Railcar leasing giant GATX sees it. So does intermodal service provider Hub Group, and equipment builder American Railcar Industries.
Like the major freight railroads, these companies see the rail shipping industry growing solidly and pulling in more business. Most companies in the sector are reporting strong first quarter earnings, or at least an improved outlook for the year ahead. That means traffic is rising, idled equipment is returning to service, car shops are hopping to get equipment up to speed, and order books for new railcars are filling up.
In the western U.S., Union Pacific Railroad posted a 24 percent jump in first quarter earnings, to $639 million. James R. Young, chairman, president and CEO, credits “volume growth in all commodities” despite stiff headwinds of soaring fuel prices and a tougher-than-normal winter.
UP and other rail lines are operating more efficiently as they activate more workers and equipment after the recession. A focus on lean operations amid a solid and sustained volume gain gave UP a lowest-ever first quarter operating ratio of expenses relative to receipts.
Eastern carrier CSX Transportation enjoyed similar trends, which translated to a 30 percent jump in profit to $395 million, with all major cargo groups showing shipment gains and the export coal business humming.
“We expect these positive trends to continue,” said Michael Ward, chairman, president and CEO. CSX is developing its National Gateway double-stack corridor along the Eastern Seaboard and westward to near Toledo, Ohio, where it opened a major new intermodal hub in February. Ward said the strong quarterly results would allow CSX to make “critical investments and meet the future transportation needs of our customers and the nation.”
It’s also helping rail employment. As of mid-March, the U.S. operations of the seven Class I railroads employed 155,842 workers of all types, up 1,340 from a month earlier and the strongest level since February 2009, the carriers told the Surface Transportation Board.
Two years ago, however, freight rail jobs were disappearing quickly as the economy plummeted toward the bottom. Now, no one sees an end in sight to the upturn.
That strength is spreading through related firms. Hub’s first quarter revenue increased 16 percent overall, to $485 million, while revenue at its principal intermodal business grew 17 percent to $336 million. Profit jumped 21 percent to $10.5 million.
GATX had $19.9 million in first quarter profit, up 6.4 percent from a year earlier, while revenue was about even. But President and CEO Brian Kenney said the equipment market is surely improving.
Some of the signs: The big 110,000-railcar lease fleet GATX owns was running at 97.8 percent utilization as of March 31, up from 97.4 percent just three months earlier and 96 percent on March 31, 2010. Pricing on that equipment is improving, GATX said, and customers in the first quarter were renewing equipment leases for an average term of 41 months, compared with 36 months in the fourth quarter of 2010.
Kansas City Southern, the smallest of North America’s top-tier railroads, said business grew at its U.S. and Mexican lines, and intermodal customers took advantage of the link from the Pacific Coast port of Lazaro Cardenas through the new rail line KCS recently built south of Houston.
The $63 million profit KCS posted for the quarter was up 91 percent from the 2010 period. President and CEO David L. Starling credited “the expansive growth in our intermodal business, highlighted by 44 percent volume growth out of Lazaro Cardenas and a 70 percent increase in our cross-border intermodal traffic. It is apparent that shippers are embracing the service we are providing over these corridors.”
Winter storms, including a major landslide, knocked Canadian Pacific Railway flat as costs related to digging out and maintaining service to shippers jumped. Profit plummeted 67 percent to about US$36 million.
“We are intensely focused on improving network velocity and service reliability,” President and CEO Fred Green said. “Demand is strong, and we have additional resources coming online to meet our customers’ growth.”
American Railcar said it has also seen “an increase in new railcar quotes, orders and backlog” in recent months. The company, which owns one-third of a railcar components factory in Alliance, Ohio, idled in June 2009, is preparing for the plant to start up again. Under a plan approved by the board of the Ohio Castings plant, castings shipments will resume by July and production will increase in the second half of the year.
Contact John D. Boyd at email@example.com.