Anyone with doubts of the U.S. Class I railroad industry’s pricing power and improved efficiency, should look at the major carriers’ first quarter financials.
The four publicly traded railroads — CSX Transportation, Norfolk Southern Railway, Union Pacific Railroad and Kansas City Southern Railway — expanded their total profit by 9.6 percent year-over-year to nearly $2 billon. Those robust gains came despite the four railroads’ total revenue increasing only 1.8 percent to $11.5 billion. Even more telling was that their locomotives only hauled 0.2 percent more volume in the first three months of 2013 than they did in the same period last year.
But the industry’s financial success is more than just a product of hundreds of millions of dollars of network investments and rare pricing power. The railroads have seen the changes on the horizon, allowing them to tap two of the most emerging trends in industry: shippers’ increased drive to reduce transportation costs and the ramp-up in domestic energy expansion.
The railroads’ growing intermodal divisions have harnessed the first trend. And more hauling of loads connected to natural gas and oil drilling has helped the carriers weather weak grain and coal demand.
Although the rail industry predicts a slow but steady U.S. economic expansion, the railroads expect their business to outpace that of the general economy. In a U.S. business environment full of “cautious optimism,” that speaks to rare confidence.
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