Takeaways From Cowen’s 2Q20 Rail Shipper Survey

Written by Andrew Corselli, Managing Editor
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“Shippers expect rail price increases of 2.3%, up 40bps sequentially, above rail cost inflation, but well below the survey’s average. Economic expectations are all higher sequentially; some remain below the survey’s average while some are very positive indicators. With PSR cost-cutting, growth opportunities and the ability to capitalize on supply chain near-shoring, Kansas City Southern remains our top rail pick.”

Those are the key takeaways from Cowen’s 2Q20 Rail Shipper Survey, which was authored by Cowen analysts Jason H. Seidl (Managing Director and Railway Age Wall Street Contributing Editor), Matt Elkott and Adam Kramer.

Pricing Expectations Rebound Sequentially But Still Below Survey Average

“Shippers anticipate rail prices to increase by only 2.3% over the next 6-12 months, a healthy step up from 1.9% a quarter ago but still well below the 3.0% seen in the three quarters prior to that,” the analysts said. “The 2.3% result is below the survey’s long-term 10-year average of 3.6% and five-year average of 3.0% but is above rail cost inflation.”

Economy Results Much Improved Sequentially

“Shippers expect their businesses to grow 1.2%, up 90bps sequentially, but still the survey’s second-lowest response on record; well below levels seen in 2018 and 2019; and the survey’s 2016-present average of 2.5%,” the analysts noted. “Similarly, the percentage of shippers expecting their employee counts to increase over the next 12 months increased from last quarter’s response but remains well below the survey’s 39% average answer. The survey also contained results that were not only better than 1Q20 but also stacked up well compared to the survey’s averages. 43% of shippers are more confident in the direction of the economy today than they were three months ago, up sequentially and above 2Q19 and 3Q19. This response was also similar to our proprietary 2Q Cowen Carrier Survey published on 7/8.”

COVID-19 “Return To Normal Expectations”

“The majority of respondents, 59%, believe that a full ‘return to normal’ recovery will not occur until 2021,” the analysts said. “Only 2% believe that we will return to normal in July, only 4% believe we will return to normal in August, and a further 29% believing the recovery will occur in September through year-end.”

Rail Service Lower Sequentially

“The average ‘positive’ rating of Class I rail service fell sequentially to 55% from 61% in 1Q,” they said. “Ferromex was the sole railroad to improve sequentially, albeit off of the lowest 1Q score, with CP and KCSM only falling slightly sequentially. In 2Q, BNSF received the highest ‘positive’ rating, followed by KCS and UP.”

A BNSF train approaching Sandpoint, Idaho, on March 1, 2020, passes grade work done in preparation for a second bridge across Lake Pend Oreille. Photo via Bruce Kelly.

KSU Still Our Top Rail Pick

“KSU still has opportunities to further cut costs, by improving fuel efficiency and lengthening trains. Intermodal only has HSD share in Mexico and KSU can also grow their share vs. truck,” the analysts said. “Additionally, we believe that COVID-19 will further bolster our near-shoring/sourcing bull case for KSU, with shippers likely looking to relocate supply chains to North America.”

Categories: Class I, Freight, Freight Forecasting, Intermodal, News, Short Lines & Regionals Tags: , , , ,