volume growth. Overall, revenue was flat as we faced significant fuel headwinds of $261 million along with lower coal rates. The intermodal unit led the company in volume growth and an important bright spot in revenue was the merchandise business unit that achieved record revenue, revenue per unit and RPU less fuel for the full year of 2024.
Let's go to Slide 12 and look ahead. Our 2025 outlook is for modest volume growth driven by the reliable service product that our customers are enjoying now. For our merchandise markets, we expect lower vehicle production due to weaker-than-expected sales and some inventory build. We expect improved manufacturing activities supported by lower interest rates and strength in our chemicals markets such as plastics and waste.
However, the potential for new tariffs will introduce some near-term uncertainty in the many markets serve. Despite these uncertainties, we are confident that we're well positioned to recapture market share and deliver the value that our customers expect of us. Turning to our intermodal markets. US, MX and ILA read a tentative agreement, which helps remove a key source of uncertainty.
Strong import and export demand has been a growth driver. However, new tariffs will probably create some headwinds. We expect volume growth driven by new business and continued empty repositioning to partially offset these headwinds.
Truck pricing has yet to recover, but excess capacity has finally started to come down. We're seeing some gradual improvement in some of the key industry metrics such as increasing tender rejections. And we expect falling export prices in coal along with softer demand for utility in our territory due to lower natural gas prices and generally elevated inventory levels.
We're going to continue to keep a close eye on these factors as the year progresses. 2024 was a transformative year for us, and we now have reliable service that's consistent, resilient and is built to grow in the markets that we serve. I just want to end by once again thanking our customers for their partnerships and their trust as we move into 2025.
And with that, I'll turn it over to Jason Zampi to review financial results.

Jason Zampi

Thanks, Ed. I'll start with Slide 14, which reconciles our GAAP results to the adjusted numbers that I'll speak today. There are 4 items I'd highlight for you.
First, a net benefit of $43 million related to the Eastern Ohio incident, insurance recoveries exceeded incremental costs in the quarter. I'll recap where we are with these momentarily. We also recognized a $53 million gain related to the finalization of the Virginia Lionel transaction, the first portion of which was recognized last quarter.
Additionally, we continue to sunset certain technology projects resulting in an additional $27 million in restructuring costs. And finally, as we have wound down the proxy campaign and signed the cooperation agreement, you'll note the final tranche of inventory costs incurred below the line in other income. Adjusting for these items, operating ratio for the quarter was 64.9%, and EPS came to $3.04.
Slide 15 provides a recap of the Eastern Ohio derailment-related financial impacts. You'll see that to date, we have incurred nearly $2.2 billion related to the incident with incremental costs in the current year related to the class action settlement, further environmental remediation efforts and other community assistance.
However, the pace of insurance recoveries accelerated, bringing in $650 million this year alone, and we have now recorded over $750 million in total. Moving to the comparison of our adjusted results versus last year and last quarter on Slide 16. We generated 390 basis points of operating ratio improvement in the face of revenue headwinds, driven by strong productivity gains and that drops down to high single-digit net income and EPS growth.
From a sequential perspective, the operating ratio was up 150 basis points, a little better than we had projected due to the approximate $20 million in contract recoveries that we recognized at the end of the quarter, as Ed just discussed.
Trailing of the $153 million of year-over-year expense decline on Slide 17, you'll note improvements in all expense line items, except depreciation, which was up on our larger asset base. Strong productivity improvements within labor and fuel efficiency drove over half of the expense improvement and helped to offset wage inflation and higher incentive comp accruals.
In addition, purchased services was down $40 million year-over-year in the face of higher volumetric costs, great progress in this cost category. You'll also note the materials expenses come down as we continue to store locomotives, yet another benefit of our fluid network.
Turning to the full year results compared to 2023 on Slide 18. We had guided to a 100 basis points to 150 basis points operating ratio improvement, and you'll see that we exceeded that commitment and delivered 160 basis points of improvement, and that's despite revenue be down slightly.
It really comes down to a productivity story. John and his team overdelivered on productivity gains, exceeding our original $250 million target and delivering nearly $300 million of year-over-year cost savings. So we're moving into 2025 with a lot of momentum for fronts, operational, commercial and financial.
I'll turn it over to Mark to wrap up and discuss how we're thinking about 2025.

