Moody's revises view on railroads to 'negative'

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CSX_Intermodal_Lassen
A CSX intermodal train negotiates the diamonds at Blue Island, Ill., in September 2019. Increased truck competition for intermodal traffic is one of many factors that has led Moody's to downgrade its rating of the rail industry.
TRAINS: David Lassen

NEW YORK — Moody’s Investors Service last week described the outlook for North American railroads as “negative,” down from its April description of the outlook as “stable.”

A Moody’s report cites lower freight volume, weaker pricing gains causing revenue drops, and declining coal traffic.

The “stable” designation in April was a revision from the rail outlook as “positive.”

Intermodal traffic is expected to drop along with overall rail freight volume declining by 1.75% to 3% over the next year to 18 months, the latest report says.

Industry revenue is expected to remain flat during that time, according to Moody’s.

Moody’s predicts the decline in coal traffic will accelerate, and that barring changes in federal policy, technological innovations, or increased natural gas prices, demand for coal will probably go down 7% per year over the next decade.

As trucking companies take delivery of a large number of new trucks, expanded truck capacity is pressuring railroads’ pricing ability, according to the report.

“Heightened competition from truck carriers for intermodal and certain other freight continues to weigh on the North American railroad sector,“ says Moody’s Rene Lipsch, a vice president and senior credit officer. “The excess of trucking capacity has been a primary driver of softening pricing gains in the industry.”

In recent days intermodal marketing companies such as J. B. Hunt, Schneider, and Hub Group have noted that low truck pricing has been eroding the normal cost advantages shippers have by using intermodal.

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