Shipper survey “positive” for railroads: Cowen

Written by William C. Vantuono, Editor-in-Chief
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BNSF ranked highest in service quality among survey respondents, with a 66% positive rating.

The results of Cowen and Company’s 2Q18 Rail Shipper Survey “are positive for the railroads,” according to Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. With anticipated rate increases of 4.7% over the next 6-12 months, up from 3.8% in Cowen’s 1Q18 survey—the second-highest sequential increase in this survey's history—market share “is moving from the highway to the rails and may pick up in the second half of the year if rail service improves.”

Railroad shippers anticipate an average base rate increase of 4.7% over the next 6-12 months, a “substantial” 90 basis point increase from the 1Q18 survey. This marks the fifth consecutive quarterly increase in shipper expectations, in addition to the second-largest sequential increase. “While the economy remains solid, the rapid increases in truck pricing and continued issues in procuring truck capacity are key reasons that the railroads are well-positioned to continue raising rates.”

Among Class I’s, BNSF continued to be ranked highest in service quality among survey respondents, with a 66% positive rating, followed by Canadian Pacific at 59%. CSX and CN were rated the worst, though CSX’s 39% positive ranking was an improvement over its “dismal” 33% positive ranking in the 1Q18 survey.

How do the railroads rate against the competition? “With trucking capacity perhaps as tight as ever, only 12% of survey participants said that truck is cheaper than rail, down from 14% last quarter,” notes Seidl. However, fewer people said that rail is 15% to 25% cheaper and 25%+ cheaper, whereas more people said that rail is only up to 5% cheaper.

Trump Administration tariffs? “The overwhelming majority of our survey respondents— 82%—haven’t taken any steps as a result of the new tariffs,” says Seidl. “That being said, 10% of respondents have moved up shipments, 2% have moved back shipments, and 6% have canceled shipments due to the new tariffs.”

The 4.7% price increase expectation “is well above the all-important 2% long term rail-cost inflation rate,” notes Seidl. “This, along with the railroads’ slow but steady progression in improving service matrices, should enable the Class I carriers to post strong earnings results in the second half of this year.”

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