Blanchard Railroad Week in Review, Second Quarter 2020

The Railroad Week in Review:
Second Quarter 2020

Week ending May 22
Responses to last week’s question about railroads as a growth business, Class I customer support. Why tracking customers’ capex plans is important. Observations from railroad talks at the virtual Wolfe Transportation Conference.

Week ending May 15
AAR Real Time indicators 10-year carload trends; merch vols holding more or less steady vs. coal and intermodal. Is the railroad business a growth business? Trends in revenue units and pure revenue. Class I sales forces shrinking while short lines stay in front of their customers.

Week ending May 8
BNSF 1Q revenue units decline 5% to 2.3 million loads, freight revenue drops 6% to $5.1 billion. ASI-Transmatch showing the rapid decline in YTD railroad volumes. Why the ISM trend is something to watch. Coronavirus effect on supply chains.

Week ending May 1
Canadian National reported first quarter freight revenue of C$3.4 billion, up 30 basis points on 1.3 million revenue units, down six percent, with system RPU increasing seven percent; revenue ton-miles decreased one percent. Norfolk Southern reported first quarter freight revenue down eight percent to $2.6 billion and volume down 11 percent to 1.7 million units; taking "non-GAAP non-cash” loss of $385 million on the “ongoing disposal of 703 locomotives.”

Week ending April 24
KCS had made great strides in running a faster, smarter, more cost-effective railroad so was well-positioned for COVID-19; mix chart from the presentation slides shows the strengths of a carload-centric franchise. Canadian Pacific revenue units increased 8.7 percent to 690,600 with particular strength in Energy, Chemicals, Plastics (ECP), Fertilizers/Sulfur, and Grain; CP’s commodity mix is 51.9 percent carload ex-coal; grain and ECP account for half of that. CSX is getting closer to customers in order to grow revenues from current customers and win back those who stepped away for whatever reason; there are positive signs of better coordination of revenue development schemes and operating department objectives. Union Pacific quarterly operating income of $2.1 billion — up nine percent, even with total revenue down three percent and revenue units down seven percent; the magic was taking taking operating expense down ten percent year-over-year.

Week ending April 17
Some concerns I have about the relative importance of revenues, costs and volumes; revenue-unit chart and The One Train Railroad. Shortline operator: heat-and-eat up, building products a question. Fall-offs in volume leading to debt downgrade? The DCs that got away.

Week ending April 10
Comments on the debt levels for the Class I railroad community redux; why this time I think it really will be different. Susquehanna’s Bascome Majors says industrial merchandise traffic is still holding up; the way I see it, these trends will not necessarily hold. North American Class I railroads are approaching the first quarter 2020 earnings season with equanimity; the quarter ends with Week 13 revenue units down 11 percent year-over-year, not an encouraging sign. AAR chart.

Week ending April 3
Watco’s SKOL wins $27 mm grant for track upgrades; why more short lines need to do more. Coronavirus event taking its toll; North American Class I roads total revenue units as of March 28 down 7.4 percent. Class I debt-equity ratios approaching 100 percent; Moody’s rates the railroads. Comparing UP, BNSF commodity carload volume changes.

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Roy Blanchard, rblanchard@rblanchard.com
Laura Blanchard, lblanchard@rblanchard.com