Quarterly question: What’s the financial toll of Class I railroad service problems?

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Class I railroad executives are likely to face questions about the impact of the industry’s service problems during the railroads’ first-quarter earnings calls, which kick off this week.

Performance metrics have deteriorated considerably at Canadian National, Norfolk Southern, and Union Pacific during the past six months amid congestion and bad weather.

As they’ve caught the flu, the rest of the industry has caught a cold. And that has, to varying degrees, limited railroads’ ability to capitalize on tightening truck capacity and rising truck rates amid surging demand.

Shipper complaints about industry-wide service levels prompted federal regulators to ask for service outlooks for the remainder of the year. The railroads’ responses ranged from “we’re working on it” (CN, NS, UP) to “we’re fine, with a few exceptions largely due to interchange partners” (BNSF Railway, CSX Transportation, Canadian Pacific, Kansas City Southern).

The extent to which the service issues weigh on quarterly earnings will become apparent over the next two weeks.

CSX Transportation, which says its service remains above last year’s levels, begins the quarterly earnings calls on April 17. Its traffic was down 3.2 percent for the quarter, according to its weekly Association of American Railroads carload report, led by a 5.9-percent decline in carload traffic. Quarterly intermodal volume was flat. That’s likely due to the impact of CSX’s discontinuation of traffic between low-volume terminals late last year, which reduced domestic volumes by 7 percent.

Next up, on April 18, is Canadian Pacific, which has gained volume this year: Carloads were up 3.8 percent, with volume up 6.3 percent on a revenue ton-mile basis. But CP faces a potential strike by engineers and conductors in Canada as early as April 21. CP and the Teamsters Canada Rail Conference appear to be far apart on a new contract.

Kansas City Southern releases its quarterly results on April 20. The smallest Class I has been suffering from congestion on UP in the Houston area. KCS relies on UP trackage rights on its key route to Mexico, and UP and KCS trains are having a hard time getting through Houston.

April 23 will be CN’s first earnings call under Jean-Jacques Ruest, who became interim CEO in March after the abrupt departure of CEO Luc Jobin. Jobin appeared to be a victim of CN’s capacity problems in Western Canada.

CN has been caught short of crews, power, and track capacity on its Edmonton, Alberta, to Winnipeg, Manitoba, spine since last fall, as traffic grew twice as fast as expected. CN’s first-quarter volume was down 4.2 percent when measured by revenue ton-miles and by 2.8 percent in carloads.

NS has said its congestion problems, which centered on Birmingham, Ala., and spread elsewhere in the South, will be a $50-million hit for the first quarter. NS releases its results on April 25. The railroad’s traffic was up 2.6 percent for the quarter thanks to a 7.5-percent gain in intermodal.

UP closes out the earnings calls when it releases its results on April 26. CEO Lance Fritz has said the railroad’s top priority is reducing congestion, which is most severe in its Southern Region, but it was not clear how long it would take to restore service levels. UP’s volume was up 1 percent for the first quarter.

The remaining Class I railroad, BNSF, is not publicly traded. The unit of Berkshire Hathaway releases its quarterly financial information alongside its parent company. Its results are expected to be released on or around May 4. BNSF’s traffic grew 4.7 percent in the quarter.
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