Inside this Issue:
· Foote Loose: CSX Chief: Don’t Blame Me, Babies
· Some Progress, Some Setbacks: BNSF Gives a Service Update
· Labor Update: Mediated Negotiations Continue
· Roop, There it Is: CN Sees Big Potential for Port of Prince Rupert
· Sexier than Silicon: Gulf Coast Ports Booming with Energy Exports
Track Talk
“We’re not responsible for baby formula!... Everything else I’ve been blamed for but not that one.”
-CSX CEO James Foote
The Latest
· ’Tis the season for investor events. There was another one featuring railroads last week, this time hosted by Bernstein Research and its transportation analyst David Vernon. The chief executives of Canadian National and CSX both spoke, answering questions ranging from the current state of customer service to plans for future growth. Another major investor conference will take place this week (Tuesday), hosted by the Swiss Bank UBS. Union Pacific and Canadian Pacific are among the scheduled presenters.
· What’s the latest on the railroad service crisis? BNSF, for one, cited “some progress” with higher velocity and improved cycle times, aided by “ongoing car inventory reduction efforts.” On the other hand, it regrettably experienced a setback from mother nature, with high winds slowing train speeds and causing congestion at endpoint terminals along its southern transcon route and in the Gulf Coast region. BNSF said much of its service recovery efforts are focused on its southern California intermodal service. The company’s Los Angeles to Chicago line is one of its crown jewels, with high-capacity trackage that’s less subject to bad weather than more northerly transcon routes to Chicago (i.e., those running from ports like Oakland, Seattle or Vancouver). The terrain between L.A. and Chicago is also more forgiving.
· Speaking of Chicago, BNSF also reported longer dwell times and chassis shortages at its logistics park there, causing a buildup of trains staged and waiting to be unloaded. That’s slowing the return of railcars to the west coast, where container imports from Asia continue to pour in. The director of L.A.’s port, Gene Seroka, speaking last week on a Moody’s Analytics podcast, again emphasized the need to get more containers moving out on railroads. He did say reassuringly that imports from China have largely continued to flow without much disruption from Shanghai’s Covid lockdowns, with nearby ports like Ningbo picking up much of the slack.
· One other factor the western railroads are monitoring closely: Wildfires with the potential to destroy infrastructure and disrupt rail movements. It’s not even summer yet and severe fires are burning in New Mexico, caused by alarming drought conditions present throughout much of the west. This of course has implications for ag output, and by extension railroad revenues. A Reuters article on June 2nd reported major concerns about the U.S. wheat crop planted last fall, which will be harvested in late summer. According to AgMRC, Kansas had the largest area of land dedicated to wheat production last year, followed by North Dakota, Montana and Texas. In Canada, meanwhile, wheat farmers are more optimistic about the upcoming fall harvest. Last year’s harvest was greatly depressed by drought, with output falling nearly 40%. As a result, Canadian Pacific for one, has moved 29% fewer carloads of grain this year than last.
· A quick word on the North American economy: At the same Bernstein event referenced above, the chief of America’s largest bank (JPMorgan Chase) warned of economic hurricanes on the horizon. But he did stress that conditions for now remain strong, a sentiment supported by the chief of America’s second largest bank (Bank of America) speaking at the same event. He cited record Memorial Day spending, a still-strong job market (390,000 new jobs created in May), a large pool of household savings and ample capacity to borrow. In Canada, meanwhile, the country’s central bank raised interest rates again, hoping to stem inflation. Canada is experiencing many of the same economic trends evident in the U.S., including high inflation but also a robust business investment, buoyant consumer spending, a strong job market, solid wage growth, low unemployment, a large auto sector hit by chip shortages and a housing market that’s starting to cool after a huge run-up in prices. Canada is different in two notable respects, however. Commodities, including oil, are a larger part of its overall economy, especially in western provinces like Alberta. And the country continues to see record numbers of new immigrants, alleviating labor shortages—immigration is down dramatically in the U.S.
Bernstein Research Investor Event
Canadian National
· Still no signs of demand softness. New CEO Tracy Robinson, alongside CFO Ghislain Houle, said again that customers continue to sound bullish, with strong demand for shipments expected at least through the end of this year. Beyond that, CN will be watching carefully for any evidence of slowing, especially in light of the many headwinds blowing at the North American economy—inflation, rising interest rates, slumping stock markets and a slowing housing market, plus the pinch on supply chains and input prices from China’s Covid lockdowns and Russia’s Ukraine war.
· Canada’s Big Two railroads, remember, are not experiencing the same levels of service distress plaguing America’s Big Four. One reason is simply structural:
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