Freight rail seeks ways to stay afloat amid sinking rail volumes

As the freight rail industry looks ahead to 2020, the leaders of several Class I railroads and railroad lessors said a return to volume growth isn’t likely to appear until the second half of next year.

While the consumer economy appears to be stable amid factors such as low unemployment rates in the U.S., the industrial economy hasn’t shown the same magnitude of strength, rail executives said at transportation conferences held by investment firms throughout November.

“I think our assumption is that it [the freight market]  gets better. It may not get better just flipping the calendar to 2020. It may be more of a back half [of 2020] in terms of as the year progresses, that it improves through the year, but we do look for it to get better next year,” said incoming Union Pacific (NYSE: UNP) Chief Financial Officer Jennifer Hamann at a conference sponsored by investment firm Stephens on Nov. 15.

Janet Drysdale, vice president of financial planning at Canadian National (NYSE: CNI), echoed Hamann’s sentiments at that same event on Nov. 13.

“We’re expecting a soft landing” in 2020 and not a recession, Drysdale said.

To cope with potentially lower volumes in the first half of 2020, executives laid out several short-term initiatives, although they deferred any comments about 2020 guidance to when they announce their fourth-quarter results in January.

Those initiatives include growing merchandise volumes, which is the bulk of the volumes that the Class I railroads carry. Opportunities to haul more plastics, grain and refined products are some areas where the railroads are seeking to increase their business, while domestic coal volumes appear likely to continue to decline. 

And although the rail prices can be about 10% to 15% cheaper compared with truck for hauling merchandise volumes, the railroads need to improve their service product to gain more business, according to CSX (NASDAQ: CSX) CEO Jim Foote at the Baird Industrial Conference on Nov. 6.

CSX will get merchandise business when our service is reliable enough, Foote said.

To boost its merchandise network, Norfolk Southern (NYSE: NSC) said it is trying to develop a more homogenous railcar strategy by limiting the car types it utilizes. Doing so improves asset utilization and makes better use of returning empty railcars, according to chief marketing officer Alan Shaw. 

Layer that strategy with technology to provide more visibility and transparency to the shipper, and “that’s when it becomes truck-like,” Shaw said, referring to the competition that the railroads have with the trucking industry over freight volumes.  

Intermodal volumes, in contrast, can face more competition from trucking because intermodal moves typically involve trucks at some point when they travel along the supply chain. But the railroads said they are continuing to eye opportunities there so long as they can improve on their service product. 

Domestic intermodal volumes are “vastly under-penetrated by rails and certainly by Union Pacific,” Hamann said.

Yet despite the competition from trucks, the railroads may be hesitant to lower their pricing to attract more businesses.

“We’ve seen several of these cycles play out over the years. I think we’re better off holding on the pricing and letting the trucking market fight over the remaining freight with prices,” Kansas City Southern (NYSE: KSU) Chief Financial Officer Mike Upchurch said at the Stephens conference on Nov. 13.

GATX tanker cars. Image: GATX

Rail lessors eye better asset utilization

Rail lessors and rail equipment manufacturers are watching how the broader economy and the Class I railroads are responding to railcar demand and responding in turn. 

“In the areas where we see the greatest amount of weakness, mostly in our general freight, we’ll be reducing capacity, and we’ll be a little more responsive to how the market is moving at this point,” said Justin Roberts, vice president of corporate development for Greenbrier (NYSE: GBX). 

The problem with the lack of a trade agreement between the U.S. and China is that investors hesitate to purchase new railcars until there’s some resolution,  Roberts said.

GATX (NYSE: GATX) CEO Brian Kenney said GATX is trying to use “volatility to our advantage” by tweaking the company’s commercial strategy depending on the railcar. If there’s demand for a railcar type, the company will raise lease rates and extend leasing terms. But if demand is sluggish, then GATX will drop rates to maintain asset utilization while also shortening leasing terms so as not to lock in those rates for too long, he said.

“This strategy, if executed successfully, results in more cars coming up for renewal in strong markets and a lot less in weak markets,” Kenney said at the Baird conference on Nov. 6.


  1. And therefore in conclusion to my response to Andy above , to the contrary of popular public opinion concerning the timing that the rail workers through the union chose to go on strike , it couldn’t have been better timed .

    The energies that currently surround us are on their side and favour them to make their case and reveal the truth in regards to their “trickster” publicly .

    And that is exactly what they have done and are doing . The wind is blowing in the rail workers back . As “above” ,so “below” (wink)

    Thus , they have public support due to the timing of the “truth” being exposed and rendering it easily understood .

