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N American railroads predict headwinds will impact volumes through year-end

THE Union Pacific railroad anticipates its rail volume in the second half of the year will fall to 'mid-single digits' after revising downwards its volume guidance, chief financial officer Rob Knight said at the Cowen & Company annual transportation conference

N American railroads predict headwinds will impact volumes through year-end

THE Union Pacific railroad anticipates its rail volume in the second half of the year will fall to 'mid-single digits' after revising downwards its volume guidance, chief financial officer Rob Knight said at the Cowen & Company annual transportation conference

22 October 2019 - 19:00

THE Union Pacific railroad anticipates its rail volume in the second half of the year will fall to 'mid-single digits' after revising downwards its volume guidance, chief financial officer Rob Knight said at the Cowen & Company annual transportation conference.

Volumes in the third quarter declined by seven per cent year on year, Mr Knight said, reported New York's FreightWaves.



Trade uncertainty between the US and China has driven down grain volumes for UP, particularly soybeans, as well as dragged down international intermodal volumes, said UP senior vice president for sales Kenny Rocker.



'We're expecting a very compressed peak season, but we're still expecting one and so we'll see how that plays out,' Mr Rocker was quoted as saying.



In spite of the lower volume projections, UP still anticipates that it will meet its goal of a sub-61 per cent operating ratio for 2019 on account of cost-cutting measures that stemmed from implementing precision scheduled railroading, an operating model that aims to streamline operations and train schedules. A lower operating ratio is linked to higher company profitability.



Loose truck capacity, trade uncertainty and weaker demand for coal are among the headwinds that some other class I railroads are seeing for the remainder of the year.



Norfolk Southern also experienced softer volumes in the third quarter, followed by flat volumes in the fourth quarter. While coal volumes could be lower in the fourth quarter because of softening demand for thermal and metallurgical coal, the peak season uplift and stable automotive volumes could result in flat year-on-year comparisons, according to NS chief marketing officer Alan Shaw.



He believes that this year's peak season will be similar to the one for 2017 because some of the underlying macroeconomic factors related to labour and gross domestic product are still strong.



But even if trade uncertainty clears up and some markets bounce back rapidly due to pent-up demand, there is still some market weakness in Europe that could dampen market expectations for the remainder of 2019, Mr Shaw said.



Canadian National has also alluded to 'short-term clouds', such as falling coal demand, that contributed to the company's decision to start 'rightsizing' its assets in the second quarter in order to better match rail capacity with demand.



For example, lumber production is facing a systemic decline in British Columbia, resulting in CN returning the 1,000 centre-beam cars that it had leased, according to CNI chief financial officer Ghsilain Houle.



He said the requirement that trucks employ electronic logging devices in Canada in 2020 should be good for rail intermodal because the ELD mandate puts pressure on trucking capacity.



While trade uncertainty was a looming headwind for UP, NS and CN, Kansas City Southern said its cross-border franchise with Mexico has helped to lower its exposure to strained US-China trade relations.



The company actually seeks Mexico as a potential beneficiary of the ongoing trade row between the US and China because companies are eyeing foreign investment opportunities in Mexico, according to KCS chief marketing officer Mike Naatz.


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