‘Railroad Happy Hour’ Report: Market Leaders Point to ‘Mixed Conditions’ Across Railroad, Intermodal Network

Written by Jason Seidl, Matt Elkott, Bhairav Manawat, Elliot Alper and Uday Khanapurkar , TD Cowen

(William C. Vantuono photo)

“Leaders in the railroad market pointed to mixed conditions across the railroad and intermodal network,” according to TD Cowen’s latest Railroad Happy Hour report.

“Improved operations are aiding service offerings for merchandise freight, while intermodal continues to be pressured as shippers have the upper hand in rate negotiations. Intermodal marketing companies may be stacking additional boxes given [the] current intermodal environment, and panelists are seeing some moderation in volumes on the West Coast.”

TD Cowen Takeaways:

“Shippers are taking advantage of the weak intermodal market and are locking in rates at current levels. Our panelist doesn’t expect to see intermodal inflect until September at the earliest and called out some softness on the West Coast in recent weeks after a strong Q1. The overall market remains highly competitive, and rev/load continues to be pressured by weak OTR rates, though we may see modest sequential improvement in Q2. One panelist believes JBHT may stack another 7K boxes (they already have 18K boxes stacked), which would put a ~20% of their fleet parked (we note that these boxes are likely WMT boxes that need to be retrofitted).
“Panelists offered some end market commentary in the discussion. Thermal coal volumes were soft in May per a short line panelist as demand is dropping off. The same panelist is seeing tepid industrial volumes with scrap and building material volumes flat. Beer volumes are a bright spot driven by shipments from Mexico. Per a warehousing panelist, paper inventories in the U.S. are quite low and restocking demand is palpable though the rail strike scare in Canada has impacted paper carloadings as shippers have diverted to truck starting a week and a half ago.
“STB Chairman Robert Primus appears very supportive of the short lines according to one of our panelists who recently spent quality time with him. Chairman Primus is worried that the Class I’s may pass up on high OR traffic, at the expense of shippers and short lines. Some on the STB appear to be dissatisfied with Vena’s approach that is ‘cutting to the bone’ and don’t believe they will be ready for an uptick in rail volumes. Separately, one panelist stated that FRA’s rule of a two-person crew from April has resulted in a low six figure cost increase in one state, which will be a burden for the rail network (especially given policy makers are backing autonomous trucking).”

Further Reading: