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Inside This Issue

· An Earful of Cheerful: Positive Vibes as RRs Report Q1 Trends

· Union Terrific: Another Great Quarter for UP

· Next Up? The App: UP, NS To Refile Merger Application on Thursday

· A Modest Slide for UP’s Bride: NS Profit Margins Slip a Bit vs. Last Year

· No More Messy Chessie: At CSX, a Major Turnaround Underway

· Super Bull: Wall Street Suddenly Wild for RR Stocks

· From Trucks to Tracks: Domestic IM Biz Gathers Momentum

· Flawed Abroad: Energy/Chem/Coal Firms Boosted by Overseas Calamities

Track Talk

“It’s pretty hard for us to see any major concessions that we have to give.”

-Union Pacific CEO Jim Vena

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The Latest

· For America’s Class I railroads, the first quarter marked an auspicious start to 2026. Union Pacific, Norfolk Southern, and CSX all made that clear from their upbeat first quarter financial results, disclosed and discussed last week. Intermodal conditions are becoming more favorable. Manufacturing shows signs of life. North American energy and chemical producers are well-positioned to supply strained global markets. U.S. steel markets are improving. Grain volumes are up. Data center construction is booming. Same for construction of LNG export terminals and publicly-funded infrastructure. Americans are still spending abundantly, though less so on houses and autos. In the meantime, railroads are running reliably. They’re boosting productivity in areas like labor and locomotive use. They’re exercising pricing power. In sum, it’s enough to make the industry—and investors—rather bullish on the year ahead.

· We’ll hear from Canada’s Big Two railroads this week—Canadian National and CPKC are both scheduled to report their Q1 results on Wednesday. But Thursday will be the big day. That’s the day Union Pacific and Norfolk Southern plan to resubmit their STB merger application. It will provide additional data, as the STB requested. But will it feature any additional promises, pledges, concessions, or forecasts? As you’ll read below, UP’s chief Jim Vena remains adamant that the deal, as is, will enhance competition—additional concessions, he insists, are unnecessary.

· A few other notes before delving into the UP, NS, and CSX earnings:

o The locomotive maker Wabtec reported results, noting a 2% y/y increase in North American carload volumes last quarter. Even so, “the industry’s active locomotive fleet was down slightly.” The company is excited to start commercializing its latest locomotive modernization technology. Union Pacific, in fact, which announced a big modernization deal with Wabtec in February, said last week in its earnings call that its locomotives will soon be “more autonomous than they are today, so that they can operate to give us more fuel conservation…. We’re getting pretty close to be able to roll that out.” Wabtec, however, frets about escalating cost pressures, for steel, copper, aluminum, precious metals, and even memory chips used by its digital services business. Transportation costs are up too. In addition, “We’re faced right now with probably the most significant financial headwind this business has had since 2019, which is the tariffs.”

o CPKC reached new eight-year U.S. labor agreements with the BLET and SMART-TD unions. If approved by members, it would consolidate 11 existing contracts into two. They’d cover about 1,700 train and engine workers in 11 U.S. states. SMART-TD says its members will see average wages increase by a third over the life of the agreement.

o Knight-Swift made clear it’s happy to see trucking capacity decline. “The ongoing efforts of the FMCSA and the DOT to prevent and revoke invalidly issued CDLs, shut down noncompliant CDL schools, and address hour service abuses are in the early stages and are already having an impact on the market. Regarding its intermodal business specifically, the company said the “pricing environment is more competitive than truckload at this point.” But the business “is on a path to profitability… Last year, this time, we took a big step back when you had the tariffs… that led to us losing some volume. But this year, it’s very different. We’re getting some improvement in rate, not near what you’re getting on the truckload side, but some improvement.”

o Brad Jacobs, a veteran of the trucking industry, was asked on Bloomberg’s Odd Lots about the trucking sector. “It has looked like it’s inflected… There’s more freight moving. Industrial America is starting to get a little bit better. There are more pallets on the road. It looks like trucking’s gotten better.” But he added, “It’s early days still.”

o Here’s a quick update on rail market conditions from a presentation by the railcar lessor GATX:

o The STB is accepting stakeholder comments about it plan to reform competition guidelines. One company—Scotts Miracle-Gro—said “repealing these outdated regulations will eliminate unwarranted barriers to competition and enable our manufacturing facility in Marysville, Ohio, along with our other locations nationwide, to have a greater opportunity to benefit from competitive and reliable freight rail service.” Several railroads have opposed the proposed changes, which could lead to more onerous reciprocal switching mandates.

o The FRA welcomed shortline railroads, states, and others eligible to apply for $2b in additional CRISI grants. The program is critical for many shortlines as they seek to upgrade their infrastructure. Listen to any speech by Chuck Baker of ASLRRA (the shortline trade association), and you’re bound to hear the word “CRISI” more times than a cow says moo.

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Q1 Earnings

Union Pacific

· Here’s at least one thing abundantly clear: As Union Pacific attempts to buy Norfolk Southern, it’s doing so from a position of extreme financial strength. The Nebraska-based railroad once again produced spectacular profit margins, this time for the opening quarter of 2026. For the first time since 2022, UP managed a sub-60% operating ratio for the January-to-March period, usually a slower time for rail freight. More specifically, its Q1 operating ratio was 59.9% (ex special items), almost a full point better than its figure in the same quarter last year. Revenues increased 3% y/y, despite moving 1% fewer carloads. Operating costs, meanwhile, increased just 2%.

· Wall Street was certainly impressed. UP’s stock price jumped 7% last week; The company’s equity is now 26% more valuable than it was a year ago. Investors are understandably more optimistic about the North American rail sector and its earnings prospects. After all, tariff and other policy uncertainties from early 2025 have eased (if not vanished). After a lengthy downturn, America’s manufacturing sector is showing signs of life. After a lengthy period of depressed truck rates, they too are rising now, boosting rail as an alternative. Grain traffic is booming. Coal is on the upswing. Chemical output is growing. Demand for construction materials is up thanks to frenetic building of data centers and LNG export facilities. All the while, railroads are demonstrating impressive cost control, enhanced productivity, ongoing pricing power (including the ability to pass higher fuel costs to customers using surcharges), and impressive operational reliability.

· All of these encouraging trends were on display with UP’s Q1 earnings. As mentioned, it was able to grow revenue despite carrying fewer carloads, thanks to fuel surcharges, for sure, but also a more valuable mix of traffic. It carried 9% fewer intermodal containers versus last year, due to a 28% freefall in international volumes. Comparisons to last year are impacted by the year-ago rush to import cargo before tariffs took effect. UP also cited “customer shifts,” which could refer to shippers opting for east and Gulf coast ports rather than the ports of Los Angeles and Long Beach. More likely, it infers some lost business to BNSF, whose total intermodal traffic (including domestic) increased last quarter (BNSF doesn’t disclose its international intermodal volumes specifically).

· In any case, international intermodal containers represent the lowest-margin freight that railroads carry. They earn higher revenue per unit from freight like grain, fertilizers, metals, and chemicals, all areas where UP saw strong Q1 volume growth. Its overall average revenue per unit (RPU) rose 4%, which reflects a greater mix of higher-priced freight, price increases, and fuel surcharges.

· Management made clear that domestic intermodal trends are very much positive. “Domestic intermodal continues to perform well, supported by over-the-road conversions, enabled by our strong service product and diverse market reach.” Volumes, in fact, have hit new record levels now for three straight quarters. UP expects to see further gains if fuel prices remain high (that makes trucking relatively more expensive). It also pointed to its “lower cost structure,” which gives it more room to profitably compete with trucks on price. To be sure, winning significantly more domestic intermodal business is a centerpiece goal of the Norfolk Southern merger.

· Besides the slumping international intermodal market, the housing and auto markets remain weak, which led to further volume declines for UP’s forestry and vehicle traffic. The one other major area where volumes dropped was food and refrigerated items, which (like the forestry business) produces high RPUs. Alas, prospects for a housing recovery don’t seem great. The National Automobile Dealers Association (NADA) expects new light vehicle sales in the U.S. to be flattish this year versus last (about 16m units). Sales were considerably higher pre-Covid. UP did however say that it won some new auto business from BMW.

· On the brighter side was coal, which continues to benefit from growing electricity demand and more favorable federal policies. Elevated natural gas prices during parts of last quarter were also helpful, though prices have come down. UP is also carrying more coal thanks to a new contract with the LCRA utility in Texas.

· UP’s growing grain business got a boost from a revival in exports to China, driving a “shift back to the Pacific Northwest as China has become more open to receiving American commodities.” UP shipped more to Mexico as well, underscoring the importance of international trade to America’s farm economy. America’s largest grain exporter to Mexico, in fact—Bartlett (part of the company Savage)—just opened a new grain facility in Monterrey. Much of that grain moves to the border on UP. Separately, UP’s grain business is benefiting from the growing production of renewable fuels. It’s carrying both the feedstock for that fuel, and the fuel itself after production.

· Executives also highlighted strong performance for petrochemicals, thanks to both greater demand and new business wins. There’s more to come as Chevron Phillips Chemical (CPChem), a major UP customer, opens a large new polyethylene plant with Qatar Energy later this year. It’s in Orange, Texas, just east of Houston and near the Louisiana border and Gulf Coast—it’s an energy-producing region called the Golden Triangle. The facility will have nearly 50 miles of railroad track. UP, meanwhile, is indeed benefitting from data center and LNG terminal construction, much of the latter in the Texas-Louisiana Gulf Coast region.

· The spike in diesel fuel prices, though hurting truckers more than railroads, will nevertheless have a near-term negative impact on railroad operating ratios. UP is currently paying about $4 per gallon for diesel. Management, however, still expects to achieve a better full-year operating ratio for 2026 vs. 2025. It’s more generally still committed to its three-year goals unveiled at its 2024 investor day event.

· Higher diesel costs will eventually be recovered with fuel surcharges. In the meantime, UP continues to drive productivity gains that drive down unit costs. These include becoming more efficient with its locomotives and its labor force. It also includes running longer trains—average train length reached 9,746 feet last quarter, a 3% y/y increase. One of the best things a railroad can do—to benefit both revenues and costs—is run a fluid operation, which UP is most definitely doing. Train speeds are up. Terminal dwell times and railcar touches are down.

· With everything seemingly going so well—profits are excellent, operations are excellent—is it fair to ask: Why is Union Pacific making the risky move of buying another railroad? After all, how much lower can its operating ratios get? Can the merger achieve that much higher return on invested capital? The one thing UP likely can’t do without the merger is significantly grow volumes. Growth—make no mistake—has proved difficult for all Class I railroads. But can UP achieve $2b worth of annual new business, as it forecasted in its initial STB merger application? This includes the expected capture of 2m truckloads worth of freight. UP also claims the merger would reduce costs by almost $1b annually. “We are 100% on track with filing a revised application on April 30^th,” said CEO Jim Vena last week. “We are confident the additional information we are providing meets the STB’s expectations, and we look forward to moving toward approval.”

· April 30^th is this Thursday. Will the application include any meaningful changes to UP’s assumptions or approach to concessions? Or will it merely provide some additional data? Keep in mind: The fate of the merger depends not just on an STB yes or no decision. It also hinges on what, if any, concessions the STB demands, and whether UP finds those demands tolerable. Vena couldn’t be any clearer. “We could come up with something reasonable, but we’re not prepared to really give concessions to the level that basically just opens up our railroad for no reason at all, other than they [UP’s rivals] want to gain something through this process. That’s not the way America works.” Concessions are justified, he explains, when a merger creates conditions that are “truly detrimental to customers… Then, you need to do something about it.” But combining UP and NS, he insists, will benefit customers, creating a faster and more efficient railroad. “It’s pretty hard for us to see any major concessions that we have to give.”

· Vena attacked CPKC, specifically, for its aggressive call for concessions. “Canadian Pacific would love to get access to the west coast of the U.S.,” he said. “Well, I’d love to get to Toronto… Some of the stuff that they’ve asked for is not fundamentally about competition. It’s about trying to gain for their own railroad.” He did say UP is “more than willing to sit down and talk.” Half-jokingly, he said he’d be happy to trade access to Toronto for access to Denver.

· He further pointed to Canada’s major port expansion projects in Prince Rupert, Vancouver, and Montreal. Such projects will likely bring more intermodal and other business to Canada’s railroads, perhaps to the detriment of U.S. ports and railroads. “That’s who we’re competing against.” UP wants the STB to consider these broader competitive developments, not just railroad-to-railroad competition. “We sometimes have a narrow view of what competition is, without looking at really what’s happening in the marketplace.”

· Ops chief Eric Gehringer separately addressed fears of a post-merger operational meltdown, of the sort so often associated with prior railroad mergers. A big difference with the UP-NS merger, he insists, is that Norfolk Southern already runs a healthy operation. It’s not like when UP merged with Southern Pacific, which was a mess going into the deal. “You want to learn from past mergers, but be careful—some references go back 30 years, and a lot has changed.”

Norfolk Southern

· A lot has changed, indeed, for Union Pacific’s bride-to-be. Norfolk Southern is no longer the troubled railroad it was a few years ago. Recall its notorious 2023 derailment in East Palestine, its 2024 power struggle with Ancora, and the ignominious ouster of CEO Alan Shaw later that year. By the end of 2025, under new CEO Mark Shaw, NS was back on track operationally and financially. And of course last summer, it welcomed UP’s marriage proposal.

· In the first quarter of 2026, NS slipped a bit y/y. Its operating ratio worsened by about a point, to just below 69% (note that this is almost ten points worse than UP’s figure). One reason for the decline is the loss of some business—mostly intermodal—to CSX, which forged new partnerships with CPKC and BNSF. Sure enough, while CSX increased its Q1 volumes 3% y/y, NS saw its total traffic shrink 1%. Its intermodal traffic alone shrank 4%. Revenues did increase slightly, with a boost from fuel surcharges. But operating costs increased more than 1%.

· Management blamed some of its lost intermodal business on “merger-related losses,” essentially affirming the shift of some business to CSX by J.B. Hunt, perhaps, or to CPKC by Schneider. “The merger announcement prompted a flurry of new alliances between our eastern peers, western peers, and Canadian rails, which have enhanced competition and had some impact on us.”

· Also, comparisons to last year were tough due to the year-ago pull-forward activity before tariffs. There were some weather disruptions this winter as well. In any case, the intermodal market was “challenging,” resulting in a 1% revenue decline, or 2% excluding fuel surcharges. On the international side, NS expects volumes “to remain soft due to continued tariff volatility and trade pressures.” That said, it anticipates an eventual uptick in retailer imports, after an extended period of holding lean inventories due to economic uncertainty. Domestically, meanwhile, rising truck rates should help with truck-to-rail conversions. “Taken together, we have an optimistic view of intermodal, although we are tempering that optimism somewhat due to increased competitor activity following the merger announcement.” For the record, intermodal accounted for 57% of the railroad’s Q1 volumes, and a full quarter of its revenues.

· While losing some intermodal market share, NS said it’s winning some share in the chemical and auto sectors. Some of the new chemical business involved moving “lower-rated commodities,” which weighed on overall revenue per unit (RPU).

· Coal volumes increased significantly y/y (9%). But that didn’t translate into more revenue—coal revenues declined 2%. Export prices remained low, and NS carried more lower-rate utility coal, responding to greater demand for electricity and the need for many utility customers to restock. In addition, some higher-priced export coal didn’t get out of the ground last quarter because of weather disruptions at some customer mines.

· Late in the quarter, however, export markets—for both energy coal (thermal) and steelmaking coal (metallurgical)—gained momentum. “A combination of global factors is supporting pricing across both metallurgical and thermal seaborne markets… The conflict in Iran is impacting global LNG supply chains, opening the global market to consider alternatives such as U.S.-sourced thermal coal… U.S. coal [is] finding new opportunities overseas because of disruption from the conflict and sourcing constraints.”

· The Iran conflict, more generally, should present some new “volume and revenue opportunities in a variety of energy-related markets.” Examples include natural gas liquids, export plastics, “and potentially even crude oil.”

· But NS is “also monitoring potential impacts to overall consumer demand.” In other words, it’s watching to see if higher energy prices cause Americans to curtail their spending on autos, homes, food, consumer goods, and other things railroads move.

· Speaking of autos, management’s outlook is both “subdued” yet “positive.” Last quarter, auto volumes and revenues both increased 1% y/y. “We see some strength in the auto industry, both in terms of demand as well as supply.” As mentioned, it’s winning some new auto market share.

· More broadly, said commercial chief Ed Elkins, “We feel pretty good about manufacturing. There are some real signs of life out there.” The railroad is already seeing a pickup in the movement of manufacturing inputs and components, including some metals and plastics. All the while, its pipeline of new projects under development on its network remains robust. “We’re actually starting to see that pipeline begin to move… we’ve had 12 projects come online in Q1… worth about 70k loads when they’re at full ramp. And for the full year, we’d like to see a few dozen more of those come across the finish line.”

· Still, its macroeconomic assessment remains cautious, especially with housing markets still weak and big question marks about interest rates and inflation. “Those are three big factors that I think really need to resolve themselves before we can declare anything over… I think to call an end of the freight recession may be a bit premature… We’re not calling an end to the freight recession, but we’re saying there are green shoots.”

· Far from sitting still while waiting for the review of its merger, NS is still actively pursuing productivity gains, having already generated some $500m worth during 2024 and 2025. Its goal for 2026 is another $150m, at least. “Our focus remains on improving our train speed while maintaining balanced discipline around energy management and service levels, a core operational priority.” Operations are running reliably. And “reliability drives improved productivity in crews, locomotives, and fuel efficiency.” Train and engine headcount is down 6% y/y.

· It’s making moves on the revenue side too, notably with its “innovative new shortline and transload partnership” with Jaguar Transport (subject to regulatory approval). “Unlike traditional shortline transactions across the industry, which have been focused on finding efficiencies and leveraging lower-density lines, our new partnership focuses on growth in a high-density switching corridor located in Doraville, Georgia (just northeast of Atlanta).” The goal: “Deliver exceptional local service and responsive capacity to customers in the growing Metro Atlanta market.” The new partnership, NS added, “is just the latest example of our larger growth strategy in action… Look for more innovative solutions and new capabilities in the months ahead as we continue to execute on our strategy for growth.”

· Naturally, the sudden surge in diesel fuel prices, which added $40m in expenses last quarter, will be a short-term hit on earnings. But Q1 also ended with “significant volume momentum… offsetting a volatile February where severe winter weather impacted our customer car loadings for several weeks.” This momentum is another reason for optimism this spring.

· Mark George closed by assuring that the UP-NS merger application is on track to be re-filed “by the end of the month.” It will, he said, be even stronger in articulating the benefits of creating the nation’s first single-line transcontinental railroad.” The combination promises to “simplify service, reduce interchange complexity, [and]… allow freight to move more efficiently, more safely, and more reliably from origin to destination. That’s what this is about. It really is going to deliver a very compelling proposition for more customers to choose rail over highway. And ultimately, I think that’s good for the country, and it’s good for everybody.”

CSX

· UP and NS aren’t alone in making Wall Street smile. CSX’s stock price is up more than 60% y/y, thanks to an impressive turnaround under new CEO Steve Angel, appointed last fall. This time last year, the Florida-based railroad was struggling, posting the worst Q1 operating ratio of North America’s Big Six Class I railroads. Hurricane repairs and a big tunnel construction project gummed up operations. It also struggled with low prices for export coal and weak steel markets—this caused CSX’s coal revenues to plummet a massive 17% versus the first quarter of 2024. The housing and auto markets were already looking bleak early last year. Domestic intermodal gains were stalled by low trucking rates.

· Now hit the fast-forward button. It’s Q1 of 2026, and CSX is in a much better place. The company improved its operating ratio to 64% (ex special items), a nearly six-point drop from about 70% a year ago. Volumes increased 3% y/y, combining with fuel surcharges to lift revenues almost 2%. More impressively, CSX lowered its operating costs by 6%. Angel came in with an axe, and the results show. His cost-cutting, remember, included management job cuts; headcount is down 5% y/y. Even Jim Vena, during UP’s earnings call, applauded: “CSX reported… great results. I was impressed. They did a great job.”

· There’s no business more important to CSX than the chemical business. It accounted for 23% of the company’s rail freight revenue last quarter. Sure enough, chemical revenues rose 3% y/y on a 1% increase in volume. It includes frac sand in this category, and frac sand shipments helped drive the greater volumes. As data center centers are built, so in tandem are power plants, which leads to more natural gas production—hence the need for more frac sand.

· Chemical movements are also growing thanks to “strength in plastics as domestic producers benefited from overseas supply chain disruptions.” This is one example of the Iran conflict helping some U.S. companies. As Dow said in its earnings call last week: “While January and February order books were solid, we experienced a sharp positive inflection in March with the beginning of the conflict in the Middle East… I think everything is poised for strong demand and really tight supply, and I think that bodes well for price and outlook.” Before the conflict, Dow was complaining of “unsustainably and historically low pricing and margin levels,” referring to polyethylene, a plastic used in everything from consumer goods packaging to healthcare products to autos and homes. Though higher prices could deter demand, CSX hopes its North America-based customers will increase production of plastics and other chemical products to address the global shortage.

· Even as international intermodal trends look encouraging, CSX is also winning more domestic intermodal business, with help from new lanes and options it’s offering with partners like CPKC and BNSF. It’s also winning some business from Norfolk Southern as the latter goes through its merger process. The company is unmistakably excited about its new ability to run double-stacked IM trains through Baltimore soon, which “will shave a day off our east-west transit and will connect markets in the southeast with the markets in the northeast more efficiently than ever before.” In addition, the new SMX product it’s offering with CPKC is now undergoing final infrastructure upgrades, promising “truck-competitive transit between major markets in the southeast with Dallas and Mexico… Recent investments will enhance both speed and efficiency.”

· The non-residential infrastructure boom, still supported by the 2021 IIJA law passed by Congress, is supporting increased shipments of aggregates, cement, metals, pipe, plate, rebar, etc. Management mentioned an increase in salt shipments, too. Shipments of ag products (led by grain) and fertilizer (i.e., phosphate from Florida) grew as well.

· Coal volumes dropped a bit as export declines outweighed the impact of strong domestic utility demand. Disruptive weather was another factor. Global met coal benchmarks for pricing, management said, remained largely flat, which is to say still uncomfortably low—this reflects ongoing weakness in steel demand. But CSX will have the benefit of some closed steel coal mines reopening. To be clear, some other thermal coal mines are set to close, but strong power demand makes it possible that their closure will be postponed. Export coal, meanwhile, is starting to get a boost from overseas supply chain dislocations.

· The still-troubled parts of CSX’s portfolio include autos and forestry, the latter affected by weak housing construction and the closure of several paper and pulp mills. Management also expressed “broader concerns about inflationary pressure and potential effects on consumer sentiment.” The ailing forestry segment could benefit, though, from the higher fuel prices that disadvantage trucking.

· The bottom line: CSX is greatly encouraged by its Q1 performance, both on the revenue and cost sides. But there’s more work to do as Angel drives for further cost reductions and productivity gains. Targeted areas include overtime work, support vehicles, its interchange operations in Chicago, and how it installs rails and ties. On the other hand, CSX is now paying consultants (they don’t come cheap) for advice on how to respond to the UP-NS merger. Angel said again that mergers take years to execute. “The way I think about the merger, and again, you’ve heard me say this before, it’s a long process.”

· Longer-term, CSX is bullish on the roughly 600 active investment projects unfolding throughout its network. Last quarter, 21 new facilities came online, which should eventually contribute an estimated 33k annual carloads worth of freight. It highlighted three in particular, opened by Keystone Terminals (shipping gypsum), Martin Marietta Materials (aggregates), and Diamond Pet Foods. The first two are in Florida, and the third is in Indiana.

The Economy

· As more and more North American companies report their Q1 earnings, a clear theme is one of caution about the future global supply of critical resources: oil, gas, fertilizers, plastics, and various commodities needed for semiconductors, healthcare equipment, aviation, and so on. In some cases, these shortages will benefit North American suppliers and, by extension, North American railroads. But a rupture of global supply chains also foreshadows inflation, already evident in higher gasoline, jet fuel, and diesel fuel prices, for example. Is that deterring American consumers from spending? Not yet, Corporate America assures. But that becomes more likely the longer energy prices stay elevated.

· The Federal Reserve will make its latest interest rate decision on Wednesday. Wall Street consensus says it will hold overnight rates where they are. The Fed is simultaneously wary of worsening inflation with a cut, and of worsening the job market with a hike.

· Is the job market facing major disruption from AI? The staffing firm Robert Half doesn’t see it, at least not yet. “With respect to artificial intelligence, we continue to see limited impact on employment levels related to the roles we place in our specialties... Instead, AI is reshaping the way work gets done and increasing the need for skilled professionals with domain expertise and enhanced AI skills who can also apply judgment, validate outputs, and support implementations.” Interestingly, it also observed that “the growing use of generative AI by job seekers has increased application volumes, made it more difficult to verify candidate qualifications, and made resumes more homogenous and harder to differentiate.”

· One thing still on the Fed’s mind: Tariffs, mostly reviled throughout Corporate America. Cleveland-Cliffs, however, is an exception. The Ohio steel-maker said plainly: “The Trump administration has given the domestic steel industry what we needed and have been asking for. Union jobs are being protected, domestic supply chains are more resilient, and mills are running at higher utilization with real predictability.” It would like to see Canada adopt tariffs as well, to help its new subsidiary there. “The Canadian market is still oversupplied with steel from countries that are no longer able to dump their excess capacity into the United States. Because of that, they dump steel in Canada. That said, we are confident that Canada will ultimately get to the right place and enhance its own national security defenses against the negative impact of foreign steel causing the destruction of Canadian companies.” As a reminder, U.S. tariffs on steel are separate from the emergency tariffs ruled illegal by the Supreme Court.

· Cleveland-Cliffs happens to be a major rail shipper. And it’s currently benefiting from various disruptions to the aluminum industry, which competes to supply the auto sector. “Automotive OEMs are prioritizing supply certainty, total cost, and safety. Our Cliffs’ steel delivers all of that without the fragility embedded in aluminum supply chains. In my long career in this business, I have never seen so much momentum in substituting aluminum with steel,” said CEO Lourenco Goncalves. The company also cited a shift from aluminum to steel for building products, appliances, and truck trailers. On a less happy note, it spoke of emerging cost pressures for its trucking and rail transport, due to higher diesel fuel prices.

· One concern for the economy is a meltdown in the non-banking financial sector, sometimes called “shadow banking.” The term applies to firms involved in private equity and credit, who some say bear dangerous exposure to software firms vulnerable to AI disruption. Nonsense, says one of the largest such firms. Blackstone, in its earnings call last week, said many of its software firms will continue to thrive, especially those with “mission-critical platforms… proprietary data, deep workflow knowledge, customer trust, [etc.].” More importantly, Blackstone says it’s now “the largest investor in AI-related infrastructure in the world.” It owns and lends to, for example, data centers and energy firms. “The AI revolution [features] an extraordinary level of investment taking place in data centers, equipment, chips, energy infrastructure… [this] continues to power economic growth, and we see no signs of that engine slowing down.” It noted that just since 2020, “We’ve experienced five market-moving events around the same time of year.” Covid (2020), the Ukraine invasion (2022), the Silicon Valley bank collapse (2023), tariffs (2025), and the Iran conflict (2026). “In each of these prior events, having patience was the key. When the world ultimately normalized, risk appetite returned, and investors refocused on fundamentals.”

Inside This Issue

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Inside This Issue

· Jobs Forever… However: Two Unions Downplay UP’s Jobs Pledge

· No Hedge in Our Pledge: UP Defends Merits of its Jobs Guarantee

· March of Climbs? Greenbrier Detects Railcar Market Momentum

· An Inflation Situation: Energy Spike Lifting Consumer Prices

· Raiders of the Lost Arkansas: OmniTRAX Buys Three Shortlines

· Hunt and Center: J.B. Hunt to Report Earnings This Week

Track Talk

“When Union Pacific combines with Norfolk Southern, every union employee working at the time of the merger is guaranteed a job for life. At a time when layoffs are the norm across corporate America, this commitment is both unprecedented and meaningful.”

-Josh Perkes, Union Pacific’s Chief Human Resources Officer

_______

“Notably, that agreement is limited to protection from involuntary furloughs, a reactive standard that allows carriers to reduce the number of positions over time through attrition, operational changes, or divestitures, so long as remaining employees are not immediately furloughed.”

-statement from Teamsters Rail Conference (BLET and BMWED)

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The Latest

· Railroads are buckling up for a very busy second half of April. Q1 earnings season begins next week with CSX on April 22^nd. April 30^th, of course, is the date Union Pacific and Norfolk Southern expect to refile their STB merger application. This week, J.B. Hunt will report. What will it say about the domestic intermodal market? Are railroads winning share from trucks? What are the implications of sharply rising fuel prices? Is it seeing evidence of a manufacturing sector revival?

· Railroads investors are certainly feeling better about things. Look at the stock table below.

UP’s Jobs-for-Life: More Than Meets the Eye?

· Two of the railroad industry’s largest labor unions—BLET and BMWED—stand firmly against combining UP with NS. Both are part of the broader Teamsters union, which said in December that it “strongly opposes the proposed merger between Union Pacific and Norfolk Southern as currently written.” BLET and BWWED, representing locomotive engineers and maintenance workers, account for more than half of all unionized employees at UP and NS.

· But what about UP’s jobs-for-life pledge? There’s more to that story, the two unions say. Management, in their eyes, has refused “to make real commitments to protect the jobs and address the concerns of our members.” One gripe is that UP pledges to

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Inside This Issue

· Signs of Life in Days of Strife: Rail Volumes Soar, Never Mind War

· On a Good Run: Is the Industrial Downturn Done?

· Gas Interference: Cheap Nat’l Gas Threatens Thermal Coal

· Not All Will Weep: With Gas Prices Cheap, Chem Freight Should Leap

· Grain Light: More Reports of Booming Ag Volumes

· Mini-Mill Chill: RRs Hurt By Shift in Steel Production

· Stat Spat: CN and UP Bicker Over Forecast Model

· A Ploy by George in Georgia: NS Rides Jaguar in Atlanta

· Never Gonna Let You Go: Another UP Jobs-For-Life Deal

· This Week: Earnings from Greenbrier

Track Talk

“Rail traffic is sending a clear message: the freight economy has regained momentum, and that momentum is broad, not fragile.”

-The Association of American Railroads (AAR)

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The Latest: An Upturn in the Making?

· “Momentum Amid Crosscurrents.” That’s how the Association of American Railroads (AAR) describes the current state of affairs for U.S. railroads. According to AAR’s latest Rail Industry Overview, broad-based rail volume gains last quarter are “one of the clearest signals yet that the goods economy is regaining its footing.” Traffic is growing, the AAR shows, across a broad range of freight categories, including agriculture, industrial inputs, chemicals, and “intermodal corridors that link U.S. consumers to global supply chains.” During March, in fact, U.S. rail volumes jumped to their highest levels of any month since October 2022. The last time March itself was this strong? 2019. An upturn seems to be brewing.

· However, “this momentum is unfolding against a complicated macro backdrop.” Complicated is one way to put it. Homebuilding is still weak. So is auto production. And the Iran war lingers on, with global energy markets still severely disrupted—oil prices (WTI) topped $110 last week. That’s trouble for farmers. That’s trouble for truckers. That’s trouble for households. But it’s NOT (at least not yet) trouble for railroads.

· Here’s more detail from the AAR report: First quarter U.S. carload volumes (covering January, February, and March) rose 4% y/y. That too is the strongest Q1 growth rate

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courtesy: Steel Wheels Photography

Inside This Issue

· Hormuz Blues: Will Shock to Energy Degrade the Economy?

· The Gas is Always Greener: Nat’l Gas an Exception; No Inflation

· Different Grains, Different Lanes: The Corn vs. Beans Decision

· Permit the Smog: STB Wants Faster Environmental Reviews

· Hump Up the Volume: BN Expanding Key Yard Near Chicago

· Why the Reluctance to Buy? GATX Explains the Railcar Order Slump

· Q1 Done: RRs to Report Earnings in Less Than a Month

Track Talk

“The Surface Transportation Board today issued a unanimous decision proposing a comprehensive rule to modernize and reform its permitting process, accelerating the approval of rail infrastructure projects, cutting unnecessary burden, and lowering costs across the transportation network.”

-Surface Transportation Board

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The Latest

· The Iran conflict now enters its second month, with ominous implications for the U.S. and global economies. The chief problem: Rising fossil fuel prices. According to the International Air Transport Association (IATA), worldwide average crude oil prices are up about 60% from this time last year. But with refining costs jumping even more, jet fuel prices are up 120%. More relevant to railroads, the U.S. Energy Information Administration (EIA) shows the U.S. average price for diesel fuel nearing $5.50 per gallon, up roughly 50% versus last year. On the west coast, it’s well above $6.

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courtesy: Steel Wheels Photography

Inside This Issue

· War But Peace: Markets Ill but RR Still Chill

· Why Panic? Many Key Rail Markets Remain Dynamic

· Start of Gold: Volume Growth Strong So Far in 2026

· The Toxic Two: RRs Need U.S. to Build More Homes and Cars

· Lone Star State Debate: UP, BN Chiefs Square Off in Houston

· Epic Snail: UP’s Vena Says STB Moves to Slowly

· Fuel and Unusual: Diesel Spike Will Weigh on Q1 RR Margins

· Rate Wait: Central Banks Holding Steady as War Impact Unfolds

Track Talk

“I think the biggest risk on energy prices is that it puts some countries into a recession.”

-Canadian National CFO Ghislain Houle

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The Latest

· It’s now week four of the Iran war, with no imminent end in sight. Oil prices continue to hover around the $100 mark, triggering fears of both recession and inflation. Investors are selling stocks, including their railroad stocks. Lenders, meanwhile, are demanding higher interest rates from longterm borrowers like the U.S. Treasury and anyone buying a home. Even in Canada, where high commodity prices can benefit the economy, stock prices are tumbling. Central banks are taking a wait-and-see approach for now. Last week, the U.S. Federal Reserve and the Bank of Canada both decided to keep their interest rate policies unchanged. The Bank of Mexico meets this week.

· How concerned are railroads? All six Class Is spoke publicly last week, sounding mostly at ease. Sure, they acknowledge the risk of a recession if higher energy prices strain consumer spending. They’re certainly not expecting an imminent recovery to long-slumping markets like homebuilding and auto manufacturing. Export steel prices aren’t suddenly rising. Tariff burdens haven’t gone away. But despite all that, rail freight traffic has grown solidly this year. Through the first week of March, volumes across North America are up 3% y/y, according to the latest AAR data.

· Comparisons to last year can be somewhat misleading because of different weather events and tariff effects, etc. But there’s no questioning the very real strength of some key railroad markets. The two markets unambiguously NOT strong right now are autos and especially forestry products. Those are both struggling, with continent-wide volumes down 2% and 7% respectively so far this year. But:

o Thermal coal continues its mini-renaissance, driven by growing energy demand, deregulation, and volatile natural gas prices.

o Government spending on infrastructure continues to drive heavy demand for construction materials like aggregates and cement.

o Railroads say they’re winning more domestic intermodal business thanks to their

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courtesy: AlphaYankee Photography

Inside This Issue

· War Watch: As War Ensues, Will Economy Lose?

· An Oil Prices Crisis? Are RRs Screwed by Pricier Crude?

· 2022 Anew? RRs Thrived Four Years Ago; Similar Kicks in ’26?

