“Pricing, employment outlook, confidence, recent business trends and shippers’ growth expectations all declined somewhat,” Seidl said. “While we continue to remain positive on the rail industry over the longer term, 2015 could prove to be one of the more difficult years for rail stocks in quite some time.”
Though the pricing result may appear neutral at first glance, “we believe it is a mild negative, as recent insight we have gathered from multiple channels indicates that intermodal renewals have been occurring at considerably high rates, and the slight 10-bps decline in overall rail pricing in our survey suggests that non-intermodal pricing may be tempered enough to more than offset the intermodal rate strength,” Seidl noted.
Nearly half the shippers surveyed have rerouted freight away from U.S. West Coast ports due to the months-long slowdowns caused by a labor dispute, the survey indicated. Half the rerouted freight appears to have made its way to East Coast ports, with another 41% going to the Gulf Coast. Prince Rupert (B.C.) and other ports appear to have only received small percentages of the rerouted freight. “The lack of a big benefit at Prince Rupert during the slowdowns bodes well for CN, in our opinion, as it limits the potential volume losses from freight going back to U.S. West Coast ports,” Seidl pointed out. “CSX, Norfolk Southern and Kansas City Southern, however, could see further moderation in their year-over-year growth.”
“The survey results help affirm our near-term cautious view of the rail sector and our belief that the railroads are likely to temper business growth expectations for the full year when they report 1Q15 earnings,” which begin on April 15 with CSX immediately after the New York Stock Exchange closes for the day at 4:00 p.m. EDT. “We continue to believe that CN may be least exposed to current industry headwinds due to lower coal exposure than U.S. carriers, lower crude exposure than CP, and likely currency related benefits north of the border.