Mark George

Thank you, Jason. So you heard about the really strong performance to close out 2024. We have powerful momentum entering 2025. While markets are hard to predict at this point, we will lean into our outstanding service and the resolve of our people to capture share.
We made that happen in 2024, and we are confident we will do it again in 2025. Turning now to guidance on Slide 20. We are planning on 3% revenue growth with positive volume and healthy core pricing, more than offsetting headwinds from fuel and coal. One thing fully in our control is productivity.
We exceeded our 2024 target of $250 million of cost takeout, and we are again looking to exceed the original $150 million target for 2025. That equation translates to margin expansion of 150 basis points, which is at the high end of our long-term baseline guidance range that called for OR improvements from 100 basis points to 150 basis points per year.
Ultimately, we will continue to close the margin gap with peers whatever the volume environment. CapEx will be in the $2.2 billion range. and with strong free cash flow driven by our operating performance, our balance sheet restoration will be complete in 2025, and allow us to resume share repurchases.
So with that, let's get into Q&A.

Question and Answer Session

Operator

(Operator Instructions) Chris Wetherbee, Wells Fargo.

Chris Wetherbee

Maybe we could pick up on the productivity mark. Obviously, the $150 million is the target for 2025. Maybe we could kind of break that down into buckets so we can understand where we can kind of source that. And then if you sort of zoom out a little bit and think bigger picture over the next maybe couple of years, what you think the potential in OR is? You guys have made significant strides from where you were a year ago. I guess as you think about sort of the next couple of years, what do you see as the opportunity?

Mark George

Thanks, Chris. Appreciate the question. I'll have John talk to you a little bit about where we're seeing the runway on productivity, but we're really excited and confident because we laid out the $250 million target for 2024. We exceeded that. We think we can exceed -- we know we can exceed the 2025 target that we laid out of [150]. So we're going for more we're really optimistic now going forward. And with regard to the longer OR, I think we definitely have the self-help opportunities here to continue to improve OR.
We put out the 100 basis points to 150 basis points improvement guideline on a long-term basis on kind of a regular where we are volume environment. And once we get the kind of the surge, the economic recovery that we're expecting, that's kind of the turbo boost where I think we've got a path to that 60 range.
So John, you want to talk about the buckets for the --

John Orr

Yeah, absolutely. Thanks, Chris. It's a really, really good question and one that we're really pushing ourselves hard to answer for everyone. And I think it starts and stops with our standards that we're increasing. We're coming off a great platform in bedrock of solid service and good productivity in '24.
We're building a new operating standard to increase the availability and reliability of important assets and the framework for continuous improvement in our tighter and more deliberate operating model. And it's going to be step functions across certain assets, utilization for cars, locomotives, even the rubber-tired vehicle fleet, working hard across all segments of the business with IT and network infrastructure and really rightsizing the network to the capabilities increasing the skills and output of people through safety and the thorough (inaudible) Academy of education and really trying to align the headcount to the GTMs and really have a deliberate structure on how we onboard resources and deliver capability.

Mark George

So Chris, I think as you look at the P&L, you're going to see it show up a little bit everywhere, comp and then will be an area, again, where we can continue to be more efficient. We've taken out a ton of overtime and excess costs, this year, there's more that John's identified by just running more efficient and cleaner connections in that line item.
You remember, we had a pretty meaningful headcount reduction in 2024. We'll get the full year effect of that as well in 2025. But also, I think we'll see reductions in materials, as John just touched upon, we'll see reductions in fuel from efficiency improvements, and we'll even see improvements in purchase services, rents car higher equipment rents, so pretty much across the Board.

Operator

Scott Group, Wolfe Research.

