courtesy: BNSF
Inside This Issue
· New Year Fear: That Demand Starts to Falter
· The Recession Discussion: Some See Shrinking GDP in 2023
· STB Decisions Imminent: Most Importantly Regarding CP-KCS
· Burlington Building: A Look Back at BNSF’s Investment Plans
· Twinkle, Twinkle, Railroad Car: Demand Outlook Still Bright
· Pondering PSR: Washington Weighs its Impact on Service and Safety
Track Talk
“Consumer spending, which makes up two-thirds of economic activity, will likely determine the timing and depth of the slowdown.”
-Greenbrier CEO Lorie Tekorius, expressing her outlook for the U.S. economy
The Latest
· A new year—2023!—is underway. In many respects, that’s a relief for railroads, notably the U.S. Big Four. For them, 2022 was marred by severe customer service failures, mostly tied to labor shortages. Supply chain headaches lingered through most of the year as well—recall the ongoing shortages of container chassis, port capacity, dray drivers, and so on. On the other hand, demand was never much of a problem, thanks to strong commodity markets and manufacturing activity, along with still-elevated consumer spending. Robust non-residential infrastructure building helped too. And so did recovering auto production, negating weakness in areas like housing construction and forestry products. All told, North America’s major railroads emerged from 2022 with characteristically plump profits, notwithstanding their service and supply chain woes, and not to mention rising costs for everything from labor to fuel to materials. Consistently plump profits are perhaps the blissfully predetermined destiny of a $100b industry with just seven main players, soon to be six barring an STB surprise rejection of Canadian Pacific’s purchase of Kansas City Southern—a decision on that is imminent.
· Exactly how well did railroads do financially in 2022? We only have three quarters of data so far, but quarter four results are coming soon. Most of the Class I’s are tentatively scheduled to report between Jan. 24th and Jan. 26th. As they do so, investors and other industry stakeholders will be listening for assessments of demand conditions, which in fact soured rather worryingly in the final weeks of 2022. As 2023 takes shape, railroads might be running into the opposite situation they faced last year, this time with too much capacity and too little demand. Their aggressive re-hiring is already improving fluidity, which itself creates more capacity. Don’t forget too that railroads just signed an expensive new labor contract. That said, there’s still plenty of reasons to think demand will be fine, especially if the U.S. and Canada avoid a recession.
· Will they avoid a recession? Many economists are worried, citing the Fed’s ongoing squeeze on credit. Housing markets are already in something akin to a recession. Household savings, boosted by pandemic stimulus measures, are depleting. And household wealth took a beating as the price of assets like stocks, bonds, and cryptocurrencies plunged. Ominous signals are rampant, including weak sentiment from purchasing managers, an inverted Treasury yield curve (reflecting higher costs for Uncle Sam to borrow short than long) and sharp declines in temp worker hiring. Optimists, however, point to what’s still a very
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