Cowen Insight: 4Q21 Rail Shipper Survey Says …

Written by Jason Seidl, Matt Elkott and Elliot Alper, Cowen and Company
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Rail shippers expect price increases of 4.5% over the next 6-12 months, up 30 bps sequentially and above both our survey’s 3.4% five-year average and long-term 10-year average of 3.6%. The business outlook declined slightly sequentially, and economic confidence ticked up sequentially, while still below the survey’s average. Shippers appear to be largely supportive of reciprocal switching ahead of the pending Surface Transportation Board hearings. We see results as net neutral for the group, and continue to favor Canadian Pacific.

The 4.5% result is above historical rail cost inflation The results were notably ahead of more recent rail cost inflation, but it should be noted that several carriers mentioned they anticipate rail cost inflation to be on the rise. The sequential increase indicates a continuation of tight supply chain conditions that continue to exist in North America, and foreshadow strong rail pricing in 2022. External factors such as the Omicron variant and significant weather events in 4Q21 and January 2022 are negatively affecting carloads. To begin the year, North American carloads declined 18.3%. While we don’t see this as an overnight fix, the rails should be able to lock in strong pricing—evident in our survey—which should provide relief to macro headwinds.

Business growth expectations declined 20bps sequentially to 3.0%, while above the five-year average of 2.6%. The percentage of shippers expecting their employee counts to increase over the next 12 months increased 2% from 3Q21’s response, after a 6% decline in that quarter. Some 67% of participants said they were having trouble hiring employees, down nicely from 76% in the prior quarter. Of the 67% having trouble hiring employees, 41% believe that it is hindering growth, down from 49% the prior period quarter.

Only 32% of shippers answered that they are more confident in the direction of the economy today than they were three months ago, up from 30% in 3Q21, but well below our 2Q21 survey of 63% and below the survey’s 47% average. With the second quarter in a row of economic confidence well below the survey’s average, a noteworthy reset among the rails may be here to stay, which can partially attributed to the significant headwinds shippers are facing across all modes of transportation.

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