· Merry, Merry January: IM Volume Surge Continued in Early 2025
· Hairy, Scary January: Carload Volumes Barely Grew at All
· Four Machine: IM, Ag, Energy, Chem All Trending Up
· Four-Saken: Metals, Minerals, Autos, Coal Trending Down
· Hub Hype: Optimism Building for IM Domestic
Track Talk
“Think when you look at some of the demand influx that our rail partners dealt with, as well as some of the weather events, and the resiliency and ability to then rebound quickly and get back to fluid service, that’s building that confidence with our customers.”
· Was it really just a week ago? This time last week, Canada and Mexico were bracing for punitive U.S. tariffs, scheduled to take effect on February 4th. But hours before, the White House postponed the measures by a month, pending an assessment of efforts “to alleviate the illegal migration and illicit drug crisis.” As of now, the tariffs are to start on March 4th, though another postponement is certainly possible. The U.S. did follow through on levying an additional 10% tariff on all imported products from China, which promptly retaliated with tariffs on various U.S. energy and ag products, including coal. Interestingly, President Trump did not threaten Japan with new tariffs during a meeting with the country’s prime minster last week. Next question: Will the European Union be spared?
· On January 30th, Barron’s ran a headline that read: “Wall Street Loves Railroad Stocks. Could Tariffs Stop Them in Their Tracks?” As it turns out, Class I railroad stocks took a beating last week (see chart below), perhaps reflecting uncertainty about tariffs. Investors might also be wary of railroad stocks because the industry isn’t getting the lower interest rates it’s hoping for. Higher interest rates have burdened industrial investment, the housing market, and auto demand. That said, the overall U.S. economy grew at a healthy 2.3% annualized clip last quarter, boosted by a 12% surge in household spending on durable goods (perhaps influenced by recovery from last quarter’s hurricanes).
· According to FTR’s Joseph Towers, speaking on his Rail Market Update podcast, the leading items moving out of Mexico into the U.S. by rail are alcoholic beverages, motor vehicles, machinery, and grain mill products. From Canada into the U.S., the leaders by volume are wood products, fertilizers, and base metals, with motor vehicles leading if measured by value. As for the impact of the new China tariffs, Towers said about 30% of all intermodal containers imported into the U.S. originate from China. He also noted that China is the second largest international buyer of U.S. coal, behind only India.
· Ford Motor (where CSX chief Joe Hinrichs used to work) was unambiguous about the impact of tariffs. Its CEO Jim Farley said last week: “There is no question that tariffs at 25% level from Canada and Mexico, if they’re protracted, would have a huge impact on our industry with billions of dollars of industry profits wiped out and an adverse effect on the U.S. jobs as well as the entire value system in our industry. Tariffs would also mean higher prices for customers.”
· ConocoPhillips, an oil and gas producer, said its primary exposure to intra-North American tariffs would be sales of a liquefied product that it produces from Surmont in Alberta’s oil sands. “We sell around half of our Surmont liquids into the U.S. on a mix of pipeline and rail.” The U.S. tariff proposal on Canada, remember—postponed by a month—would charge energy products 10%, not 25%.
· Peabody Energy, reacting to China’s retaliatorily tariff on U.S. coal, explained how Australia’s coal is now more competitively priced for Asian buyers. “For us, it’s probably not such a big issue, but I would have liked not to have seen this happen.” It’s possible, said marketing chief Malcolm Roberts, that more U.S. coal gets sold to India or Europe. Alliance Resource Partners, for its part, said “the tariffs to China should not impact us that much [because] most of our products are domestic based. “But things are moving fast in Washington, D.C. So, it’s really hard to predict with any certainty what’s going to happen tomorrow.”
More on Coal
· Unrelated to tariffs but nevertheless relevant to railroads, Peabody noted that seaborne met coal prices have increased 45% in the past year “as we move through the low end of the cycle with expectations of improvement later in the year.” (Met coal, or metallurgical coal, is used to make steel and often exported from North America; railroads typically move the coal from mine to port, though in Peabody’s case, it uses barges to move its Alabama met coal to the port of Mobile).
