· Calm Before the Storm: A Lull in Tariff Talk as Apr. 2ndNears
· Jack Assets: RR Stock Prices Drop Again
· Mission from SWARS: In the Lone Star State, RRs Pitch for More Freight
· Farmer Armor: Ag Sector a Bulwark vs. Volume Dips Elsewhere
· Farmer’s Final Four: BNSF Chief Presents Her Keys to Success
· Lady Tech Beth: UP President Champions the Promise of Technology
· Bose Don’t Know Diddley: RRs Slam Inaction by Former FRA Regime
· Automation Fascination: RRs Want More Freedom to Innovate
· Tech Tension: But Does Innovation Breed Labor Strife?
Track Talk
“We don’t expect… that we’re going to move into a world where everything runs on its own and there’s no human intervention. But [what we’re] starting to think about is… Why can’t you recreate what’s on a train in an office, right? Instead of having a crew go out to a train, get on the train, start it up, the computer can run the train, and sit there and monitor things. Why can’t you monitor it from an office?”
· Finally, a quiet week on the tariff topic. No new announcements. No major drama. No unsettling headlines to rattle the economy. In fact, major U.S. stock market indices gained a bit last week. Not railroad stock though. The Big Five publicly traded Class Is all lost value again (see chart below). Last week’s lull notwithstanding, tariff uncertainty looms as large as ever, with all eyes on Wednesday, April 2nd. That’s the new starting date for 25% tariffs on most imports from Canada and Mexico. It’s also the day that Washington plans to announce additional tariffs on overseas trading partners.
· According to Canadian National’s chief economist Luisa Fernandez-Willey, who delivered a presentation at last week’s rail shipper event in Dallas, there’s a current disconnect between economic “hard data” and economic “soft data.” The hard data suggest the economy is still pretty healthy—no alarm bells in terms of job growth, wage growth, consumer spending, etc. But soft data measuring sentiment is plummeting. That’s visible in consumer sentiment surveys, purchasing manager surveys, logistics manager surveys, and so on. As tariff threats proliferate, uncertainty is building. Uncertainty, uncertainty, uncertainty… if only we all had a nickel for every mention of that word these past few weeks.
· Also at last week’s Dallas event, hosted by the Southwest Association of Rail Shippers (SWARS), railroad executives shared their own thoughts on the current market uncertainty while assuring it will NOT distract from longterm efforts to grow volumes, improve customer service, deploy new technology, and develop corporate culture (see below for more).
· Earlier this month in California, the National Grain and Feed Association held its annual convention. And lest there be any doubts about the importance of rail service to grain companies, the event’s speakers included STB chair Patrick Fuchs, CSX chief Joe Hinrichs, and marketing or government affairs executives from all the other Class Is. Looking at AAR rail traffic data through mid-March, North American ag volumes are up more than any other carload freight category—in other words, more than any category other than intermodal. That’s even as the farm economy struggles. According to the firm Worthington Steel, whose steel is used for ag infrastructure like combines and grain bins, the ag market will likely “remain soft for a while.” It continues to be “held back by interest rates, commodity prices, and tariffs that further delay farmers’ decisions to purchase new equipment.”
· In labor news, Union Pacific reached a five-year wage and benefits deal with the leaders of the National Conference of Firemen & Oilers union (NCFO), subject to member ratification. At CPKC, the railroad’s roughly 660 clerical and intermodal workers in Canada ratified a new four-year deal negotiated by their union, the United Steelworkers (USW). Railroad labor tensions have certainly decreased since the warlike atmosphere of earlier this decade. But thorny issues remain, including the prospective automation of more work, including perhaps driving trains. The locomotive engineer union (BLET) has criticized other unions for agreeing to “pattern agreements” on wages offered by multiple railroads. It offers a 17.5% wage hike over five years, or 3.5% per year. Here’s a letter the BLET wrote last fall, in response to Norfolk Southern conductors accepting the deal.
