Jason Seidl: Takeaways from NEARS

Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl returned from attending the April 26-28, 2016 North East Association of Rail Shippers (NEARS) Spring Conference in Baltimore “with updated thoughts on the rail industry”:

“In general, there was a subdued macro feeling from everyone we spoke to. Larger railroads were focused on cost controls, smaller railroads on expansion opportunities and tax credits, and shippers seemingly hopeful that rail service continues to improve.

“Keith Creel, President and COO of the Canadian Pacific, was the keynote speaker. He gave a cautious near-term view of the rail industry by noting that CP could only control the things they could and are now focused inward on service, process and cost. CP would attack this lower environment we are facing with fewer people and assets. CP’s core value of precision railroading was a company-wide philosophy. While feeling like the scrapped merger between CP and NS was a good idea, he believed that people from several constituencies had stacked the proverbial deck against the deal.

Intermodal was such a big focus at the conference that NEARS hosted two separate panels on the topic. There were representatives from BNSF, Schneider National, XPO Logistics, a drayage provider, a major beverage shipper and the former president of Hub Group. The lone shipper on both panels gave good insights as to how shippers view the intermodal product. He noted that they have taken advantage of a weak trucking market by diverting business back onto the highways but have tried to keep their main intermodal partners whole the best they could. He conceded that he did not expect the trucking market to remain this soft given industry trends on capacity, drivers and anticipated ELD impacts.

“Several large intermodal players estimated that the industry’s longer-term growth rate on the domestic side was likely somewhere near 7%. They felt comfortable that the rail industry could handle demand of this magnitude but did note that if it went over 10% there could be service disruptions. Currently, service is excellent from the railroads and they are clearly focused on yields as the Class I industry attempts to replace lost commodity (mainly coal) business.

“Surface Transportation Board Chairman Daniel Elliott seemed relieved that Canadian Pacific withdrew its application for a merger with Norfolk Southern. Elimination of such a daunting task will free up the Board to focus on other matters at hand. That said, the Chairman did note that the STB was prepared for future transactions. The Board is in the rulemaking status for changes in the arbitration and investigation process, and is also looking into the permanent collection on rail service data.”