· Turning to domestic thermal coal, Peabody said “U.S. coal demand hasn’t yet caught the uplift that can be expected from growing domestic power demand.” But it thinks this “will occur over time.” Peabody mines and sells thermal coal in the Powder River Basin, where it says it can increase production if U.S. domestic electricity demand does indeed grow. To move its coal from the PRB to various utilities, Peabody uses both BNSF and Union Pacific. It has thermal mines in Illinois and Indiana too, working with CSX, Norfolk Southern, and several shortlines.
· Citing the International Energy Agency, Peabody said the world used a record amount of coal last year, 8.77b metric tons. This represented more than one ton for every man, woman, and child on earth. “IEA also projects that global coal use will continue to grow for the next several years.” U.S. coal demand, to be clear, has dropped significantly over the decades, replaced by cleaner and more environmentally-fuel sources. But it still has some cost and usage advantages that other sources lack. U.S. coal production peaked at about 1.17b short tones in 2008, according to the US Energy Information Administration. It was just 578m in 2023, or roughly where it was in 1969.
Other Developments
· Last year, Union Pacific achieved an all-time record low for terminal dwell, according to its marketing chief Kenny Rocker, in a message to customers. Separately, on its media website, UP explains how it’s using artificial intelligence to improve its transportation planning—this includes routing railcars, allocating resources, reacting to disruptions, and managing field terminals more effectively. “We have to consider over 100,000 route combinations and more than 300,000 cars moving through 23 states.” When it comes to railroad IT systems, UP likes to speak of its “Big Three”: Positive Train Control, Computer-Aided Dispatch, and Transportation Management. The company recently upgraded its Transportation Management to a latest-generation system called NetControl.
· Norfolk Southern’s engineering team achieved a welcome milestone, working 1m man-hours and more than 50 consecutive days without a reportable injury. Said Ed Boyle, the railroad’s engineering VP, “It means all 5,000-plus NS Engineering teammates have made it home safely at the end of the day or the end of the week. We have fought through extreme winter weather systemwide, several significant and challenging derailment responses, multiple broken rails, many treacherous callouts, and more to keep our trains moving around the clock. You name it, we have been through it. Most importantly, we have protected NS safely.”
· CPKC reached a four-year contract deal with the United Steelworkers union, which represents about 600 of its clerical and intermodal employees. Norfolk Southern and the shortline GC Railroad are working with Agile Cold Storage, which has a new rail-served warehouse in Macon, Georgia. NS says it moves approximately 6,700 temperature-controlled carloads annually, which should grow to about 7,200 once this new Agile facility comes online. This week in Miami, several rail suppliers including Greenbrier and GATX will present at a Stifel investor event. Last month, in Washington, at the Senate hearing to confirm Sean Duffy as the new Transportation Secretary, Massachusetts Senator Ed Markey asked if he’d stand by the FRA’s requirement that freight trains be staffed with two crew members. “Yes,” Duffy replied, after an initial attempt to avoid the question. Meanwhile, in East Palestine, Vice President Vance led a remembrance of the fiery Norfolk Southern derailment two years ago. Unions including the IAM used the occasion to urge Congress to pass rail safety measures stalled since the incident. “We need legislation passed now to reduce the risk of another East Palestine. The time to act was yesterday. Rail safety is not, nor should it ever, be a partisan issue.”
· According to Railinc, U.S. shortline and regional railroads moved 4.3m carloads worth of freight in 2024, up nearly 4% vs. 2023.