Scott Group

Just on the 3% revenue growth for the year, any color on how to think about the mix of volume versus yield. And then maybe just I want to follow up on the labor productivity side, really good in Q4 with volume up 3%, headcount down 5%. How do you feel about labor -- incremental labor productivity opportunity in '25?

Claude Elkins

Scott, it's Ed. I'll take on the first part of your question there, which I think was how do we think about the sort of mid-single digit, 3% revenue growth next year. We expect growth in most of our markets. Coal is really the only place where we see a lot of weakness.
But we still got a fuel headwind out there. We know going into this year, and coal price will be another headwind. So we expect volume growth and our price plan to deliver 3% against both of those headwinds. I'll turn it over to Jason.

Jason Zampi

Yeah. I think on the labor productivity front, as you called out, I appreciate the call out there on the great labor productivity we've had in the fourth quarter, probably more focused on the T&E side. And I think as we move into 2025, we'll not only have continued benefits there, but we've got some runway in labor productivity across all the operating ranks.

Mark George

Yeah. I couldn't agree more, Jason. And you think about our Q4 '24 versus '23 where we had an 18.5% reduction in overtime and full year of almost 15%. And getting back to the basics, creating a lot more discipline within our terminals empowering and developing local supervisors to really drive that performance and creating that discretionary effort and things as baked as getting ahead of the labor negotiations and really distilling purpose and intent on how we engage with our craft employees. And it's all coming together and leading ourselves to some very, very solid productivity initiatives.

Operator

Ken Hoexter, Bank of America.

Ken Hoexter

Just if I can clarify on that on the volume comment, or I guess the revenue. Was that all volumes then you see yields fairly balanced? And so it's all a volume commentary in terms of how you're looking at growth? And then thoughts on the buyback cadence into '25.
And lastly, John, I want to join the Need for Speed war room when you get a chance.

Scott Group

Ken, we've always got a seat for you. Just bring your seatbelt because they move fast in there.

Claude Elkins

And, this is Ed. When I think about how we're going to deliver growth next year, it's really a combination. Yes, it's going to be led by volume across most of our markets -- and then we got a price plan that's going to be deflation again this year just as it has in the past.

Jason Zampi

Yeah. On your second question on share repurchases, we've really done a good job this year rebuilding our balance sheet, and that's through really three fronts: improved profitability, the insurance recoveries that we've been able to achieve here and the line sales. And our philosophy on those capital distributions hasn't changed.
So we always invest in the business first, then pay dividends and then have share buybacks. Obviously, that was interrupted this year in 2023 and '24, but we've got a path to delever the balance sheet throughout the year, and we're going to be able to start resuming share repurchases at a measured pace. And it's critical to us. That's a key component of our value creation framework that we laid out a couple of years ago.

Mark George

Just to add a little bit more on the revenue because I think maybe others are probably also trying to hone in here on the volume. We do expect some volume growth, I think as we can say, probably a couple few points of volume growth. We're going to get good, really solid core pricing again, in particular, merchandise.
We probably don't have the headwinds in intermodal pricing like we've had to face. So -- and we're hoping that we'll start to see that maybe come up with a stronger truck market. And then we do have headwinds still with regard to fuel and in particular, coal pricing, but also co-volume. So you put it all in the mix master, and that's how you end up with the 3% revenue growth that we're guiding to.

Ken Hoexter

And can I just clarify one thing there? Does that include the tariff thoughts? Or is that before any of that?

Mark George

Yeah. I mean, correct. That includes our outlook today.

Operator

Brian Ossenbeck, JPMorgan.

Brian Ossenbeck

I just wanted to ask a little bit more about pricing to the value of the service as it improves here and remains more consistent. So in the past, you've talked about maybe losing some market share based on some of the service challenges and disruptions that you had.
So when that improves, do you see more of that as market share gain in recapture or do you see a little bit of upside of yield? Or is it perhaps a little bit of both? So (inaudible) the guys momentum interested to hear how that's progressing this year?