· What Are They Thinking? RR Execs to Speak this Week

· Stocker Shock: After Briefly Jumping, RR Shares Now Slumping

· Pitching for Switching: Shippers Urge STB to Scrap Old Competition Rule

· Dallas in Wonderland: BNSF Expands in the Booming DFW Metroplex

· Pirates of the Meridan? STB Rejects UP/NS Gripes; Agrees w/ CP’s Pleas

· What Does the Bot Say? AI’s Assessment of UP’s Merger Commitment

Track Talk

“In terms of the headwinds, we are watching the changing tariff environment. We are watching the potential for the changes in higher gas prices. But overall, we do continue to believe there are more tailwinds than headwinds and feel really good about the momentum we’re seeing.”

-Dollar General CFO Donny Lau

Publisher’s Note: Will you be attending the SWARS Rail Shipper event in Houston this week? If so, be sure to look for me and say hello. -Jay

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· The Iran war enters its third week, with oil prices still hovering near the uncomfortable $100 mark. That’s up from just around $60 per barrel (WTI) to start the year. Is this a repeat of 2022, when oil prices soared above $100 for almost six months, following Russia’s invasion of Ukraine? That caused a worldwide wave of inflation, with higher energy costs spilling over into transportation and agriculture. The U.S. economy still grew about 2% that year, despite 7% inflation. Helpfully, companies at the time were vigorously rebuilding inventories and hiring workers as consumer spending—juiced by heavy fiscal stimulus—rebounded from the Covid slump. As you can see from this chart, North America’s railroads had what was likely their best single year ever in 2022, with the industry’s operating ratio dropping to 62%:

· So, are high oil prices good for railroads? In one sense, yes, as FreightCar America argued in its earnings call last week (see below). Expensive oil can boost rail traffic, given the relatively greater fuel efficiency of trains versus trucks. Pricey oil also boosts the fortunes of hydrocarbon-heavy regional economies like Alberta and Texas. To be clear though, the railroad earnings boom of 2022 was underpinned by many factors, including extremely high natural gas prices that year—this led to railroads transporting more coal. Agricultural and auto shipments rose that year as well. Of course, the second half of 2022 marked the onset of a long freight recession which continues even today. As the Fed sharply raised interest rates to quell inflation, the housing market stalled, which proved poisonous to the freight and logistics economy. Railroads have felt it for sure, though less than their trucking brethren thanks partly to strength in bulk markets like agriculture and energy, not to mention greater pricing power.

· Will 2026 be a repeat of 2022? In other words, will an oil spike lead to inflation, which leads to higher borrowing costs, which leads to more pressure on housing and other key sectors for the freight economy? As it happens, the Federal Reserve meets this week to decide on what to do with interest rates. Make no mistake: Raising rates would be riskier now than four years ago, with the economy currently losing jobs.

· As you can see from the Market Indicator chart below, stock prices continue to drop, and railroads are no exception. Natural gas prices and interest rates are joining oil prices in their upward march. Higher oil prices, though they’ll help North America’s large oil sector, typically result in less consumer spending. Moody’s Analytics says $100 oil, if persistent, would erase $120b from the U.S. economy, more than offsetting any gains from tax cuts and other fiscal stimulus measures.

· Oil prices are up because of the supply chain disruption in the Middle East—oil tankers can’t get through the Strait of Hormuz. But it’s not just oil. Ships carrying other key Gulf exports like fertilizer inputs are also blocked. Note from the Fertilizer Institute (source of chart below): “Each year, 90m tons of fertilizer are transported throughout the U.S., with nearly two-thirds of all domestic fertilizer ton-miles moved by freight rail.”

· On the other hand, container shipping into North America has thus far been largely unaffected. The Port of Los Angeles said last week that its docks remain very busy, following its second busiest month of February ever. The port did say that heavy

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Inside This Issue

· Abel Stakes: New Berkshire Chief Says BN’s Profits Must Improve

· Greg to Differ: Unlike UP, Abel Not Interested in Merging

· Container Gainer: Long Beach Port Aims to 2x Volumes by 2050

· Coal, a Growth Opportunity? Sounds Surreal, But Could Be Real

· Shortline Combine: Consolidation Ensues in First/Last Mile

· Gas Impasse: Ammonia Maker Hopes to Lower Rail Shipping Costs

· Mideast Blows Up, Oil Goes Up: Iran Attacks Lift Prices

· Artificial Irrelevance? How Many Jobs Will AI Eliminate… or Create?

Track Talk

“Berkshire has been clear that it is not interested in acquiring one of the other Class I railroads, since the current economics would not work in our shareholders’ favor.”

-Berkshire Hathaway CEO Greg Abel

The Latest

· Berkshire Hathaway reported its Q4 and full-year 2025 results last week, which included numbers for BNSF. As the Scoreboard graphics below make clear, BN’s operating ratios worsened y/y in Q4—but not much. And considering the weak demand conditions late last year, that’s a victory of sorts. Indeed, as you’ll read in more detail below, the railroad achieved cost efficiencies that helped offset its revenue weakness. For all of 2025, meanwhile, BNSF’s operating ratios improved, and by more than any of its Class I rivals except CPKC, which benefitted from easier y/y comparisons (recall the labor unrest it faced in 2024). A reason to celebrate? No. Berkshire’s new CEO Greg Abel made clear that BNSF’s margin gap with rivals needs to be addressed. But he also said buying another railroad is not the answer.

· Tariff talk has quieted a bit. But a new military operation in Iran introduces some new economic uncertainties, including implications for the price of oil. As the Market Indicator chart below shows, oil prices are up 11% in just the past two weeks, in anticipation of this weekend’s action. In the meantime, AI’s future impact on the economy remains a hot topic (see Economy section below). One concern is the large

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Inside This Issue

· Supreme Thwart: Top U.S. Court Rules Tariffs Illegal

· But No Day to Par-Tay: Tariff Man Sees Another Way

· Second Time Around: UP to Refile Merger App Apr. 30^th

· Your Price is My Slice: CN, CP Eye Access to UP Network

· Low Growth, No Problem: RRs Don’t Need a Boom to Bloom

· Give Me Just a Little More Climb: CSX Glad w/ Just Modest Growth

· Off to See the Blizzard: RR Crews Prep for Eastern Storm

· This Week: Numbers for Berkshire and BNSF

Track Talk

“We’re in the fourth year of a freight recession. I don’t think there’s ever been a four-year freight recession before.”

-Canadian National Tracy Robinson

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The Latest

· “We hold that IEEPA does not authorize the President to impose tariffs.” With those words, the U.S. Supreme Court ruled President Trump’s emergency tariffs illegal and void. IEEPA refers to the 1977 International Emergency Economic Powers Act, which the White House invoked as justification for broad tariffs, initially on Canada, Mexico, and China, and later (“Liberation Day”) on all countries. The emergencies cited were illegal drug flows and “large and persistent trade deficits.” Importantly however, the ruling does NOT apply to other tariffs currently in place, most importantly the “Section 232” tariffs on autos, lumber, and metals (steel, aluminum, and copper). Those have been at least as problematic for railroads as the IEEPA tariffs. The IEEPA tariffs had their biggest impact on intermodal demand.

· The story is far from over. President Trump reacted to the Supreme Court ruling by immediately announcing a blanket 10% tariff—which a day later became 15%—on all countries starting this week. He’ll base those on a different law than IEEPA: the Trade Act of 1972. But there are lots of caveats. Canada and Mexico it seems, will still enjoy a temporary exemption for imports covered by the USMCA trade pact (which is currently up for renegotiation). The USMCA exemption applies to most cross-border trade flows but does not shield businesses from the Section 232 tariffs.

click here for a clearer version of the graphic below:

· While a relief to companies in one sense, the Supreme Court’s ruling introduces new questions without clear answers. How will tariff refunds be administered? Will this be a complicated and expensive process requiring lawyers and consultants? If so, will smaller businesses even bother? What about the many small businesses already bankrupted by the tariffs? Will there be any recourse for them? In the meantime, President Trump says he plans additional tariffs soon. As you can see, the bureaucratic spider web of tariffs—and all the cost and uncertainty surrounding it—remains as bureaucratic, costly, and uncertain as ever.

Other Developments

· As tariff chaos ensues, Union Pacific and Norfolk Southern continue to rework their merger application to comply with STB demands. Last week, they said to expect a re-submission on April 30^th. That’s a little over a month from now, giving more time for rival railroads to hone their strategic response. One thing rivals are focused on: What concessions should they ask for, i.e., that UP and NS should grant trackage rights in a specific geography. Some are surely licking their lips as they contemplate more access to UP’s prized Gulf Coast chemical business.

· Look at those railroad stocks—up again last week, boosted this time by the Supreme Court ruling. The sector is also benefitting from the broader trend of investors shifting their capital away from software firms potentially threatened by AI. Speaking of AI, remember that IT products—including those critical Nvidia chips imported from Taiwan—have been largely exempt from tariffs.

· This could be a challenging week weather-wise for eastern U.S. railroads. As of Sunday, winter storm Hernando was threatening heavy snowfall, strong winds, and sub-freezing temperatures throughout the northeast and mid-Atlantic regions. Norfolk Southern, for one, said it was “monitoring and preparing for Winter Storm Hernando… proactively preparing equipment, scheduling crews, and evaluating customer and terminal readiness to combat the impacts of this event.”

· An update from the railcar market: GATX, a top lessor, reported earnings last week, highlighting the unusually low level of new railcar production right now. At the same time, more railcars are exiting fleets, due in part to “supportive” scrap rates. “As a result, we’re seeing net fleet shrinkage in the North American fleet… That’s a positive when you’re the largest owner of railcars in North America.” GATX just got a lot bigger, remember, with the acquisition of Wells Fargo’s railcar portfolio. Management did clarify that it’s not seeing railcar shortages. It did say some fleet types, notably box cars, become less valuable when the industrial economy is soft, as it has been during the past few years. GATX, however, has more of its exposure with cars handling heavy haul bulk traffic, like tank cars and specialty covered hoppers. They’ve performed well in terms of lease rates and utilization.

· Here’s an interesting niche railroad story from Alaska, courtesy of KTUU in Juneau. The Alaska Railroad, with about $200m in annual revenue and roughly 1k freight cars, said it’s committed to facilitating construction of a big pipeline project. But before it invests in additional railcars and other upgrades, the railroad wants more assurances that the pipeline will actually be built. Oil and gas are critical to Alaska’s economy, as are tourism, seafood, and the U.S. military.

· This Saturday (Feb 28^th), Berkshire Hathaway will report it Q4 and full-year financial results. They’ll include, of course, figures for BNSF. Berkshire does not hold earnings calls. It will, however, publish CEO Greg Abel’s first annual letter to shareholders. It’s a tradition famously practiced for decades by the legendary Warren Buffett, who’s still the company’s chairman.

Conference Highlights

Union Pacific

· The campaign continues. The Union Pacific executive team was on the road again last week, pitching the merits of its merger. At a Barclays investor event in Miami, CEO Jim Vena again made his case that combining UP with Norfolk Southern will be good for shippers, good for workers, good for the environment, good for the economy, and so on. He again discussed the opportunity to grow, competing for new business in watershed markets, for example. He addressed concerns about operational risks, highlighting UP’s success implementing its NetControl system. Class I railroad partnerships, he reiterated, are welcome but, “The history will tell you… those things don’t last.” Inevitably, they’re hung up on disagreements over how to allocate resources like locomotive time and fuel.

· Vena is a man in a hurry. He’s still confident of closing the deal in the first half of 2027, despite the STB’s initial rejection of UP’s application. The clock won’t restart until resubmission, likely on April 30^th. The STB will then have up to 90 days to accept comments from others. “Hopefully, the STB looks at that and says they don’t need the 90 days for that and gives them 45 days, because they’ve already been looking at that application for a while.” In-person hearings would likely follow. Then, “there could be back and forth before we get to the end.” Ultimately, Vena is confident that the STB will see the logic of the merger, and the ample benefits it would bring. “It’s a great deal for America.”

