Inside this Issue:
· No Recession in Sight: Demand Still Strong, It’s Supply That’s Not Right
· Hunter’s Evil Ghost: An Oregon Congressman Excoriates PSR
· Crop Flop: CN and CP Hopeful This Fall’s Grain Harvest Better than Last
· U.S. Rail Reliability: Somewhat Better but Shippers Still Bitter
· Forecast for an Impasse? Railroad Labor Tensions Simmer
Track Talk
“We railroads… we see it early on. And I can tell you that we’re not seeing it. Not at this point.”
-Canadian National CFO Gislain Houle, asked about the likelihood of an imminent recession
The Latest
· Throughout North America, rising interest rates, widespread inflation and slumping stock markets have raised concerns about a looming recession. Not among railroads though. Union Pacific, CSX, Norfolk Southern and the two Canadian Class Is all addressed the investment community last week, insisting that demand to move freight remains strong. An overarching theme of their discussions, in fact, was that there’s more demand currently present than railroads have the capacity and staffing to handle. The U.S. lines say efforts to address severe service woes are making slow but steady progress. The Canadian lines, meanwhile, say their operations are mostly running well now, following a tough first quarter. They expect things to get significantly busier in the second half of the year though, assuming this autumn’s grain crop isn’t a repeat of last year’s disaster. All the Class I’s see auto shipments increasing as the year progresses and microchip availability improves. The unexpected revival of old king coal still has legs. Things are likewise looking good for most other commodities, from farm outputs to industrial inputs. As for the intermodal business, international container movements remain bottlenecked. But domestic movements are growing nicely.
· Remember that STB hearing a few weeks ago, when shippers, unions and regulators relentlessly hurled verbal stones at the U.S. railroads? There was more of that last week, but this time without the railroads present to defend themselves. The setting was Capitol Hill, where the STB members themselves testified before a Congressional committee on renewing the regulator’s authority, a routine process for federal agencies. Legislators used the opportunity to pile on with the criticism, echoing the grievances of shippers in their home districts. Rep. Peter DeFazio of Oregon evoked the “evil ghost of Hunter Harrison,” referring of course to the late chief of multiple Class I railroads, celebrated (or denounced) for fathering the deployment of Precision Scheduled Railroading. All five members of the STB were present at the hearing, including chairman Marty Oberman. He too made clear his distaste for PSR, blaming it for “unacceptably poor” service and what’s now a “severe crisis.” The industry, he said, needs to operate with more of a cushion to manage unexpected developments. But he’s not optimistic of service improving any time soon. Railroad stock buybacks were another target of reproach at the hearing. Oberman also spoke in favor of the STB implementing new reciprocal switching rules designed to give shippers more options when moving freight by rail. Deregulation saved the American freight rail industry four decades ago, he admits. But things have more recently swung too far in the other direction. For the record, the STB currently has nine pending regulatory proceedings, one of which is the proposed reciprocal switching mandate. Another concerns rules governing private railcar use by railroads. A few others pertain to rate disputes.
· Railroads will be speaking at another major investor event this week, specifically the Wolfe Research Global Transportation and Industrials Conference. Also this week, the National Industrial Transportation League will host a virtual event. The title of this year’s meeting: Navigating Supply Chain Chaos. One of the scheduled speakers: STB chair Marty Oberman. Be sure to read all about it in next week’s edition of Railroad Weekly.
Highlights from Last Week’s Bank of America Investor Event in Boston
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