Claude Elkins

We -- this is Ed. Thanks for the question. It's a good one. It is. And we actually take this around a lot internally. I think the way that I think about it and the way I would put forward the way that everyone else should think about it is we are very interested in how much wallet share we have with our customers.
And whether that's share reclaim that's coming from somewhere else and it used to move on us, or whether it's share that has never moved by rail, but now it has the opportunity to because of the value of the service that we're delivering. We're very interested in how we can expand our wallet share with our customers, both our existing customers and adjacent customers in the supply chain.
So we're working really hard on that. In terms of the value of the service, we've been very successful, particularly in our merchandise markets where we offer exceptional value when we can deliver a good service product.
We've been very diligent about being able to recognize that value through price and we fully expect to continue to do that again this year. The value of our service continues to improve as we deliver a reliable, resilient service that customers can count on every day.

Mark George

In short, Brian, both. We think that the value of really good service gives us leverage on both sides, pricing and volume share recapture, I should say.

Operator

Tom Wadewitz, UBS.

Tom Wadewitz

Nice to see the continued strong momentum in what you're doing with the network and results as well. I wanted to see, I think, kind of following on Brian's question, how do you think about -- like you have optimism on chemicals being stronger.
Is that just kind of customers doing well? Or is that gaining some share? And I think also at the beginning, Mark, you said customers are noticing. Are there specific examples where you say, okay, part of that chemicals is, hey, we got some new wins that are a component of that, are the more likely to come in other segments?
I guess just more around kind of where some of the growth comes from? And do you already have some of that set up in terms of new business?

Claude Elkins

Yeah. That's a pretty good question. For us, when we look across our markets, particularly at our merchandise markets, we know that we have -- our customers have suffered because of our service over time in a few very specific areas and one of those is chemicals. And so we're putting a lot of emphasis on making sure that we can deliver value in that particular segment.
When I think about our local service product and how we deliver for our customers, John and I spent a lot of time. We were on the call this morning actually, talking about specific customers and how we can deliver more value for them on a much more ratable basis. And that's really fundamentally where we want to go, and that is to be very specific and targeted for wallet share with our customers.
The second piece of this is as we deliver a better service and higher velocity. It actually gives us more agility inside the network to respond to what's going on in the marketplace. I look at our success in our ag markets over the past two quarters where we were able to actually be very agile and take advantage of what the market was offering in a way that we couldn't have previously as a good example of that.
In terms of other markets where we see growth, I think intermodal is going to lead growth this year. They did last year. They will again this year, we have a very bullish consumer still, and it appears we have a very resilient economy. So I think both of those things are going to manifest themselves in more opportunity for us with a better service product.

Mark George

Yeah. I mean we've had a really good intermodal service product for a couple of years now, but it is at extraordinarily high levels.

Tom Wadewitz

Okay. But I guess, to be clear on the chemicals comment, though, you are -- you have visibility to some business coming back. That's not just say chemicals market looks good. That's like getting business back as well as maybe some growth in market.

Claude Elkins

That's correct. Yes. We have line of sight to specific wallet share opportunity that we're on top of. .

Operator

Brandon Oglenski, Barclays.

Brandon Oglenski

John, I was wondering if you could elaborate on the changes you're making to the op plan this year. I think you called it a refreshment in slides, but maybe like a newer operating plan in your comments. So can you maybe elaborate more there?

John Orr

Yeah, absolutely. The refreshment or the new operating plan, as you call it, is really the next iteration of continuous improvement. We've been turning out improvements in our terminals. That was our starting point on-time performance and over the road speed.
And as we've moved through the progression of improvement on our network health, our asset efficiencies, and our customer-facing metrics, the next evolution is tightening down standards. So connection standards and terminals, creating better yield for our train weights for or our customization of the service that Ed needs in order to be (inaudible) and to grow the business.
We're looking then over the road and how do we make our engine a lot more competitive. And once we do that, and we leverage up on the speed increases that we've got, sizing our plan to meet that speed. And that gives us a lot of flexibility to use our collective articles on employee availability and accessibility to do more at the front of their trip or the back end of the trip and start to really yield on productivity. It will help us rightsize our fleet, right size our cars, and really be more disciplined in how we operate. (inaudible)
Yeah, absolutely. And again, back to that philosophy of extending the length of the trains as long as possible. that will allow us to leave our locomotives in active service longer. That will read the all time of locomotives, the demand of locomotives, the fuel consumption, all of those things.
So it took a while. It took the last nine months of heavy lifting to get us in a position to take this next step, and it will be one of many iterations as we continue to improve, but very confident in the capability of the team to deliver.