· Wabtec CFO John Olin spoke at a Bank of America event, highlighting ways in which the company is innovating. The focus, he said, is on saving railroads money in two key areas: fuel and labor. One pursuit is a means to automate railcar inspections. “These are jobs that are not pleasant, to inspect a train before it goes, crawling under a train in 100-degree heat or a bunch of snow to check and tick something off, when you could run something down between all the wheels and to get that done.” Olin also talked about running trains autonomously. “Instead of having a crew go out to a train, get on the train, start it up, the computer can run the train… maybe someday, we won’t need two people in a cab and maybe that will be controlled remotely from our customers’ offices.” He remarked that a typical train has three or more locomotives on it, and “there’s nobody sitting on those other locomotives because we have software that controls them… the computer knows on a two-mile train, there may be part of it going down a hill, part of it coming up a hill...”
· Olin expressed frustration about a new Wabtec fuel-saving algorithm that’s “been sitting at the FRA and not being ruled on; whether we can go forward with it or not… Our best understanding is there was concern by some of the unions that there was an impact that this technology could limit some of the employment.” But “with the new administration, we’ve seen movement.” On the other hand, he’s “not in favor of tariffs… Our locomotives are produced in America [using] American parts, but we do have some parts coming from other parts of the world that [are] hard to get [outside] the United States.”
· President Trump’s controversial decision last week to fire the two Democratic members of the Federal Trade Commission raises the question: Might he also fire the two Democratic members of the Surface Transportation Board, namely Robert Primus and Karen Hedlund? The FTC and STB are both independent agencies, designed to be bipartisan and outside of presidential control. Other such agencies include the Federal Maritime Commission, the Federal Energy Regulatory Commission, and most importantly, the Federal Reserve. Separately, Amtrak’s CEO resigned last week, reportedly under White House pressure. Amtrak is a government-owned for-profit corporation—one that Elon Musk said he wants to see privatized.
The Economy
· Speaking of the Federal Reserve, Jay Powell and friends held the second of their eight annual policy meetings last week, opting (as expected) to leave their overnight interest rate target unchanged (between 4.25% and 4.5%). “Recent indicators suggest that economic activity has continued to expand at a solid pace,” the Fed said. But “uncertainty around the economic outlook has increased.”
· As you can see from this chart below, U.S. retail sales rose again from January to February (seasonally adjusted). But not by much. Note the substantial decline in spending on food away from home. Darden Restaurants, which owns chains like the Olive Garden, said in its earnings call that about 20% of its “cost basket” is imported. “Obviously, tariffs [are] top of mind here.” It did say that “changes in consumer sentiment haven’t necessarily translated to material changes in consumer spending… People, even if they say they’re feeling less optimistic, we haven’t seen a huge correlation between that and dining out… I think as long as incomes are going up and outpacing inflation, I think they’re likely to keep spending.” But Darden also flagged “more pullback in guests with income of below $50,000.”
· Carnival, the cruise company, was exceedingly bullish in its latest earnings call, dismissing the bearish views recently expressed in the airline business. “We’re generating demand well in excess of our very limited inventory remaining... We have proven to be incredibly resilient to the volatility around the globe.”
· Here’s some positive news: Single-family housing starts in February, according to the U.S. Census, rose 11.4% from January. They were still down 2% versus a year ago, however. The National Association of Homebuilders had this to say: “Limited existing inventory helped single-family starts to post a solid gain in February, but builders are still grappling with elevated construction costs stemming from tariff issues and persistent shortages related to buildable lots and labor.”
· Worthington Steel, also referenced above, expects the construction market to be “fairly flat, then begin gaining momentum later in the year.” Potential interest rate declines would help. It added that “AI initiatives and more data centers mean more demand for power and the infrastructure to carry it. “There’s a two-year backlog on transformers, which use the electrical steel cores we make, and the need for power is expected to grow at more than 6% per year over the next 15 years.”
· Canadian National’s chief economist Luisa Fernandez-Willey, referenced above, also spoke about Mexico’s economy. She said GDP there slowed in late 2024 as investment dropped sharply. High interest rates are one reason. The economy was also hit by a drought that impacted agriculture prices, and lower prices in the energy sector (Mexico is a major oil producer). Purchasing manager indices suggest Mexico’s manufacturing sector will contract in the months and quarters ahead, unsurprising given the U.S. tariff peril.
· FedEx, a major rail customer, said again that it’s keen on “maximizing rail utilization.” Unfortunately, it’s still grappling with “weakness in the industrial economy.”
Highlights from Last Week’s SWARS event
BNSF
· The Southwest Association of Rail Shippers gathered roughly a thousand people in
