Rail shippers “undoubtedly more negative”: Cowen

Among Class I railroads, BNSF continued to be ranked most favorably in terms of service, with a 70% positive rating, up from 66% in 2Q18.

Cowen and Company’s 3Q18 rail shipper survey says that shippers are anticipating price increases of 3.7% over the next 6-12 months, down from 4.7% in 2Q18, but in line with the survey's long-term average, according to Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl.

“On a same-shipper basis, however, pricing expectations sequentially declined just 50 basis points,” said Seidl. “Economic confidence and recent business trends remain above the survey’s long-term average. We view these results as neutral to slightly negative for the railroads.”

The anticipated average base rate increase of 3.7% over the next 6-12 months is down a substantial 100bps sequentially from Cowen’s 2Q18 survey, the second-largest sequential increase in the survey’s history. This marks the first sequential decline in shipper expectations since 1Q17.

Among the Class I railroads, BNSF continued to be ranked most favorably in terms of service, with a 70% positive rating, up from 66% in 2Q18, followed closely by Kansas City Southern, with a 69% positive rating. Norfolk Southern received the lowest percentage of positive ratings. The railroads all received better ratings than in 2Q18, with an average improvement in positive ratings in 3Q18 vs. 2Q18 of 9%. CN and CSX led the way at with 21% and 17% improvements, respectively.

“We asked survey respondents a variety of economic questions, and received responses that although diverse, were undoubtedly more negative than last quarter,” Seidl noted. “Shippers expect their businesses to expand at an average rate of 2.9% in the next 12 months, the second consecutive quarter that shippers’ expectations have declined by 30bps. 58% of shippers are more confident in the direction of the economy than they were three months ago, down sequentially but above the historical average. Finally, shippers reported that business levels were less positive than in each of the past two quarters.”

Seidl pointed out that “28% of survey respondents pulled forward shipments due to tariffs, while 72% did not. This was above the 20% noted by rail shippers in a survey we conducted at the NEARS (Northeast Association of Rail Shippers) conference. We note that this survey was regional in nature, which could account for the discrepancy. Among the 28% who did, the majority, 68%, pulled forward less than 10% of their shipments. The average pull forward among the 28% who pulled any amount of freight forward was about 9.5% of each shippers’ total book of business.”