Operator

Walter Spracklin, RBC Capital Markets.

Walter Spracklin

So this question is for John. John, I know you've been targeting 100 basis points to 150 basis points OR improvement, and it's still a bit of a gap relative to peers. So my question is what's kind of holding it back from a faster clip? And I know you when you go over summary, you just be fast and furious and kind of take a hatchet to that OR.
Are you protecting customer service? Is constraints in labor agreements? Just curious as to what -- where we could see upside to that speed like we did in 2024 and what might be holding it back, if anything?

John Orr

Well, I'll tell you, we're not leaving any stone unturned. But let's just be clear about that. And we have to set a flag in our budget. Jason's got me challenged on a number of things, including how do we increase our car miles per day, our fuel efficiencies, recrews. I mean he's right down to the taxis on me. But what I think is that we're going to leverage up on our locomotive productivity.
We've got big rocks to gain on our fuel and our purchasing services. And so while we finished the year slightly ahead of our guidance, and really, really proud of the team for the $292 million or $293 million in cost takeout.
We're attacking everything. And I'll go back to the last question, is that restructuring the operating plan to leverage up on the disciplined approach to improvement is putting more pressure on me and the team to deliver to a higher standard.
I love our war room mentality where we triage problems, we pull it out of the triage in the day-to-day and take elevate it up to continuous improvement philosophies and educate people, drive out anomalies from them or give us a better competitive edge.
So these are things that Hunter didn't really do and we're doing it and it's Mark's leadership, it's a partnership I've got with Ed and Jason that are giving us a holistic approach to this.
So there's no stone unturned. We're not holding back. There's nothing structural that's holding me back. We're locked in on the continuous improvement agenda. And our customers are why we're here. And I will not foreclose on our customer capability for a few cents of advancement. I know that's going to come. And we're going to do it in a disciplined way.

Mark George

Walter, obviously, there's a lot of it that you probably have studied about the pace of change that happened in some of the other roads. I would say I'm super proud of John's cerebral approach to what he's doing here. It's a very cerebral approach based on all the lessons that he learned being part of it in the past, which is why he calls it a Brands at 2.0, PSR 2.0.
So the evidence is here that we're doing this while we're taking on more volume and not compromising customer service. So I think this is -- it's a great story, and I think we should all be proud of John for what he's doing here.

John Orr

I'm proud of the whole team. It's a team effort. It takes everybody here. .

Walter Spracklin

Yeah, you're definitely delivering and just keep it up. I appreciate it. .

Operator

Jason Seidl, TD Cowen.

Jason Seidl

Thank you, operator. Mark and team, congrats on the good quarter. And I hope you feel better, sir. wanted to focus a little bit on the intermodal performance and the merchandise Trip plan compliance, clearly much better than last year when you look at that. But there was what I think is probably more of a seasonal dip in 4Q.
Can you talk to us about two things. One, what's the normal seasonal progression from Q3 to Q4 for both those measures? And what should we expect going forward in '25?

John Orr

Well, why don't I start it because you hold me accountable for delivering triplane. And we've got really good triplane, especially in the quarter. But we're hard on ourselves. I mean, we came through the fourth quarter despite getting hit by a number of hurricanes and port strikes and started this year into the polar vortex.
But we -- my philosophy is drive hard, go as deep into the environmental conditions as you possibly can without being impacted and work like the devil to get out of it as fast as you can. And we saw that. We saw some V-shaped impacts to these things.
But overall, when we came back strong, we were able to recover it fairly quickly. And I think we overcommunicate with our customers and prepared for the worst and delivered pretty solid results. .