    In my humble opinion …………..

  2. The farmers are done with the railroads. Year after year of getting the shaft over intermodal, ethanol, and coal. There is no going back to rail for them. 3 out of 5 rigs on the highway in the Midwest is grain and this number will only go up.

    1. Let’s be very clear on where MANY “Farmers” currently stand regarding the CN mismanagement issue that pushed rail workers to strike , and the lack of customer care CN has chosen to neglect through this ordeal .


      “Many farmers say they are sympathetic to the working conditions of rail workers, but they’re also worried they won’t be able to get crops to market in a year when they had a disappointing harvest and continue to face trade disputes — notably China’s ban on Canadian canola.

      In Montreal, the UPA isn’t asking for special legislation to force the CN employees back to work, but it wants Trudeau and his government to “put pressure on CN” to prioritize the transportation of propane.”

      RE-QUOTE !
      “Many farmers say they are sympathetic to the working conditions of rail workers”
      “In Montreal, the UPA isn’t asking for special legislation to force the CN employees back to work”
      ” but it wants Trudeau and his government to “put pressure on CN” to prioritize the transportation of propane.”

      And that’s what I have been advocating all along ! PUT PRESSURE ON CN MANAGEMENT , not on the little guys/gals at the bottom who are unfortunately being abused by CN “management” !

      You can read the article I’m referring to titled : Farmers want action from Ottawa in week-long CN Rail strike

      Here is another quote on something a little more esoteric . Bare with me now .


      “There’s always much talk (and a fair amount of hype!) when Mercury turns retrograde, most of it pretty negative and doom laden. Mention of travel disruption, communication breakdown & misunderstandings abound.

      People roll their eyes and brace themselves for a few weeks of chaos and confusion as they anticipate the trickster aspect of Mercury messing with their lives.

      And yes, it is true that these happenings occur more readily during Mercury’s retrograde phase, but the essence of the trick played upon us is that they’re not negative events, but moments designed to stop us in our tracks and wake us up.”

      RE-QUOTE :

      “but moments designed to stop us in our tracks and wake us up.”(wink)


      “The time of Mercury retrograde is always a time of truth, even when communications seem disrupted and misunderstandings are rife, because misunderstandings themselves are part of the truth of being human.

      When Mercury is retrograde we’re given a chance to address them and correct the course of events, rather than sweeping them under the carpet, ready to trip us up another day.

      Indeed, whatever Mercury retrograde brings to us, the best reflection is always, ‘What truth does this reveal to me and why have I needed it revealed in this way at this time?’. The answers to these questions may be very enlightening indeed…”


      “Mercury retrograde shadow, or retro-shade, occurs when Mercury retraces its steps after appearing to move backwards in its orbit during the retrograde.

      And during this time, the effects of everything that happened during Mercury retrograde hits us hard.

      “One would think that the post-retrograde zone would be beneficial. But more often than not, it’s a time when communications and dramas are taken to the next level — when the effects of Mercury retrograde are felt and dealt with,”

      “This particular Mercury retro-shade is in Scorpio and lasts from November 20 to December 7.

      And as Mercury re-traces its steps, so will we. “During this time, we will be revisiting the story that began during the pre-retrograde shadow period on October 11 (which lasted until Mercury entered its proper retrograde zone on October 31),” Stardust tells Refinery29.

      “This is our third shot to revise the story. Choose the narrative and ending wisely. Keep receipts from holiday shopping, be mindful of travel plans, and avoid arguments with family. All of which may be hard, as secrets and scandals will be revealed. Be careful and mindful!”

      RE-QUOTE !

      “All of which may be hard, as secrets and scandals will be revealed. Be careful and mindful!”

      And once Mercury returns direct , THE “TRICKSTER” IS EXPOSED ! And “exposed” the trickster has been thus far !

      End quote .

      In my humble opinion ……………

  3. Farmers want action from Ottawa in week-long CN Rail strike

    Rail workers cite safety concerns as undelivered grain poses widespread problems
    Karen Pauls · CBC News · Posted: Nov 25, 2019 3:43 PM CT |


    “On Monday, the union released an Oct. 19 recording of a CN supervisor asking a conductor to move his train to a location near Pickering, Ont., where a relief team could take over.
    The conductor replies that he and the locomotive engineer are unfit to move a train, having been on duty too long.

    The union says the conductor was suspended for two weeks without pay after refusing to move the train through residential areas east of Toronto.

    “This recording illustrates CN’s blatant disregard for the health and safety of our members and the public,” Teamsters Canada president François Laporte said in a statement.