· He wishes, to be sure, that the process was faster. “Listen, it’s different than the way I do business. I made a decision on some stuff that we’re buying for our company. And I think it took me 20 minutes last night… We understand. But we also want to try to speed it up. It is what it is.”

· Not for the first time, Vena attributed the criticism of rival railroads to their own fears—fears about how strong a competitor a combined UP and NS would be. They now feel “they have to do something.” And so, they’ll push the STB for concessions. “But that’s not the STB’s job, to close that gap for them financially. It’s their job to make sure that the competition is out there.” And this is not 1890, when railroads moved the majority of America’s freight. Today, “railroads make up about 13% of the total movement of goods in the U.S.”

· Canadian National, he asserted, worries what the merger might do to its auto business, for example. “We’re going to be more competitive into Michigan and Ohio and the southeast, right?” CSX, he continued, worries about the implications for its boxcar merchandise business.

· Addressing opposition from CN and CPKC specifically, Vena asked why transcontinental railroads should be allowed in Canada and not the U.S. “Last time I looked, I haven’t seen anybody [say] that they need to split the railroads in two because… they shouldn’t operate across the country.” Separately, he brought up the dispute UP has with CPKC on the Meridian Speedway. “With Canadian Pacific, before they purchased Kansas City Southern, we delivered an 11k-plus foot train to go across the Norfolk Southern over the Meridian Speedway… Now we have to split the train in two pieces and give them max 8,500 feet.”

· When done discussing the merger, Vena and his colleagues discussed the latest demand trends. January’s rough weather caused some disruption, but it was brief. “We’re back at, call it, 230, 240 car miles per day. Our dwell times are sub-20 again.” Carload volumes are currently down about 2% y/y so far in Q1. February is up, however, thanks to strength in bulk markets like grain and coal. Petrochemical markets are also faring well, not because the market is “on fire” but because of new business wins. Domestic intermodal “is still good for us.” Here too, UP is winning new business—and from trucks, not other railroads. Another market doing well right now is construction aggregates.

· Weaker markets include international intermodal, where y/y comparisons are challenging (recall the rush to pull imports forward this time last year). The auto market is weaker but “starting to look a little bit better.” Forestry remains weak too as the housing slump lingers.

· UP isn’t ready to declare a recovery in the industrial economy yet, despite how “people are excited about ISM,” [referring to the bullish ISM manufacturing report for January]. Nor is it ready to declare a revival in intermodal pricing, despite how people are “excited about some of the [recent increase in] truck pricing.” If these trends continue for sure, “we’re in a great position to capitalize on it.”

CSX

· It’s been about five months now since CSX hired Steve Angel to succeed Joe Hinrichs as CEO. Angel’s been mostly quiet early on his tenure, as he learns the railroad business and reformulates the company’s strategy. He did speak at last week’s Barclays event, clarifying his thoughts on various subjects. He’s staying neutral for now on the UP-NS deal, emphasizing that mergers take a long time to play out—joining his old company Linde with Praxair took about three years from announcement to closure. The UP-NS deal, he says, will bring both opportunities and risks to CSX, which has a small team of people at Jacksonville headquarters analyzing the implications. Angel is confident that the STB will listen closely to railroad customers—those for and against the merger.

· His focus though, is on running a better, safer, and more profitable CSX. He wouldn’t trade its geographic footprint with any other railroad, mindful that if the U.S. re-industrializes, much of that re-industrialization will happen in regions it serves, like the southeast. Nationwide, the U.S. isn’t seeing much industrial investment yet, which he attributes in part to “tariff noise.” But recent corporate tax cuts, plus the dearth of opportunities elsewhere in the world, positions the U.S. well for future investment. China, he points out, is no longer the investment opportunity for international companies it once was. Europe hasn’t been growing for years. India is growing but nowhere near on the scale of China’s earlier growth. “All roads lead back to the United States.”

· Making himself clear, Angel isn’t waiting for an industrial boom. He understands that many of the sectors CSX serves are mature. “I don’t think of it in terms of, gosh, I need mid-single-digit growth to really be able to deliver the kind of operating performance I want to deliver… A little bit of growth is all we really need.” As it waits for even a modest upturn, CSX can deliver financial improvement by prudently managing costs. “I love growth,” he asserts. “But I trust costs.”

· CSX is telling Wall Street to expect low single-digit volume growth in 2026. And it said, “We’re going to increase operating margins 200 to 300 basis points.” [Note: 100 basis points equals one percentage point; Another note: Like many newcomers to the industry, Angel finds the use of operating ratios—operating margins turned upside down—rather odd.].

· Of course, “if the macro economy blesses us, if housing starts pick back up, automotive picks back up, GDP picks back up... If that happens, then by working so hard on productivity and leaning out our cost structure, I know those margins fall through very heavily.” Put another way, CSX is positioned to earn very strong profit margins on any incremental new business is captures. Remember, a big portion of a railroad’s cost base is fixed, meaning it won’t change even as new revenue is captured. Example: Crew costs won’t change just because you add some more railcars to an existing train. “We just need a little bit of volume growth every year, a little bit of price every year, productivity every year, and we can deliver the kind of result we want.”

· Given his past, nobody knows more about the chemical industry than Angel. That’s divided into many different sub-categories, he explains, but in general, “I don’t think there’s any secret that chemicals has struggled globally. There’s an oversupply situation coming from China that weighs on that industry.” In addition, a lot of chemical demand comes from the housing and auto sectors, both of which are currently weak.

· Coal, at least domestically, “is seeing a little bit of a rebirth.” But he’s quick to caution that it’s still “kind of a mature industry.” Same for forest products. In fact, several CSX-served pulp and paper plants closed last year.

· On the other hand, CSX’s mineral business, “basically rock aggregates that are used to build out infrastructure,” is trending positively. “That’s a market that’s growing for us.” Another bright spot is fertilizers. “We’ve got some new phosphate production that’s come online. That’s helping us.” Intermodal is growing too. In summary, Angel calls the demand situation “a mixed bag.” But again, “I’m not sitting here saying, gee, if you just give me 5% volume, I’ll be fine. I’m sitting here thinking I don’t really need that much.”

Canadian National

· CN’s chief Tracy Robinson addressed the Barclays event as well, while CFO Ghislain Houle spoke at another gathering hosted by Citigroup. Like other Class Is, CN is struggling to grow in a weak economy but delivering strong profits nonetheless thanks to productivity gains and other self-help measures. CN’s exposure to macroeconomic headwinds might be worse than even what other Class Is are experiencing, given the outsized impact of tariffs on some of its most important businesses, like forestry.

· In 2025, CN spent roughly US$250m on tariffs. The U.S. currently has a 45% import tax on Canadian lumber, which is unaffected by last week’s Supreme Court ruling. What’s more, North American housing construction remains depressed, with CN now capturing about 1,300-to-1,350 railcar orders of lumber per week; “In the good years… [we] would be anywhere between 2,300 to 2,500 car orders per week,” Robinson explained. “Lumber is hurting, and lumber is one of the segments that is one of the most profitable for CN.” Nor is she expecting a revival anytime soon.

· It’s hardly all doom and gloom on the demand side though. CN is busy moving last fall’s bountiful grain crop, and grain alone accounts for nearly a fifth of the railroad’s total revenue. “The beauty with grain is it’s not dependent on the economy. People need to eat.” Another important point about grain volumes: While any given year can have a good or bad harvest, thanks to technology and improvements in fertilizers, farmers on average over the past decade have grown their yields by about 2% to 3% annually. Grain, furthermore, “is the only commodity that we’re paid by the ton.” And CN can move a lot of tons on a single train thanks to the latest-generation of hopper cars. “These grain cars are more bulky, so you can put 10% more grain in a car. And because they’re shorter, you can put 8% more car on a train.” Remember too that CN now owns the Iowa Northern shortline, which further ups its exposure to grain revenue.

· Canada’s many other natural resources underpin CN’s future growth potential. Robinson mentioned products from and for the energy and chemical sectors like natural gas liquids (NGLs), plastics, potash, frac sand, and metallurgical coal. Many such opportunities are divorced from the performance of the economy. “We sit on top of most of the significant natural resource base, either in Canada [or] in the midwest through the United States.”

· Less happily, “We’re not expecting the international intermodal volume to be strong across anywhere in North America through the first half of the year.” However, “domestic intermodal continues to grow,” thanks to “really good service.” It also claims to be winning share from trucks. Major investment to expand the port of Prince Rupert will bring new business. Already, the Gemini maritime alliance is offering new Rupert service. Houle gave some more detail, noting that TEU volumes handled at Rupert hit a peak of about 1.3m. Last year was more like 900m. Capacity is about 1.6m. “It’s coming back, but it’s not where it needs to be.” Of course, with the intermodal business more generally, “the big question is where the tariffs go [and] how healthy is the underlying consumer.”

· A key goal is finding new trade flows to replace tariff-hit southbound markets to the U.S. On example is helping CN’s oil customers find new export markets. “CN has an unparalleled port access, going off all three coasts. So, if their markets shift and there’s less oil going south, can we help them explore off the east and the west.” Prince Rupert by the way, is becoming a more important gateway for carload traffic; it’s not just focused on intermodal containers.

· CN managed a 62% operating ratio last year. Can it get back into the 50s, as it last did in 2022? “Under a supportive economy,” Houle declared, “absolutely. I’m very bullish.” Underpinning that confidence is a “much leaner, more nimble cost structure,” plus ample capacity to handle more volume without any major new capital investment. CN also has “locomotives tucked away” and “800 or 900 people furloughed that we’re staying very close to.” It will be ready to pounce, in other words, when the economy turns, or if the tariff situation unexpectedly improves.

· And the UP-NS merger? CN makes no bones about its opposition. “We’re very positive on competition. And we’re very much aligned with the industry on wanting a lighter touch on regulation to make us more nimble and able to invest properly. And this merger application works against both of those things.” UP and NS would together control about half of all U.S. rail freight, Robinson explains. It will reduce competition in some geographies, which contradicts the rule about mergers having to “increase competition.”

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Inside This Issue

· What’s Up? Stock: RR Equity Prices Jump Again

· Speedway Fray: UP Again Accuses CP of Merdian Mischief

· Desert Diversion: BN’s Phoenix Play Reflects Inland Push

· Florida Fresh: CSX Moves to Renew its Loco Fleet

· Choo Choo Trin: Trinity’s Latest Railcar Outlook

· Cold Warrior: Major Miner Says Market for Steel Less than Ideal

· Oh Jeez, Who’s Got the Keys? RRs Beware, Robot Trucks Advancing

· Building Boom: Demand Strong for Construction Aggregates

· This Week: Class I CEOs Take the Stage

Track Talk

“In seeking approval of the transaction that created Canadian Pacific Kansas City Limited, Applicants stated that the merged railroad would ‘continue to maintain efficient operations serving existing gateways wherever traffic levels warrant’… CPKC has not been meeting that commitment.”

-Union Pacific filing with the STB

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The Latest

· Railroad stock prices jumped again last week—the second week in a row—as investors reallocate capital to sectors other than information technology. They’re presumably more optimistic about the industrial economy as well. Whatever the reason, North America’s five publicly-traded Class I carriers are now 8% to 15% more valuable than they were just two weeks ago. All five Class I stocks, furthermore, are now up on a y/y basis. Will the gains hold?

· Railroad investors will have lots of additional information to digest this week. The chief executives of Union Pacific (Jim Vena), CSX (Steve Angel), Canadian National (Tracy Robinson), and CPKC (Keith Creel) are all scheduled to address a Barclays investor event in Miami. J.B. Hunt’s CFO will speak there as well, offering updates on the intermodal market. Creel, meanwhile, will also address a Citigroup event in Miami this week, as will CN’s CFO Ghislain Houle. Naturally, we’ll hear a lot of talk about the UP-NS merger—Vena will pitch its merits as rivals highlight its flaws. We’ll surely get updates on rail freight demand. How encouraged are railroads by the recent uptick in manufacturing sentiment? Expect a fair share of tariff talk too. And ring a bell for every mention of the term “AI.”

