News / 'Challenging' time for N American railroads as Q2 numbers disappoint

© Jessica Kirsh

Continued destocking appears to be behind the collapse in rates that has seen second-quarter intermodal financial performances of North American railroad operators hit the buffers.

Revenues for the three months to July at Canadian National fell 26%, to C$983m (US$746m), with CSX reporting an 18% fall, to $492m, and Union Pacific a 20% drop, to $1.1bn, leaving UP CEO Lance Fritz hesitant on full-year prospects.

He said: “We expect challenges in the intermodal market from continued inventory destocking, inflationary pressures and ongoing shift in consumer spending from goods to services.”

UP meanwhile named former operating chief Jim Vena as its new chief executive, in the hope that the veteran railroad executive will be able to fix UP’s operational problems.

Mr Fritz’s view reflected that of CSX CEO Joe Hinrichs, who noted a 9% fall in rates (revenue per carload) to $719 in the period, with UP’s down 14%.

Volumes also fell, year on year: CN’s were down 17%, at 550,000 tonnes, CSX’s down 10%, at 684,000 tonnes, and UP’s by 7%, at 749,000.

UP chief marketing officer Doug McDonald told investors: “The broader environment for intermodal continues to be challenging. We see improvement being pushed into 2024 with short-haul domestic under pressure due to the increasingly available truck capacity.”

Mr Hinrichs did note “modest signs of improvement for domestic intermodal starting late in Q2”, but saw little indication of a “near-term recovery for the international business”.

Year-to-date fared little better; CN revenues were C$1.9bn (down 16%) as volumes declined 15% to 1.06m tonnes; CSX half-year revenue fell 12%, to $991m, against a 10% volume dip (1.3m tonnes); while UP’s six-month revenue sank 12%, to $2.3bn, on a 5% volume shortfall.

The weak results come amid increasing concern over the safety and security of rail freight across the continent, following a multitude of accidents over the past year.

Indeed, just days before reporting its quarterly earnings, CSX announced that another of its trains had derailed and, while one of the carriages was carrying hazardous materials, it said there had been “no indication of any leaks or spills of hazardous materials”.

Over the course of their earnings calls, all three railroads mentioned safety as of “utmost” concern, but Mr Fritz took the opportunity to challenge recent legislation changes in the US.

“There are some things in the Rail Safety Act that don’t make sense, like coupling train size with safety; on our railroad, mainline and sidings, derailments are down more than 25%, while train size is up 20% over the last, call it, four years,” he told investors.

“There’s just no correlation, in our experience, between safety and train size, and, likewise, there’s no correlation anywhere in the world between train crew size and safety.”

Claiming crew size “should be left to collective bargaining and what technology enables”, Mr Fritz’s comments echoed rail lobby groups – but others have claimed there is “consistent evidence” between increased crew size and improved safety.