    “This is why we are on strike against CN. This happens every day across the rail industry, and CN regularly intimidates workers who raise the issue of fatigue with the threat of discipline.”

    End quote .

    I also took the liberty to post a recording via youtube on a comment above titled :

    VIOLATION! CN 2865 at Sparrow Lake (04OCT2014)
    Fast forward it to 6 minutes 40 seconds and listen very carefully . CN forces employees into violating Federal laws !

    THE PUBLIC HAS PROOF that rail workers are UNFORTUNATELY asked to break the law by CN upper management .

    This also occurred and occurs in the trucking industry ! And that’s one reason why ELD’s were legislated .

    How ironic that these transport corporations ask that employees must not have a criminal record in order to obtain the “job” , and then turn around and ask transportation employees to break the law !!!!!

    What a disgrace !


    In my humble opinion ……………….

  4. CN Rail operating at 10% of regular service

    OUCH !


    ” With the rail strike starting a second week, the agriculture industry’s concern is rising beyond short-term impacts. CN Rail workers striking across the country means that the railways is down to a crawl in terms of productivity.

    How much is regular service impacted? A statement from CN Rail to RealAgriculture over the weekend says:
    “The 3,200 TCRC-CTY affiliated employees at CN are on strike. CN has a small pool of qualified managers that only allows the company to operate at approximately 10% of normal service across its extensive 22,000 kilometre long Canadian network safely.

    Currently, very limited amounts of various commodities are moving across the country. This includes container traffic to keep Canada’s ports fluid to be able to return to normal operations after the strike.”

    Shipments meant for export or domestic use are being greatly impacted by the strike. Western Canadian growers are concerned on shipments of wheat and canola before the winter weather turns severe, while eastern Canadian farmers are not seeing consistent supplies of propane to dry corn. Quebec has approximately one-week’s worth of propane in stores and has industries and organizations there have started rationing supply.

    The union maintains that the strike is not about financial compensation but instead about unsafe working conditions.
    The union has been unwilling to accept CN Rail’s offer to close the negotiation gap by accepting binding arbitration which would put an end to the strike and re-start commodity movement”

  5. Mr.Bill Gates has more power in the current CN situation than the Canadian government has .

    Recent CN management choices are a disgrace in regards to what a gentleman like Mr.Gates stands for : THE WELFARE OF PEOPLE !

    Recent CN management has caused massive suffering among its rail workers and its clientele and its client’s workers !!!

    With one simple phone call to CN management , Mr. Gates can rectify the wrongs current CN mismanagement has created !

    Mr.Gates should take a step forward and show the people what a true hero he can be for their WELFARE in this unfortunate situation caused by CN mismanagement .

    Mr.Gates ! , Mr.Gates ! Mr.Gates ! Everyone REPEAT and call on Mr.Gates !

    In my humble opinion …………….

    1. check this out :

      Railroad Song – Made by an Ex-Conductor for CN on youtube

      Then check this out on youtube : VIOLATION! CN 2865 at Sparrow Lake (04OCT2014)

      Fast forward it to 6 minutes 40 seconds and listen very carefully . CN forces employees into violating Federal laws !

      PSR(Precision Scheduled Railroading) There isn’t anything precise in their railroading “schedules” now ,EXCEPT , CN has “PRECISELY” proven how ” vulnerable” their PSR BS is if they mistreat employees and force them to walk off the job .

      I’m surprised Bill Gates would put up with this sort of “people” mismanagement . If CN stock takes a wild dive as I anticipate it will , B.G. will surely recommend Michael Larson at Cascade make some noise in the matter .

      After all , Bill Gates is a philanthropist who believes in promoting the WELFARE and quality of PEOPLE’S LIVES !!!

      He should take a good look at how he can improve the WELFARE and quality of employee life at CN !

      Where’s is HIS “philanthropy ” IN THEIR REGARD ??? And CN employees help BIll Gates generate profits , NOT CURRENT management through their decision to force a strike and create a clientele uproar in the process !!!

      Cascade recently bought 672,540 CN Common Shares between august 8 & 13 . They over paid in my opinion . Had they waited a bit , they could have paid approximately $10 less per share(approximately just under $7Million less) .

      Quote :
      “Updated Tuesday Aug 13, 2019 02:42 AM EDT
      Cascade Investment, a 10% Holder, acquired 278,622 Common Shares on a direct ownership basis at prices ranging from $90.770USD to $91.925USD on August 7th, 2019. This represents a $33,912,351 investment into the company’s shares and an account share holdings change of 0.3%.”

