Inside This Issue
· The Economic Mood Darkens: Growing Talk of a U.S. Recession
· Service Woes: Railroads Say It’s Improving; STB Still Upset
· The CP-KCS Saga: Expressions For and Against
· Looking Back: Former Conrail James A. Hagen Reflects on his Career
Track Talk
“The Commissioners acknowledge that the proposed transaction could benefit certain U.S. shippers and ports, but that these benefits will be outweighed by the greater negative economic impact that would be visited upon U.S. longshoremen and other U.S. port and railroad workers, trucking and warehousing interests, and the primarily U.S.-based intermodal railroad systems servicing our ports.”
-Federal Maritime Commissioners Carl W. Bentzel, Louis E. Sola and Max M. Vekich, expressing their individual opposition to the Canadian Pacific-Kansas City Southern merger
The Latest
· U.S. economic conditions seem to be worsening. The systemically crucial housing market, while hardly collapsing like in 2008, has slowed considerably—home sales in May dropped 6% from the same month a year ago, according to the latest Census data. In the meantime, the economy faces high energy prices, ongoing supply chain problems, slowing business investment, tightening financial conditions, a slumping stock market and most worryingly, intolerably high consumer price inflation. Some think a recession might already have arrived. Others though, question how an economy with a 3.6% unemployment rate and still-solid consumer spending could possibly be shrinking. Corporate profits, industrial production and household wealth are still at healthy levels as well, if increasingly challenged by the multitude of headwinds.
· In Canada, inflation is no less an issue, with consumer prices for May up 7.7% y/y. This was the largest yearly increase since January 1983, and up from a 6.8% y/y increase in April. The booming commodity sector accounts for a larger portion of Canada’s economy, which is helpful (Canadian Pacific’s hometown Calgary is the country’s energy capital, akin to Houston in the U.S.). Oddly though, the Canadian dollar isn’t rising against its U.S. counterpart, something it usually does when energy prices are high. The weak loonie, alas, is making inflation worse. Canada’s economy, all the while, is exposed to challenges ranging from the auto sector’s inability to get chips to volatile weather affecting farm output.
· As railroads monitor the economic signals, the U.S. Big Four continue their weekly reporting to the STB, detailing their operational performance. The direction is generally positive, though holiday periods like Father’s Day and Independence Day present additional staffing strains. Problems remain to be sure, including buildups of containers at key intermodal nodes like Los Angeles and Chicago. Canadian National encountered a different sort of operational challenge last week. Members of its IBEW union walked of the job in a contract dispute. The railroad insisted, however, that operations have been running normal.
· STB chair Marty Oberman remains unsatisfied with railroad service levels, as he again made clear in an online event hosted by Railway Age. Executives from Union Pacific and CSX spoke as well (see below).
· Looking at the latest AAR traffic data for North America, most categories are down in volume this year, with the only exceptions being chemicals, coal and certain minerals.
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