Updates from the AAR
· The AAR’s final traffic figures for January are now in the books. The first month of 2025 was encouraging from a growth perspective, with total U.S. volumes up almost 6% y/y. Leading the drive was intermodal traffic (up 10%), agriculture (7%), petroleum products (6%), and chemicals (5%). But four major categories saw declines: metals (down 9%), autos (7%), coal (2%), and minerals (2%). Canadian rail volumes, incidentally, increased 5% y/y last month. Mexico’s rail traffic jumped 16%. Note that the AAR’s Canadian data includes the U.S. and Mexican operations of CN and CPKC. Its Mexican data includes the U.S. operations of Ferromex but excludes the Mexican operations of CPKC.
· The AAR’s latest monthly RIO report looks deeper into January’s trends, which were less uplifting if you put aside intermodal. U.S. carload traffic alone was up just 0.2%. Industrial shipments remain weak, the report says, though manufacturing is suddenly showing some signs of life after two years of lifelessness (see Economy section below). That’s as consumer spending remains strong, supporting intermodal growth.
· According to Transportation Department data cited by AAR, the total value of products railed across America’s borders with Canada and Mexico totaled $204b in the 12 months to November 2024. A lot of these shipments are auto, ag, and energy related. These sectors, said the AAR, will likely be first to feel the impact of new tariffs.
· Separately, AAR president Ian Jefferies was out on the podcast circuit, sharing his perspectives on 2025. On the Freightvine podcast, he cited many accomplishments on the labor front, with multiple new agreements that raise pay, offer sick leave, and provide more flexible and predictable work schedules. Already since a new round of national bargaining negotiations opened in November, five of the industry’s 12 unions have signed new national contracts.
· On the Supply Chain 24/7 podcast, Jefferies said the industry has much “momentum” this year, with non-coal volumes trending up, safety and service metrics improving, and regulatory “modernization” more likely under the new Trump administration. Even better, Jefferies said, if the industrial economy recovers and gives railroads even more freight to move. “Our folks are locked and loaded and ready to take on additional freight.” Regarding regulations, railroads are keen to use more automation in tasks like track inspection—this would enable safety checks without having to temporarily shut down rail lines. He hopes the STB can reform its “excruciatingly long” decision-making process. And he and his AAR team will be active in Congressional debates, especially as transportation policy becomes a big topic in 2026, with the expiration of the 2021 infrastructure bill.
· Though Jefferies touts the rail sector’s ability to fund itself, he acknowledges the helpfulness of generous federal support during the past few years. Less fair and less sensible, he argues, is federal spending on highways, which subsidizes rail competitors. Railroads, much more so than trucks, are closely aligned with what’s good for the economy, the environment, public safety, and the country’s fiscal health. Finally, he told Freightvine that autonomous trucking is “a ways off,” but it’s important that railroads have a level regulatory playing field when it comes to pursuing their own autonomous technology. The most common-sense place to deploy self-driving vehicles, he asserts, is on railroad tracks.
More on Autonomy
· Speaking of self-driving trucks, Elon Musk, in Telsa’s latest earnings call, talked about the “shortage of truck drivers in America; that’s one of the limiting factors on transport…. I have a lot of respect for truck drivers because it’s a tough job. But because it’s a tough job, there’s not that many people that want to do it.” The growing shortage, Musk said, means “We’re going to have a real logistics problem as time goes by. So, autonomy will be very important to meet that need.”
· Autonomous freight trains are gaining momentum in some places outside of North America. The Silicon Valley company Palantir said its software is helping the mining firm Rio Tinto “coordinate 53 driverless trains, each with 240 wagons, ultimately improving throughput and safety.” You can read more about this here.
· In the U.S., the FRA just approved a petition from Georgia Central Railway and Heart of Georgia Railroad (both subsidiaries of Genesee and Wyoming) “for a Test Program designed to test self-propelled, zero-emission, battery-electric rail vehicles and their associated computer and telemetry technology systems, and to evaluate the effectiveness of the system and new operational approaches to rail vehicle technology in the short-haul movement of containers.” The technology comes from Parallel Systems of California. This is of course highly controversial given the potential implications for railroad jobs.
