Our 1Q24 survey results are neutral to mildly positive for railcar demand. The order outlook was mixed, but a lower percent of shippers not ordering cited “no need” in 1Q24 than did
Railcar manufacturing inquiries and orders appear to have moderated, but the 2024 build outlook remains stable, modestly above replacement demand. Lease rates are holding up well at elevated levels. While locomotive parkings
The results of our 1Q23 Rail and Equipment Surveys indicate a slight decrease in business growth expectations, and some resilience in railcar demand.
A strike has been averted for now as the major unions reached tentative agreements. Contracts details are expected to be in line with the Presidential Emergency Board recommendations. The railroads will have to gradually pass through costs as contracts are renewed if they want to keep margins intact. This may prove difficult as we head into an economic slowdown. We continue to favor Canadian Pacific (CP) in the rail group.
At the NEARS (North East Association of Rail Shippers) Fall 2022 Conference, participants say they are still waiting to see consistency in rail service. Technical metrics are gradually improving, but in our view, fluidity will not show significant improvement until first-half 2023. On the first day of sessions (Sept. 21), many attendees expressed surprise that CSX reached outside the rail network for its new CEO. Also, Surface Transportation Board Chairman Martin Oberman foreshadowed a more proactive STB. Our key takeaways follow.
Peak season visibility is murky, as some cracks emerge in the macro. Improving rail service offers some respite as volumes tick upward. Rail pricing continues to come above cost pressures. M&A activity is solid. Preliminary capex for 2023 is looking at least flat.
Our July 12 rail equipment expert call takeaways are consistent with J.B. Hunt Transport’s (JBHT) recent comments on about sub-optimal 2Q22 rail service (below). This solidifies our expectation of an eighth consecutive lease rate improvement for GATX, which reports on July 21. We continue to favor the shares into the print as detailed in our July 7 machinery and transportation OEM preview, “Revisions Into the Print.”
According to Cowen and Company’s recently conducted second-quarter 2022 Rail Equipment and Rail Shipper Surveys, the outlook for railcar orders is positive, and rail shipping rates will continue to increase. Details follow, plus insights on the Class I railroads, ahead of earnings.
At Cowen and Company, we are adjusting our railroad estimates ahead of second-quarter 2022 earnings. Continued rail congestion is hindering volume (still below 2019 levels), while pricing is expected to be on par with first-quarter levels.
Widely reported excess freight from China due to shutdowns appears over-hyped, and a potential upcoming backlog (which is expected to arrive in the last week of June) is likely from inventory pull-forward, equipment challenges, and a challenged rail network. Our panelists—the head of a West Coast port, the CEO of a drayage company, and the CEO of a container consolidator and intermodal company— were bullish of 2022, but expect softness in 2023. Consumers continue to lean into “Dinner and Disney” in a spending shift.
