Railroad executives optimistic about continued traffic growth

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Westbound Union Pacific manifest climbs Sherman Hill via Track 3 approaching Dale Junction, Wyo., on June 8, 2018.
Bill Stephens
NEW YORK – The chief financial officers from four Class I railroads say they are enthusiastic about traffic and revenue growth this year as the North American economy strengthens, truck capacity tightens, and trucking rates soar.

“It’s exciting to be in the industry right now,” Canadian Pacific Chief Financial Officer Nadeem Velani told an investor conference Wednesday morning, citing rising volumes across virtually all traffic segments.

“We like the way the stars are aligning,” Union Pacific Chief Financial Officer Rob Knight says. UP is seeing traffic growth accelerate, with more business segments rising than facing challenges.

CSX Transportation’s overall volume is up 2 percent for the year to date thanks to volume growth at all but two of its major traffic segments.

The railroad is ahead of where it thought it would be in light of shipper defections to road and rival Norfolk Southern last year during the service problems that accompanied broad operational changes under former CEO E. Hunter Harrison.

“We are seeing some...snapback of volumes that maybe went to our competitor or to truck in the third quarter of last year,” CSX Chief Financial Officer Frank Lonegro says.

Kansas City Southern Chief Financial Officer Mike Upchurch says volume is accelerating at his railroad, as well, after service challenges muted growth earlier this winter and spring.

KCS relies on trackage rights on Union Pacific to get through the Houston area, which coagulated late last year and earlier this year. The congestion slowed the return of empty auto racks to assembly plants in Mexico, for example. Operations are improving but have not yet returned to normal, Upchurch says. The railroad's traffic grew 1 percent in the first quarter, is up 2 percent in the second quarter, and for June to date is up 4.5 percent.

Tight truck capacity has been driven by rising demand as well as by the electronic logbook regulation that has effectively reduced how far drivers can go each day.

KCS is seeing the impact on intermodal business that crosses its Meridian Speedway, its joint venture between Meridian, Miss., and Shreveport, La., operated with Norfolk Southern.

Upchurch says intermodal traffic over the Speedway has bounced back nicely compared to volumes over the past two or three years.

The strong traffic demand, combined with rising truck rates and diesel fuel prices that tilt the competitive advantage to railroads, is contributing to solid price gains this year, the railroad executives say.

Only one issue gives the railroads pause amid an otherwise strong economic backdrop: The threat of a trade war as the Trump administration imposes tariffs on goods from Canada, Mexico, Europe, Japan, and China.

“A trade war is not a good thing,” Lonegro says.

The executives spoke at the UBS Global Industrials & Transportation Conference.

NEWSWIRETrains News Wire

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