Despite coal decline, railroad execs are upbeat for investor conference

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BOSTON — Despite the continued downward spiral in coal shipments that has led the overall decline in rail traffic this year, executives from CSX, Norfolk Southern, and Union Pacific struck an optimistic tone at a transportation conference today.

Each of the three railroads has made headway in improving service, raising prices, and reducing costs, the executives said at the Cowen and Company 8th Annual Global Transportation Conference. That’s a winning combination, they said, that should help the railroads offset the decline in revenue from King Coal.

Nationwide, coal traffic is down 9.3 percent this year through the end of August, according to the Association of American Railroads, while overall rail traffic is down 1 percent.

Fredrik Eliasson, CSX’s executive vice president and chief sales and marketing officer, said the railroad expected to still see mid single-digit earnings growth this year despite domestic coal revenue declines that may exceed $400 million for the year.

"In the third quarter, we see strong pricing that reflects the value of our service, and we continue to drive greater asset utilization and reduce costs as we match our resources with demand while improving our service product," Eliasson says. "At the same time, overall volume to date is down about 2 percent, with both our domestic coal and merchandise markets tracking slightly below the company’s original third quarter expectations."

Alan Shaw, Norfolk Southern’s executive vice president and chief marketing officer, says he would be surprised if overall traffic declined in 2016. The railroad’s primary headwind this year has been coal traffic, he noted. "We feel like we’re at a floor of 20 million tons [per quarter] for utility coal," Shaw says. Flat coal traffic, coupled with the strong growth potential for NS’s intermodal and auto networks, means there’s a lot of upside for the railroad next year, he says.

In the short term, NS still faces challenges in its domestic intermodal network. Increased trucking capacity is limiting growth opportunities and service issues are hurting the railroad’s ability to capture traffic that’s currently moving via highways. To improve service, NS has hired 600 train and engine employees this year and will hire another 400 by the end of the third quarter, Shaw noted. NS also redeployed crews from coal fields to areas of the railroad where traffic is growing and it is short of crews.

NS says it’s well-positioned to take advantage of changes in the U.S. economy, including energy and manufacturing shifts and a rebound in housing. It is targeting revenue growth through pricing and volume gains. Improving service, in part by increasing capacity and reducing bottlenecks, is a key part of that strategy, Shaw said.

Despite a difficult 2015 – with traffic down in five of six commodity groups through Sept. 2 – UP remains optimistic about its ability to drive value for shareholders, Chief Financial Officer Rob Knight says in his presentation.

As traffic has declined from peaks hit last year, UP has stored 900 locomotives as of Sept. 4 and 2,300 train and engine employees have been furloughed. Management head count also has been reduced as Omaha tries to match expenses with revenue and anticipated traffic levels.

Over the longer term, UP expects volume growth and price gains in its intermodal, automotive, and chemical traffic, as well as its cross-border traffic moving to and from Mexico.

NEWSWIRETrains News Wire

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