· Also this week, we’ll get an update on consumer sentiment from America’s largest company, Walmart—it will report its Q4 earnings on Thursday. In two weeks (Feb 28^th), we’ll finally get Q4 financial figures for BNSF, in conjunction with Berkshire Hathaway’s earnings release.

· Union Pacific, Norfolk Southern, and CSX all published their 2025 annual reports, each more than 100 pages long. UP’s report has a section advising investors of key risks associated with its Norfolk Southern takeover attempt, i.e., the possibility of having to pay NS a hefty $2.5b fee—under certain conditions—if the merger doesn’t happen. The STB, remember, is asking UP to disclose more details about these breakup conditions. At some point soon, UP will re-file its application with the additional information the STB is requiring. UP separately warned that even if approved, “the terms and conditions of the approvals… may impose requirements, concessions, limitations, or costs or place restrictions on the conduct of the combined company’s business.” You can read more about the merger risks UP raises on page 15 of the report. The Norfolk Southern report contains similar language.

· UP’s annual report is most specific about the macroeconomic risks it might face in 2026. It mentions uncertainties related to industrial production, which isn’t forecasted to grow this year. Housing starts and light vehicle sales are expected to decline. UP sees a decline in international intermodal volume. On the other hand, “higher coal demand, from elevated natural gas prices and increased coal-fired electricity production, is expected to positively impact volumes.”

· As the industry waits for UP and NS to re-file their merger application, affected stakeholders continue to express their opinions. Last week, for example, the Montana Grain Elevators Association told the STB that UP’s acquisition of NS “presents significant risk for businesses like ours and the U.S. economy. We are concerned the merger will harm shippers and their customers by eliminating competition. disrupting service, weakening the U.S. supply chain, and increasing transportation rates.”

· UP, of course, persists with its own campaign extoling the virtues of its merger. Last week, marketing chief Kenny Rocker made the case at a forum hosted by the American Coal Council. Two weeks ago, Vena spoke to members of TEGMA (the Transportation, Elevator & Grain Merchants Association). The railroad maintains an active pro-merger social media campaign as well, posting—for example—about its “committed gateway pricing” and “jobs-for-life” pledges.

· Regarding that jobs-for-life pledge, industry analyst Daniel Bostek for one, isn’t all that impressed. He emphasizes its relevance to just current employees, not future employees. Writing specifically about conductors, he explains: “The agreement protects roughly 8k current SMART-TD members. But railroad employment typically turns over 3-5% annually through retirements and attrition. Within a decade, you’re talking about thousands of new hires who have no such guarantee.”

Other Developments

· The BLET union celebrated the 150th anniversary of a landmark 1876 labor agreement between the Central Railroad of New Jersey and its staff of locomotive engineers. It was one of the first major victories for the BLET, which was founded during the Civil War in 1863. The 1876 deal granted wage increases, seniority protections, and grievance handling, all “important building blocks that serve as the basis for many Brotherhood contracts in effect today.” Engineers with at least two years of tenure were assured $90 per month. The 1870s was a turbulent decade for the U.S. economy; it began with a railroad investment boom that proved over-enthusiastic. When the Northern Pacific could no longer find buyers for its bonds in 1873, a bank panic ensued, dragging the economy into a severe six-year recession, one of its worst ever. The Great Railroad Strike of 1877 occurred during that recession.

· BNSF loves talking about its giant rail hub project in Barstow, California. But don’t overlook the major investment it’s making in Phoenix. The Freight Flow Advisor digs deep into the strategy, centered on a $3.2b logistics park. It will have the capacity to handle about 220k containers by 2028 and more than 500k by 2050, helping to ease projected congestion at west coast ports. The idea: move containers arriving at California’s ports inland, to hubs like Barstow and Phoenix, for unloading and handling there rather than at the congested port. The Phoenix hub is also, importantly, designed to capitalize on growing freight volumes from Mexico as companies nearshore production. Local freight is growing too, with Phoenix currently one of the fastest-growing metros in the country. Firms like Intel and Taiwan’s TSMC are building multi-billion-dollar semiconductor plants in the area. Data centers are rising from the desert. And the population is growing. One challenge though, is that local residents have fought the project, concerned about issues like road traffic and water resources. As the article explains, BNSF’s Phoenix investment gives “a preview of how inland hubs, nearshoring, and local politics will reshape network strategy over the next 10–20 years.” For large importers and manufacturers, it adds, Logistics Park Phoenix will mean “a structural change in how they can design their networks.”

· In a geographically related note, some members of the Arizona state legislature—not for the first time—are again advancing a law that would cap train lengths at 8k feet. It’s unlikely to pass, but it’s a reminder that train lengths remain a hot topic.

The Speedway Conflict: UP vs. CPKC

· Union Pacific remains unhappy with CPKC and its alleged unwillingness to honor commitments related to the Meridian Speedway. Historically, it told the STB, UP delivered California-originating intermodal trains of up to 11k feet to Kansas City Southern at Shreveport, Louisiana. KCS would then move these trains along the Speedway, reaching Meridian, Mississippi. From there, Norfolk Southern would move the trains into the east. Recently, however, “CPKC has twice imposed an 8,500-foot length limit on the trains it will accept at Shreveport… which requires Union Pacific to cut trains in two before they move over the Speedway.” This is causing “significant delays.” UP wants the STB to investigate.

· CPKC, naturally, disagrees. UP is looking to coerce a change in CPKC operating rules, it said, to advance its self-serving “desire to send very long trains over infrastructure that was not built to accommodate them… Respectfully, that is UP’s

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Inside This Issue

· Smokestack Comeback? Hearing Some Roars on Factory Floors

· Dart from the Start: A Good January for RR Carload Growth

· Opening Gray: A Bad January, By Contrast, for Intermodal

· Ferromex Paradox: Op. Fluidity Better; Op. Ratio Worse

· Despacito: Mexico’s GDP Outlook No Es Bonito

· UP-NS, We Acquiesce: As RRs Join Forces, Hub Group Endorses

· Living La Vida Loco: UP Upgrading More of its Locomotives

· If It Tax Like a Duck: Tariff Costs, Uncertainty, Taking A Toll

· An Eruption of Disruption? How Will AI Impact the Economy?

Track Talk

“With stabilizing market conditions, and excellent service as well as rail consolidation expected in 2027, we have the ability to convert business from over-the-road to rail.”

-Hub Group CEO Phillip Yeager

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Inside This Issue

· Forest Thump: Terrible Times for Forestry Freight

· Killer P’s: Price & Productivity Gains Ease Demand Pains

· Oh No, Ice and Snow: Big Winter Storm Disrupts RR Ops

· Pairing While Thriving: UP & NS Both Post Strong Results

· Snap, Crackle, [but] Crop: CN, CP Pressured but... Grain Saves the Day

· Tax Attacks: RRs Tally Up Steep Cost of Tariffs

· 99 Problems but the Switch Ain’t One: RRs Downplay Open Access Threats

· Person of Interest: Trump Nominates New Fed Head

Track Talk

“This is not your grandmother’s railroad that’s afraid and protective.”

-Union Pacific CEO Jim Vena

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The Latest

· It was a busy week for railroads, both in the field and out on Wall Street. A major winter storm challenged rail fluidity across a big portion of North America, including large southern markets like Dallas-Fort Worth and Memphis. In the meantime, Union Pacific and its merger partner Norfolk Southern both reported their fourth quarter and full-year 2025 financial results. Both improved their operating ratios in 2025, versus 2024, reinforcing UP’s insistence that it’s merging from a position of strength, not weakness. Both railroads are performing very well operationally too, albeit with help from soft demand. The test is how smoothly railroads can run if and when demand grows rapidly again. UP and NS, along with their rivals, assure they’re well-positioned to handle what comes.

· Canadian National and CPKC both reported as well. And both, despite a year of migraines and ulcers, delivered excellent results. Simply put, tariffed sectors like lumber and steel are weak. But non-tariffed sectors like energy and chemicals are holding up well, while bountiful grain harvests ensure bountiful revenues. Uncertainty remains high however, with President Trump again lashing out at Ottawa, most recently knifing Canada’s aerospace sector. Tumbling commodity prices last week, notably for gold and silver, also weighed on Canadian stocks (see market indicator chart below). Canadian exporters are now dealing with an appreciating home currency as well.

· UP, NS, CN, and CPKC all shared more of their opinions on consolidation, with UP and NS downplaying the significance of the STB’s “incomplete” ruling, and the two Canadian railroads amplifying their demand for steep concessions. All four railroads separately reacted to the STB’s recent decision to reconsider reciprocal switching, which already exists in Canada. Each gave a qualified shrug, saying more or less they’d be fine with it—so long as, in the worlds of Keith Creel, it’s “fair,” “balanced,” and designed to avoid “unintended consequences.” The other sentiment, expressed by Norfolk Southern’s John Orr, is that giving customers more access only becomes a problem for railroads when their customers aren’t happy with the service they’re currently getting. “My job is to give no customer any reason to want to talk to Ed [marketing chief Ed Elkins] about going somewhere else.”

· We’ll see where the STB goes with reciprocal switching. In the meantime, the key theme of Q4 earnings season is a market getting almost no demand assistance from the economy, but heavy demand pressures from tariffs. In the case of forestry freight, it’s a double whammy: Depressed demand due to weak housing economics and depressed demand due to hefty U.S. import taxes. Forestry products, keep in mind, are among the highest yielding freight that railroads carry, in terms of unit revenues.

· Thanks to pricing power and productivity gains, however, along with some better-performing sectors like utility coal and agriculture, profit margins are holding strong. The exception is CSX, as discussed in last week’s issue, and as evident from the earnings scoreboard below:

Q4 Earnings

Union Pacific

· Jim Vena, UP’s energetic chief, was happy to entertain questions about the Norfolk Southern acquisition. Yes, he’s “disappointed” that the STB needs more information. It’s a mere “procedural step,” he assured, and one “we’ve seen in previous acquisitions

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Inside This Issue

· X Marks the Rot: CSX Reports Falling Revenue; Weak Margins

· Bleak, Weak, Meek: CSX Sees No Quick End to Weakness Trend

· No Friend of Mines: CSX’s Coal Revenue Plummets

· Stall of America: RRs Dealing with Giant Winter Storm

· Shove Thy Neighbor: Trump Threatens Canada… Again

· Stack to the Future: NS Upgrades its New England IM Service

· Engine Attention: NS, CPKC Announce New Loco Orders

· This Week: UP, NS, CN, CPKC Earnings

Track Talk

“You can set the merger aside. We’re going to manage that. We’re going to work through that. We’re going to have many, many quarters to talk about that, probably. But what we know we can do now is run this company better every day, and we feel really good about our ability to do that.”

-CSX CEO Steven Angel, regarding the UP-NS merger

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The Latest

· Fourth quarter earnings season is now underway. Last week, CSX kicked things off on a gloomy note, unveiling lackluster profit margins. It managed to grow volumes last quarter—barely—but revenues shrank, reflecting a poor demand environment. As you’ll read in more detail below, the CSX management team isn’t terribly hopeful about demand and revenues improving much in 2026. And so, cost-cutting is a top priority. All of this, of course, as it keeps an eye on UP-NS merger developments. But while its eyes are open, its mouth is closed—CSX is refraining for now from publicly denouncing the merger.

· Are CSX’s demand woes specific to itself? Or are other railroads experiencing similar travails? We’ll find out this week. Union Pacific leads off with its Q4 results on Tuesday morning. Then it’s CPKC on Wednesday, Norfolk Southern on Thursday, and Canadian National on Friday. We’ll also get sector-specific insights from some major rail customers, including UPS, C.H. Robinson, and various firms in the auto, steel, utilities, forestry, chemicals, and housing sectors (i.e., General Motors, Nucor, Weyerhaeuser, ExxonMobil, Air Products, and Pulte, etc.). It’s also a big earnings week for the giant tech sector whose (largely tariff-free) AI computing investments are driving a big chunk of U.S. GDP growth right now. Microsoft, Meta, Tesla, and Apple will all report.