Claude Elkins

Yeah, here's what I would say about the third quarter, fourth quarter progression. We had a lot of things going on this year, and I say we as a royal way, the whole industry did, whether it was a couple of hurricanes. One report stoppage and one threat of another one, which really distorted volumes and volume flows.
And I'm very proud of the way that we responded to both of those challenges with regard to snapping back, that's really the definition of resilience, something changes, you get hit with something you didn't expect, how fast you snap back to the norm. I think we did really adjust.

Jason Zampi

Yeah. And I think they were underpinned by a 3.5 -- 3.1% improvement in overall velocity that allowed us to get end-to-end on intermodal. And what I really love is a merchandising unit trains were up 11% and 17%, respectively, in the same period. So all of our trains rose with that tide of continuous improvement.

Operator

Stephanie Moore, Jefferies.

Unidentified Paricipant

This is Joe Hafen for Stephanie Moore. Congrats on the good results. Maybe piggybacking on a question we heard earlier, John, on sort of the next phase of optimization you specifically called out mechanical infrastructure and some fuel efficiency gains.
I guess, could you help me understand maybe more specifically, what are some of the items that you're looking to tackle and kind of what the magnitude of those savings could look like?

John Orr

For sure. And I'll just start with fuel. It's a number of things, including -- we finished 2024 at a 1.0 fuel efficiencies. And we had a bit of a headwind coming in, in Q1 of '24, we were at 1.22 and we really worked hard to get it down to where we were that ended up at a fairly solid number and a record in the quarter and a record in the year.
So that was founded by having a really strong balance on HPT and decent use of distributed power, rightsized locomotives for the right-sized trains, stopping less. So the number of disruptions over the road decreased significantly because of our mechanical war room and then the intelligence we could gather there. So we're building better trains, more capable trains across the road.
And when you're not idling cars and idling locomotives, you're not wasting fuel. So our fuel productivity was increased because of our over-the-road capability and the discipline of pulling out additional resources, storing them and having more constrained asset utilization.
So our locomotives dwelled lasting between work events. We're also looking at a deliberate impact on how we distribute fuel. So our vendors, the vendor structures, the distribution systems and all of those things that the categories that drive ownership reduction and new discipline arbitrage opportunities and balancing out how we self-supply our locomotive fleet with fuel. So those things are in flight. We started to really get traction towards the latter part of the year.
We're doing it on a quasi-manual basis right now, and we expect -- as the year progresses, we'll have further and further automation towards that. And I would say we're also pretty blessed with our energy management systems that we've put in place towards the latter part of the year that have delivered significant results.
From a mechanical process, we're looking at all of the assets and how we cycle our car fleet and locomotive fleet for repair. So the physical, the production that we've done and even the AER visibility and how we bill and how we get value from our locomotive -- or our mechanical efforts on car. So all of these things are in flight, and we'll really start to see strong performance on those things as we get through the year.
Jason, if you have any perfect color on that?

Jason Zampi

No. I think those -- as you mentioned, John, I think those are going to be the key -- some of the key areas as we think about our productivity moving into 2025, and then really accelerating on that total commitment there of $150 million plus. So that's great.

Operator

Bascome Majors, Susquehanna.

Bascome Majors

Mark, you've been in the CEO seat of almost five months now. You've gone through your first annual planning process as CEO, a couple board meetings. Can you talk a little bit about the Board dynamics, where everyone is clearly aligned and what's the Board's number 1 priority for you and senior management is over the next 12 to 18 months?

Mark George

Thanks, Pascal. Look, our Board has been really remarkably unified. It came from different avenues. We've got a lot of new board members. The majority of them are within the past 18 months yet they've all congealed in a beautiful way in the boardroom.
And I'm really pleased to see the engagement from all quarters and the mutual respect that's being shown given everybody's unique background. So I would say that their principal objective, and we had a Board meeting yesterday actually.
And the questions are, what can we do to help support management on its journey because they know -- they believe in the strategy, they believe that it's yielding results. They believe in the team that we've assembled, which I'm super proud of.
And they really just want to be as supportive as they can but also coach and guide where they see opportunities. So right now, I'm thrilled with the dynamic, and I think our management team feels fully supported by the Board as well.

