Monday, January 18, 2010

Dahlman Rose Rail Shipper Survey “offers optimism”

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During the “Great Recession,” the railroads have been ableto retain their pricing power, though at a reduced level. As business begins to pick up, there are strong indications that this momentum will continue, a new shipper survey says.

According to Dahlman Rose & Company’s fourth-quarte r2009 Rail Shipper Survey, railroad shippers “anticipate an average base rate increase of 3.8% over the next six to 12 months. Current expectations are modestly above the 3.2% expected increase in our 3Q09 Shipper Survey and are above where they were a year ago at 3.5%. While the railroads have been able to maintain greater pricing power throughout the recession than their trucking counterparts, railroad pricing expectations did fall fairly significantly from pre-recession levels of 5-6%. Indeed, our recent surveys show that shippers’ expectations for rate increases have stayed under 4% since their steep fall in 4Q08."

Adding to Dahlman Rose’s generally upbeat analysis, rate case actions should not pose a major threat in 2010: "According to our 4Q09 survey, 96% of shippers indicated that they did not plan to file any rateaction against a railroad over the next 12 months. This is largely inline with the 98% and 94% results in our 3Q09 and 2Q09 surveys and higher than the 88% reported in our 1Q09 survey. This suggests that shippers feel pricing will come in on its own or that current pricing practices are not egregious.”

The hope for a recovery is more pronounced,” said DahlmanRose. “Shippers expect their respective businesses to grow approximately 6.3% over the next 12 months vs. 3Q09, 2Q09, and 1Q09 survey responses of 5.9%, 4%, and 1% respectively. We believe this optimism is largely driven by the modest improvement in the economy in the fourth quarter and the widespread belief that the worst is behind us. In order of magnitude, the outlook for metals, petroleum products, chemicals, building products, and transportation showed improvement over 3Q09, while expectations from forest products, consumer goods, and agricultural products shippers declined slightly.”