· In the meantime, much of North America currently faces severe winter storms, keeping railroad crews hard at work. BNSF, for one, said “winter action plans have been activated, and snow-removal resources are positioned throughout the network, including at key intermodal hubs and facilities.” It also advised: “Customers with shipments scheduled to move through impacted regions should expect delays and extended transit times, and may notice nonstandard routings, locations, and interchanges when tracing their freight.” Railroads are also asking their customers to keep their on-site tracks and switches clear of snow and ice.

· The weather is just as stormy in the geopolitical arena. Greenland, Venezuela, and

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Inside This Issue

· War of the Chiefs: CEOs Deliver Dueling Merger Arguments

· Vena, Try Again’a: STB Rules UP-NS App Incomplete

· Merger Foes, Air Your Woes! CP, BN Urge Shippers to Speak Up

· Won’t Mope if They Elope: Vena Says He Wouldn’t Oppose a BN Merger

· Rail Fail at Massive Scale: Merger Foes Focus Fears on Chicago Risk

· CN’s Trends: Demand, It Says, Remains Soft

· MARS Was Missing an Angel: CSX Silent at Big Shipper Forum

· What Does Steve Perceive? CSX Presents Q4 Earnings This Week

Track Talk

“My wife didn’t want to marry me either. But it happened.”

-Union Pacific CEO Jim Vena, anticipating an eventual merger between BNSF and CSX

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The Latest

· There are two big topics in the railroad business right now. One, of course, is the UP-NS merger, which hit a speedbump on Friday. The STB ruled their merger application incomplete, swayed by arguments from rival railroads. The application, the Board said, is missing required information, including estimates of how much market share a combined UP and NS would seize from trucks and other railroads. In addition, the Board said UP failed to include some key terms of its contract with NS, most importantly: What’s defined as a “materially burdensome regulatory condition.” That’s important: UP would be allowed to walk away from the deal if the STB imposes concessions deemed too onerous. But what concessions exactly? The application didn’t say. The STB raised a separate objection pertaining to the control UP would have of a terminal and switching railroad critical for serving St. Louis. UP intends to relinquish control by selling shares to other railroads at “fair market value.” Even so, the Board won’t dismiss the possibility of “anticompetitive effects,” and therefore considers it a “significant” transaction, not a “minor” one as UP hoped (see

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Inside This Issue

· CS-Axe: Uh. Oh. Job Cuts in Jacksonville

· New Year’s Steve: CSX Chief Shows Concern as 2026 Begins

· An Itch to Switch: STB Makes Surprise Pro-Shipper Proposal

· Capex Flex: RRs Discuss their 2026 Investment Plans

· Single-Line Divine: UP/NS Spells Big Win for IM Giant Hub

· Growing or Slowing? Econ Data Flashing Conflicting Signals

· Vena Vs. Farmer: Rival CEOs to Address Shipper Event

· Also This Week: Q4 Earnings Season Begins; J.B. Hunt On Thurs.

Track Talk

“Nothing is certain, but most economists expect the U.S. economy to continue to grow moderately in 2026, supported by consumer spending and business investment.”

-from the AAR’s latest Rail Industry Overview (RIO) report

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Signs of Stress: CSX Cutting Jobs

· For CSX, the new year brings little cheer. Last week, the company said it would downsize its management ranks by roughly 5%, cutting 166 positions. In fact, the axe sliced even deeper. According to Trains Magazine, the railroad is also furloughing 193 train conductors. Last month, CSX cancelled a contract with Railcrew Xpress, a company providing ground transport for train crews. It’s reportedly taking other cost-cutting measures as well, including cutbacks to employee travel.

· Why the sudden belt-tightening? Steve Angel, recruited to run the company last fall, clearly feels uneasy about demand conditions. This perhaps reflects new concerns about the U.S. economy, whose job market is clearly weakening (see the economy section below). It perhaps reflects a worsening of CSX-specific demand trends, some of which CFO Kevin Boone flagged at a UBS investor event in November (see Railroad Weekly’s Dec. 8^th issue). Boone spoke then of a troubled industrial economy that’s hurting the railroad’s chemical and forestry volumes. He mentioned weakness in the housing and auto markets. Some key auto customers, more specifically, were impacted by a major aluminum plant fire, as well as a computer chip shortage. Boone at the time said food and ag exports were also weak. So were international coal prices. A major coal train derailment will cost CSX an estimated $30m. Domestic intermodal pricing remains weak. International demand, he added, is weakening as pull-forward demand from tariffs tapers off. Maybe it’s no surprise that Angel is acting.

· For all of 2025, CSX grew its total freight volume by less than 1% y/y. And that was mostly thanks to a 4% increase in intermodal demand, with additional help from grain, minerals, construction material, and waste. But overall carload traffic (in other words, everything but intermodal), shrank 2%. CSX’s three largest businesses in terms of volume—chemicals, coal, and autos—all shrank last year. Not good.

· To be sure, Boone in November mentioned some positive demand trends as well, including a strong metals and minerals market thanks to frenzied data center construction. The demand to move fertilizer is strong. And CSX is certainly excited about its new I-95 double-stacking capability, as well as its new partnerships with BNSF and CPKC.

· Still, the dominant sentiment in Jacksonville right now is undoubtedly one of concern. That concern, furthermore, is heightened by the prospect of its chief rival Norfolk Southern joining forces with Union Pacific. This would create extreme pressure for CSX to merge with BNSF, lest BNSF merge with one of the two Canadian Class Is, leaving CSX isolated.

· We’ll get a much clearer picture of Angel’s thoughts next week, when CSX presents its Q4 financial results. Remember that its results were disappointing last year—through the first nine months of 2025, it was the worst-performing North American Class I in terms of operating ratio. (Was this the real reason Joe Hinrichs was ousted?). Last year’s poor performance further underscores the pressure it’s under to cut costs. Fortunately, two major construction projects are now complete, removing a major cause for troubled operations last year (and a major expense). The railroad also completed work at its Willard Yard in northern Ohio, doubling daily switching capacity. But will demand improve? That’s the big question.

Other Developments

· So yes, Q4 earnings season will soon be upon us. CSX is alone in reporting next week, but other Class Is will report the following week. Already this week, on Thursday, J.B. Hunt will report. What will it say about the current state of the domestic intermodal market? Will it have anything more to say about the Union Pacific-Norfolk Southern merger, which could give J.B.’s rival Hub Group a major advantage in moving containers coast-to-coast—no more need for a lengthy interline connection in Chicago (Hub already works closely with UP and NS).

source: UP/NS merger application

· Regarding the UP-NS merger, the STB will soon decide whether to accept the application submitted last month or deem it incomplete. It must decide within 30 days of the application’s Dec. 19^th submission, which means next week. In the meantime, the STB made a surprising and potentially consequential move. All three current

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courtesy: Tyler Silvest

Publisher’s Note: This is the final issue of Railroad Weekly for 2025. The next issue is scheduled for Monday, January 5^th. As a reminder, RW publishes 48 issues per year, with two-week breaks in August and December. Looking forward to another eventful year of railroading in 2026. In the meantime, happy holidays!

Inside This Issue

· Looking Back: Reviewing the Top Developments of 2025

· Looking Ahead: What’s Coming in 2026?

· This Week: Finally, the UP-NS Merger Application?

· Track GPT: How the AI Boom is Benefitting NS

· Trouble in the PNW: BNSF Recovering from Severe Floods

· Oh No, Still Can’t Grow: Another Year of Stagnant Volumes

· How Low Can You Go? Fed Drops Lending Rates Again

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Track Talk

“Artificial intelligence is transforming industries across the country, and with it comes a rapid rise in power needs. Data centers, cloud computing, and advanced manufacturing facilities are requiring major growth in shipments of transformers, generators, and grid components. Norfolk Southern is playing a pivotal role in moving this high-demand freight, supporting energy providers and manufacturers as they build the power systems needed for an AI-driven economy.”

-from a Norfolk Southern press release

The Latest

· It’s the last Railroad Weekly issue of 2025 and wow, what a year it’s been. It’s merger mania in the railroad business, as Union Pacific prepares to merge with Norfolk Southern. But first, it must receive permission from the STB, which plans to carefully study UP’s merger application, expected this week. The STB will also hear from anyone with an opinion, including those invited to present at in-person hearings likely scheduled sometime early next year. The merger battle sets the stage for what will surely be another eventful year in 2026.

· Below are some highlights and themes of this past year, along with some questions railroads are asking as 2026 approaches. Broadly speaking, railroads performed well financially and operationally in 2025. But they once again failed to achieve their growth ambitions. Though total North American rail traffic will be up a bit this year versus last, that’s mostly thanks to macroeconomic factors like a jump in utility coal demand, not self-help factors like winning market share from trucks, or capturing new business from emerging sectors. Of course, the macroeconomic backdrop in a larger sense was hurtful, not helpful, as rail-heavy sectors like manufacturing, housing, and forestry continued to slump. Railroads still insist they can generate growth by investing in new technology, new service offerings, new partnerships, new capacity, new mainline and siding track, new transload and intermodal terminals, new industrial and logistics parks, and so on. They still talk about the many new customer projects coming online, like the $3b West Virginia sheet steel plant that Nucor will open in 2027. But when if ever will all of this translate into meaningful volume growth? Do Union Pacific and Norfolk Southern have the right idea? Can significant growth be achieved only with a giant transcontinental merger?

· A few developments from last week: BNSF continues to recover from severe flooding in the Pacific Northwest. Union Pacific appointed Tony Will to its board of directors—he’s the CEO of CF Industries, a major chemical producer. Chemical shippers, remember, are among the most outspoken opponents of the UP-NS merger. In a presentation to investors last week, the oil giant ExxonMobil said it manages a fleet of more than 40k railcars, calling this figure “comparable to Union Pacific and BNSF.” [UP for the record began the year with 34k owned cars and another 22k leased cars]. Oil-Dri Corporation of America, which moves a lot of minerals like clay, told investors, “We’ve made investments to stabilize and improve rail conditions… [to] efficiently move railcars through our facilities and position them in a place where they can be prepared to be picked up by local rail companies and moved throughout the nation.”

BNSF network update, Dec. 12th:

· Interestingly, Norfolk Southern explained how it’s moving lots of additional electrical transformers, generators, and grid components due to the boom in AI data center construction. Investment in new advanced manufacturing facilities is also driving demand for such shipments. Transformer shipments alone, it said, are up 30% y/y in 2025. That’s the kind of growth railroads would love to see more of. It’s also the kind of growth, prevalent in Norfolk’s southeastern stronghold, that Union Pacific finds enticing.

Top Ten Railroad Trends and Developments of 2025

1) A More Favorable Regulatory Environment: Railroads made no secret of their frustration with the Biden Administration’s Federal Railroad Administration (FRA). They’re speaking more warmly of newly-installed administrator David Fink, a former railroader himself. In a major ruling earlier this month, the FRA opened the way for greater use of automated track inspection. Railroads say new inspection technologies will improve safety, though unions are concerned about the implications for staffing. A broader deregulatory approach, while not without risks, is benefitting key railroad customers like coal miners. In Canada, prime minister Carney hopes to offset tariff pressure by deregulating some aspects of the economy, including approvals for infrastructure projects.

2) A Turbulent Year for Intermodal: Tariff drama made it extremely difficult to forecast container import volumes, which in turn made it challenging for railroads to plan their service into and out of major seaports. They in most cases managed well operationally, even as volumes surged in the weeks and months leading up to tariff implementation dates. Based on IANA figures, total intermodal volumes across North America are trending higher this year than last, by 4% through the first nine months. The market is divided roughly evenly between international and domestic containers, with both showing growth. Internationally, the busy port of Los Angeles expects its third busiest year ever in 2025, helped by growth in imports from markets other than China. As long as American consumers continue to spend, ports expect to stay busy. Changing tariff policies, however, along with the imminent Supreme Court decision on tariff legality, leaves lots of uncertainty. On the domestic side, it was yet another year of depressed pricing due to trucking overcapacity and lowish gasoline prices. Still, railroads managed to win some new business from the highways, thanks to much-improved service and reliability. They’ve also opened new terminals, transloading facilities, and lanes (in some cases with partners). Mexico continues to be a high-potential market for growing intermodal, notwithstanding tariff obstacles.