Operator

Ravi Shanker, Morgan Stanley.

Ravi Shanker

Just a clarification here. You mentioned tariff headwinds to volumes through the course of the year. But do you expect to see tariff tailwinds before that? Kind of what are you hearing on potentially shippers restocking and that power into the rail side potentially being a tailwind before we see the headwinds?

Mark George

Ravi, I think what we said is uncertainty around tariffs. And I think reasonable people can have different opinions on how tariffs may impact their business. But in -- certainly in the rail transportation space, I have a different view that maybe even Ed made mildly disagree with. But these things take a while to play out. We don't know how they're going to play out.
And from a producer's perspective, a manufacturer's perspective, if suddenly they're subjected to tariffs, how they respond may vary, where are the alternative sources? At the end of the day, things will play out over time, but we moved the US economy. We move GDP.
And whether that GDP is coming across the border as an import or whether it's now being produced domestically due to some onshoring, we're going to be there to move it. So I kind of think it's going to be a net wash in terms of volume. But it could play out a little bit different. And the beauty is that our network now is nimble enough to adjust to wherever the change in the source of supply comes from.
So I wouldn't say that we're baking in, and I think Ken tried to ask that question, but I don't think we're baking in a particular headwind per se. It's just we're nimble enough. We don't know exactly how it's all going to manifest, but we'll be ready to move it, whether it's domestic, whether it's crossing the border as an international move.
Ed, why don't you clean that up a little?

Claude Elkins

Look, I don't disagree at all. I think our customers would tell you that they all have different opinions on how it's going to manifest itself or not. But look, let's talk about some bags. Over 3/4 of our business is tied to our domestic economy that leaves less than 25% that's tied to international trade. And I think you're exactly right, Mark.
And I'm not saying that because you're my boss. But I think you're exactly right. We have enough operational nimbleness now. And frankly, with the capability that we're developing in our sales force that we're going to be able to respond to whatever the economy delivers and whatever trade policy delivers. We're going to be there to make the most of those opportunities, whether they're domestic or international.

Operator

Daniel Imbro, Stephens.

Daniel Imbro

Maybe one just on the coal outlook. You mentioned a few times expecting more bearish outlook versus your prior expectations meant in the slide deck.
I guess, can you talk about what's driving that software outlook given the stronger back half of 2024 results there? And then any update on the contract you're bringing online this year. I think it was about 5 million tons annually when you announced it, but is that still the right way to think about contribution and when should that sort of flow into numbers?

Claude Elkins

I think you're referring to coal. Is that right, Daniel? I couldn't hear you at the beginning --

Daniel Imbro

-- Yes, the coal side.

Mark George

When we look at the forward curves, that's the first thing that we look at when we think about what's going on with the international markets and coal price has been under pressure now for couple of quarters, and we see that continuing. I think there's probably a downside risk for the market in that particular dimension. On the volume side, we'll have to wait and see. I think that there's clearly some downdraft in terms of demand currently on the seaborne side.
And then on the domestic side, we've had a couple of nice winter weeks here, which probably has helped burn rates, but there's still plenty of stockpile out there on the utility side. We're watching gas prices, nat gas prices very closely, which I think will help determine the trajectory going forward for that domestic demand on the utility side.
I think that's an important variable of [nat] CAP. There's upside if nat CAP prices go up, and they've moved up a little bit in recent weeks. But right now, that's not the way the curves are indicated.

Claude Elkins

And your second question was about our new customer, yeah, we expect to see volumes from that coming on in the second quarter and going forward.

Operator

David Vernon, Bernstein.