      “Updated Wednesday Aug 14, 2019 01:45 AM EDT
      Cascade Investment, a 10% Holder, acquired 672,540 Common Shares on a direct ownership basis at prices ranging from $93.009USD to $94.060USD between August 8th, 2019 and August 13th, 2019. This represents a $83,349,113 investment into the company’s shares and an account share holdings change of 0.7%.”

      If I’m not mistaking , I believe Cascade currently holds 25% of the outstanding or very near to it .

      In my humble opinion ………..

  6. CN Rail workers rally marches through downtown Kamloops


    ” Over 200 people showed up today (Nov. 24) for a march through Kamloops near the Thompson River today, in support of striking CN rail workers.

    The rally saw supporters gather at the historic rail station (and former Keg) on Lorne Street and march down Lansdowne Street to First Avenue, at the railway overpass, waving flags and signs at traffic and pedestrians. Cars, trucks and a CP train honked in support.

    Chris Parkins, president of the local 855 Teamsters, says he was a little surprised.
    “Actually I’m a little overwhelmed by the response and the turnout,” he tells KamloopsMatters. “A majority of the guys out here are our guys, and we do have a few brothers and sisters out from CP rail as well.”

    Other unions also showed up, including Unifor, CUPE and BCGEU members with flags. Friends and family also showed up.

    By my eye there are a couple hundred people in this march, more if you include dogs. Just passed a CP train which honked at the group.

    “We’re basically trying to get a little bit of support from the public showing them we’re out here for rail safety and for our own guys safety,” Parkins says.

    Long hours and fatigue are the biggest concern, he adds.

    “We’re on call 24/7, so a lot of these guys will sit around at home waiting for 10, 12, 14, 20, 22 hours for the phone to ring, and it’s hard to judge when you’re going to work when you don’t have a schedule to follow.”

    End quote .

    On another note :

    CN strike: Farmers’ union to protest Monday outside Trudeau’s Montreal office

    “On Friday, a convoy of tractors travelled from Châteauguay to CN’s headquarters at Montreal’s Central Station to denounce a potential shortage of propane. Already affected by a tough growing season, farmers can’t dry harvested grains because they can’t get enough propane to power their dryers.”

    End quote .


    IMHO ………..

  7. My challenge to management in any industry .

    You want to sit on the throne and “direct”

    So then “direct” and perform just as profitably in a contracting economic environment as if it were expanding . Just like a hedge fund . A hedge fund could careless what direction an economy takes , THEY PERFORM or at least should . Otherwise you would withdraw your capital and offer it to a better performing hedge fund .

    In the case of a corporation , performance is based on management . If management underperforms , shareholders shouldn’t settle for excuses based on the phase of the moon , or an economic phase ect . Management is relied upon to perform , period . And if they don’t perform then they should be excused and replaced . It’s nothing personal , it’s just business (wink) .

    What if the “Rail” sector collapsed tomorrow morning and retraced 50 % during the course of the next 6 to 18 months ?

    Let’s take CNI as an example .

    What if CN’s market cap retraced by 50% from its IPO day to the recent peak through a share price debacle during the next 6 to 18 months ?

    Do they have a contingency plan for such a potential occurrence ? Or is the typical story going to be sold to shareholders that they shouldn’t sweat a “temporary” 50% haircut and just hold for the long term during a contracting phase ?

    If that’s the case then why aren’t corporations applying the same notion towards holding on to employees for the long term when “demand” decreases periodically in the “short” term ?

    Management shouldn’t preach something and then turn around and do the opposite and expect shareholders to remain confident in what management states .

    I firmly believe that corporate management needs to step away from the status quo and manage innovatively . Most keep doing the same thing everyone else does and in doing so shareholders and employees remain “victims” of the “business cycle” .

    And what if one Rail corporation managed to think out of the box and outperformed its sector by leaps and bounds and managed to slice its operating ratio down to 25% and didn’t layoff a single employee while its competition experienced a 50% debacle in a contracting economy ?

    Obviously this would demonstrate to shareholders and employees in rival rail corporations that management in rivals are applying primitive thinking and remain slaves of the “business cycle” .

    Everyone keeps relying on and or speaking about and basing themselves on demand and or increasing their price for services to remain profitable . To me this is primitive thinking .

    Service quality improvement , expansion , and growth should be the norm , and what will set you apart is performing exceptionally well while everyone else in your sector and industry isn’t .

    IMHO(In my humble opinion) ………….

Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.