3) Grain Leads List of Growth Markets: North American grain traffic is up 7% this year, more than any other category itemized by AAR. This year’s Canadian prairie grain crop looks great, accompanying strong output in the U.S. as well. For a grain-heavy carrier like CPKC, this is especially good news. But railroads throughout the continent are benefitting from prolific ag production, never mind the financial

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Inside This Issue

· No Trackage in My Package: Vena Draws Line on What He’ll Concede

· I Got A Filing: Woo Hoo, UP Merger App Coming On or About Dec. 19th

· Kill It or Carve It: RR Foes Seek to Kill Merger… or Gain From It

· Battle of the Two Pacifics (UP v. CP): CP Emerges as Vocal Merger Foe

· Commodity Odyssey: Grain and Coal Driving RR Growth This Fall

· Intermo-Dull: IM Momentum Losing Steam as Port Activity Slows

· Human Eye or A.I.? FRA Approves More Auto Track Inspection

· Pain in the Gas: Coal Stands to Benefit as Nat’l Gas Prices Soar

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Track Talk

“We’re not Santa Claus, to give away trackage rights.”

Union Pacific CEO Jim Vena

“There’s going to have to be trackage rights given.”

-CPKC CEO Keith Creel

The Latest

· Next week. Friday, December 19th. That’s when UP and NS will likely submit their merger application, give or take a few days. That’s what the railroads told the STB this past Friday. Whatever the exact day, it sounds like the rest of the industry will have a lot of reading to do over the Christmas break. They should leave plenty of time. Canadian Pacific’s 2021 application to merge with Kansas City Southern was 4,342 pages long.

· The application will seek to mollify concerned shippers, regulators, other stakeholders. But as Jim Vena made perfectly clear, UP isn’t willing to grant rival railroads voluminous rights to use its tracks. It did so when buying the Southern Pacific many years ago but this merger, Vena says, hardly involves any network overlap.

· Will UP get away with securing merger approval without heavy surrender on

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Inside This Issue

· Surf Board Memories: A Look Back at the STB’s UP-SP Decision

· Pre-Wedding Waiting: Dec. is Here; Means UP Merger App Near

· Folly Wood: It’s Been a Rough Year for Forestry Markets

· Two Years of Tears: CN Carload Volumes Down from 2023

· Sales of Some Rails? Shortlines Could Benefit if UP and NS Divest

· It’s a Mall World After All: Consumers Must Shop, Lest GDP Drops

· How is Spending Trending? Holiday Peak So Far Looking Good

· This Week: UP and Others to Address Investors in Florida

Track Talk

“We’ve been in a freight recession for the last few years. But eventually, it will turn, and when it will turn, then we will capture that rebound at low incremental cost. I’m looking forward to that.”

-Canadian National CFO Ghislain Houle

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The Latest

· Though railroads don’t break for holidays, U.S. executives were quietly eating their turkeys last week, giving thanks for at least some demand growth this year—U.S. rail volumes are up 2% y/y through late November, according to the latest AAR figures. Execs will be back on the road this week, delivering remarks at a UBS investor event in CSX’s home state of Florida. Union Pacific’s Jim Vena will be there, once again trumpeting the virtues of his grand plan to merge with Norfolk Southern. Some welcome the creation of America’s first truly transcontinental railroad. Others are wary. All stakeholders though, are eagerly awaiting UP’s formal STB merger application, which will provide more details about what the combined railroad would look like, and how it plans to enhance competition.

Looking Back: The UP-SP Merger

· The UP-NS merger application could come as early as this week, based on UP’s stated intention to submit it in early December. As the industry waits, let’s go back 30 years, to look at the outcome of UP’s last big merger, with Southern Pacific. On August 6^th, 1996, the Surface Transportation Board (STB) issued its decision to approve the UP-SP merger, following roughly one year of review—UP filed its application in November 1995. At the time, the two railroads said their combination would enable new routes for shippers—Oakland to Chicago, for example, and Los Angeles and Chicago. They’d have a fast path from the west coast to the east, via Dallas-Fort Worth and Memphis. It would create the first-ever single-line route between Seattle and Los Angeles. And so on.

· Union Pacific felt compelled to merge following Burlington Northern’s fusion with the Santa Fe in 1995. Southern Pacific, UP argued, faced a bleak future without a merger. In fact, SP tried to merge with Santa Fe in 1986, but that merger was blocked by the STB’s predecessor, the Interstate Commerce Commission (ICC). By the mid-1990s, SP’s finances were highly stressed, forcing it to repeatedly sell off assets just to stay in business. Some of UP’s arguments then, echoed those it’s making today, i.e., promising efficiencies for shippers by eliminating interchanges. But there’s one big difference between then and now: With the Southern Pacific takeover, unlike the Norfolk Southern takeover, UP planned to cut jobs—about 5k in total. The SP deal also involved the abandonment of 17 line segments covering nearly 600 miles. Will UP and NS also propose to abandon pieces of their combined network?

· To mitigate the STB’s concerns about reduced competition, UP pre-negotiated a package of concessions with BNSF, including line sales and trackage rights. These would provide access to allow BN to compete between Seattle and Los Angeles, for one. The latter would have more access to compete between Oakland and Denver, and from various markets from Houston. UP negotiated specific agreements with coalitions of chemical and coal customers as well. These agreements would prove crucial in securing the STB’s approval.

· To be sure, many parties objected to UP merging with SP. They included railroads like Conrail and Kansas City Southern, which demanded UP sell off various lines and assets. The STB wound up rejecting many of these divestiture demands, fearing they’d neutralize too many of the merger’s potential benefits. The Clinton administration’s Justice Department also urged stronger concessions than the STB wound up demanding. The DOJ, among other things, wanted UP to divest one of two parallel routes running from the Gulf Coast to east coast gateways along the Mississippi. It also wanted UP to sell one of its two central corridor routes between California and the Midwest. In addition, the DOJ said UP should have to enable the introduction of a third competitor—besides BNSF—to enter the busy Los Angeles-Chicago route.

· The STB’s final decision to approve the merger certainly included some concessions. They were generally devised to make BNSF a stronger competitor in markets where many shippers would be otherwise left with just one rail provider. BN, for example, was awarded access on equal economic terms to some key UP/SP storage and other facilities serving Gulf Coast plastics manufacturers. The board separately demanded concessions to protect competition across the U.S.-Mexico border, at the time a priority following the adoption NAFTA (the North American Free Trade Agreement). It also imposed a five-year oversight provision, during which UP and BNSF had to periodically file reports showing that “the protective conditions [ascribed by the STB] are in fact working.”

· At the time, the STB had just three members, and all three voted yes. Chairperson Linda Morgan, in her decision, explained her distaste for large-scale divestitures. This remedy doesn’t distinguish between shippers affected and unaffected by the merger, she argued. In addition, requiring divestitures could “lead to more government intrusion, more regulatory oversight, and, ultimately, more litigation… in short, divestiture poses substantial problems of its own.” The trackage rights UP will provide BNSF, by contrast, are a better remedy, which “can replicate SP’s existing competitive presence.”

from Linda Morgan’s merger approval statement:

· Vice Chair J.J. Simmons, an ICC member when it voted to reject the Southern Pacific-Sante Fe merger, explained why the Union Pacific-Southern Pacific merger was different. For one, UP’s negotiated remedies with BNSF and various shipping groups provided meaningful mitigation to competitive harms. In addition, economic conditions had changed—he cited the rapid growth of intermodal shipping, which stood to benefit most from the UP-SP merger. He agreed with Morgan about trackage rights being a better solution than divestitures. He invoked SP’s weak finances as well, which—among other things—made it an “unreliable provider of rail service to the [Defense Department].” SP’s weak state also put its workforce at risk of losing their jobs.

· Member Gus Owen, meanwhile, cited a long history of public policy that encouraged railroad mergers when in the public interest, as defined by the Supreme Court and Congressional law. Owen mentioned the deal’s “widespread labor union support.” He mentioned “substantial operating cost savings.” He mentioned the environmental and safety benefits tied to taking trucks off the highway. And he mentioned how “more efficient, lower-cost railroads… make American industry more competitive in world markets and make American jobs more secure.”

· How did the merger work out? Operationally, it became a poster child for dysfunction, leaving brain scars on a generation of rail shippers, some still in the business today. Strategically and financially, though, it left Union Pacific with a network that today produces industry-leading operating ratios. A crown jewel of today’s UP system is the old Southern Pacific lines into and out of Texas, specifically the chemical-rich Gulf region. That’s a source of abundant high-yielding business. Interestingly, chemical shippers are currently among the most vocal opponents of UP merging with Norfolk Southern.

· BNSF, ahem, has a less charitable view of the merger’s impact, and the conditions the STB imposed. “In the nearly thirty years since the UP/SP merger… UP has engaged in a pattern of obstructive conduct that has diminished those competitive options and has harmed customers by delaying or preventing BNSF from fully replacing the competition that was lost through the UP/SP merger as the Board originally intended.” In fact, BN is now asking the STB to “review the conditions imposed in connection with he UP/SP merger, enforce the obligations UP has refused to abide by, and modify those conditions as necessary to preserve the competition the Board envisioned.”

Other Updates

· Rail consultant Daniel Bostek, in a LinkedIn post, discusses what a UP-NS merger could mean for shortline railroads. The merger could, he writes, present “massive” opportunities for “consolidators” eager to expand their railroad portfolios. As Bostek explains, “the Surface Transportation Board doesn’t just approve or deny deals—it forces competitive concessions.” In other words, the STB could force UP to divest portions of its network. Some of the larger North American shortline operators today include Genesee & Wyoming, Watco, OmniTRAX, RJ Corman, and Patriot Rail. “These are not your grandfather’s short lines. They’re sophisticated logistics companies with deep-pocketed institutional owners who see the UP-NS merger as a once-in-a-generation acquisition opportunity.” UP, Bostek reasons, might itself offer to shed lower-density branch lines that don’t mesh well with the PSR business model. And this could be a “gold mine” for shortline acquirers. Opportunities could include “branch lines serving agricultural, forest products, aggregates, and small industrial customers that Class I carriers consider ‘non-core.’”

excerpted LinkedIn post below:

· Speaking of shortline deals, the investment group Fortress will buy control of two carriers: 1) The Wheeling & Lake Erie Railway (W&LE) and 2) the Akron Barberton Cluster Railway (ABC). With the STB’s approval last week, Fortress now owns eight Class III rail carriers.

· UP and NS are already working together on new options for shippers. They’re now offering domestic container service to Cincinnati from both of UP’s Los Angeles-area terminals, namely City of Industry and IEIT (Inland Empire Intermodal Terminal). Importantly, UP and NS will eliminate a truck transfer in Chicago, going from rubber tire to steel wheel.

Conference Highlights: Canadian National

· Canadians celebrated their Thanksgiving in October. So, Canadian National’s CFO Ghain Houle was out and about last week, addressing a Desjardins investor event in Toronto. As December arrives, CN is gaining back the business it lost during labor unrest at ports last fall. As a result, volumes through the first three weeks of November (RTMs) are up 15% y/y.

· But how is traffic looking this year versus two years ago? Not so great. Things superficially look fine so far this year, thanks to strong intermodal growth. Container traffic is up 9% through the first 47 weeks of the year, compared to the same 47 weeks of 2023. But excluding intermodal, CN’s carload volumes so far this year are down 5% from two years ago.

· You can see from the chart above how different freight categories have trended over the past two years. Lumber shipments, most strikingly, are way down in response to a 45% U.S. tariff. Lumber centerbeams, used for homebuilding, have fallen sharply in price, to what Houle said were below breakeven levels for Canadian producers. CN moves more lumber in North America than any other railroad. Note below some trends in the housing-sensitive lumber business (R&R refers to the repair and remodeling market).

· On the other hand, Houle said CN’s intermodal business is performing “quite well,” including the truck-competitive domestic segment. There’s of course the big

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