David Vernon

So Ed, can you help us understand kind of how we should be modeling sort of the average RPU in coal kind of moving forward here sequentially. And then a secondary question for the broader team. If you're thinking about the 150 bps of OR improvement kind of year-over-year, is there anything that we should note around seasonality or when those gains should be showing up in terms of the margin performance.
They've got a lot of questions around whether 1Q is going to be getting hit from export coal falling or remarketing some of those contracts. I'm just trying to kind of lend that all together. If you could help us shape out what the -- when that headwind starts to hit for 2025?

Claude Elkins

Well, I think the headwind is kind of there now and probably continues going forward. As we get later in the year --

Mark George

He's asking about coal RPU.

Claude Elkins

Yeah, that's the a what I'm talking about. And we see that seaborne prices down now. It's going to continue to be down, we think, certainly in the near to medium term. Longer term, as the year manifests off, we're just going to keep adjusting our models. But we think there's probably still some downside that we baked into our models and I think the everyone else should too.

Mark George

And David, on your question on the OR, we're -- we've got a lot of momentum from our strong service product and operational progress. And that's really what makes us confident to guide at that top end of our original range. So that 150 basis points of annual improvement.
I'd point out that, that improvement is in the face of nearly 200 basis points of pressure on the OR from inflation, fuel price and depreciation headwinds. If you think about it in the quarters, I would just say there's puts and takes in the individual quarters.
For example, you've got the timing of incentive comp in the first quarter, things like seasonality of volumes and the timing of wage increases, you know all those. But so when you average it all out, we're again confident in that ability to deliver the 150 basis points of annual improvement despite those headwinds.

Daniel Imbro

Does the momentum comment, push some of that more in the first half of the year? Or is that -- is it offset by some of those seasonal factors you mentioned?

Mark George

I think the momentum I'm referring to is just our operational momentum, and we're really pleased with how that's going, I think, on all fronts.

Operator

Ari Rosa, Citigroup.

Ari Rosa

So you mentioned some of the port stoppages distorting volume flows. I just wanted to get your perspective on to what extent we might have seen pull forward of volume in fourth quarter, given some of the strong intermodal results that we saw there.
And then to what extent did you kind of have to add costs or add resources to manage through some of those -- some of the variability in the kind of port stoppages or variability in volume?

Claude Elkins

Sure. This is Ed. I think we did see certainly during the third and fourth quarters, more volume turned back to the West Coast or East Coast, some East Coast destinations, and we were able to handle that really and truly, I think, I'll defer to John, but without much of a hiccup in terms of additional resources or train starts, it was really incremental volume on existing trains with very good service product, which kept fluidity rolling.
Probably the biggest challenge for us was attempting to make sure that we were servicing our customers on the East Coast as long as we could up until the anticipated work stoppage. And thankfully, that didn't happen.
John, you got any other commentary on that?

John Orr

I absolutely agree with your assessment. We were able to handle it very well. I think we communicated pretty effectively and knew that we're up against. There was a little bit of slashiness in the car supply. That was a sector issue, but we're able to smooth that out really quickly and get back on track as soon as the market gives us a chance to.

Operator

Jordan Alliger, Goldman Sachs.

Jordan Alliger

So I think a week or so ago, you put out at least talking about industrial development across your network, adding about $150,000 of incremental carloads sort of tailwind on that active pipeline. I'm just curious sort of the timing of this and is some of that even factored into 2025, and what's the potential for that to upsize over time?

Mark George

We have a nice, very robust pipeline and pipeline process for our industrial development team. In the fourth quarter, we had eight new locations and four facility expansions that came online. And our 2025 pipeline continues to be very strong. Those numbers we put out really are going to manifest themselves throughout the year and represents full production for those facilities.
And the great thing about it is these are projects that are not just for this year, but therefore, hopefully, many years to come. And I think that's just a powerful testament to the value we can offer customers with the service that we offer.

Operator

There are no further questions at this time. I will now turn the conference over to management for closing remarks.

Mark George

Okay. Thank you, everyone. We really appreciate you all participating, and we look forward to connecting throughout the quarter. Be safe. Take care.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you disconnect your lines.