Dive Brief:
- More shippers are converting to rail freight as they contend with higher fuel and trucking costs, CSX SVP and Chief Commercial Officer Maryclare Kenney said in a Q1 earnings call.
- The railroad handled a total volume of 1.56 million units in Q1, up 3% year over year, according to its quarterly financial report. Intermodal volumes were also up 6% YoY, with revenue for the segment increasing 5%, Kenney said.
- “Our intermodal business has good momentum with tighter trucking supply and higher diesel prices creating tailwinds for freight conversions,” Kenney told analysts.
Dive Insight:
High fuel costs tied to the Iran war are creating opportunities for railroad companies as shippers seek to cut costs before intermodal rates catch up to rising rates in the trucking market.
The current market dynamic has made CSX more optimistic than earlier this year about truck conversion opportunities, Kenney said, particularly for the company’s domestic intermodal business.
In the meantime, CSX is seeking other ways to capitalize on the trend, such as its plans to soon launch a service with CPKC on its Southeast Mexico Express offering.
“SMX provides truck-competitive transit between major markets in the southeast with Dallas and Mexico, and recent investments will enhance both speed and efficiency,” Kenney said.
As CSX reports a volume uptick tied to increased shipper interest in moving cargo by rail, competitors Union Pacific and Norfolk Southern are remaining cautiously optimistic.
For Union Pacific, a more sustained uptick in fuel costs, including higher on-highway diesel costs, would lead to an increase in volumes for its business as the year progresses, Kenny Rocker, EVP of marketing and sales, said during a Q1 earnings call on April 23.
Norfolk Southern is also optimistic about its intermodal business as dry van rates trend upward, capacity rightsizes and demand firms up, EVP and Chief Commercial Officer Ed Elkins said during a Q1 earnings call on April 24. But that optimism is tempered, Elkins said, due to increased competitor activity in the wake of the announcement of UP and NS’ planned merger.
During a J.P. Morgan Industrials Conference in March, Norfolk Southern CEO Mark George had already discussed how the railroad expected to see a boost in its intermodal and utility businesses if gas prices tied to the Iran war continued to rise.
“When that gas is high, it’s pretty good usually for coal and our coal franchise, or utility franchise,” George said. “You’ll see the utilities burn more coal, so that’s not a bad thing for the business volumes.”
