Shippers’ Negotiation Leverage Increases as Rail Carloads Decrease In 2015 railroads were hit hard by decreases in carloads for many commodities. Figure A shows that Coal, Sand and Crude carloads on the big four US railroads (BNSF, CSXT, NS and UP) decreased significantly in 2015 with some of the largest decreases occurring between the third and fourth quarter. These large decreases in carloads have had a big impact on the price of railroad stock as Figure A shows that the average price of CSXT, NS and UP stock dropped 23% in 2015. When a company’s stock price drops by 23%, management is under pressure to improve results and this can have a significant impact on shipper’s rates for moving freight. The question is, when will the drop in carloads for major rail commodities stop? This is an important question for shippers to answer as the drop in rail carloads gives many shippers greater leverage in their negotiations with rail- roads. April 2016 Volume 25, Number 4 RAIL PRICE ADVISOR The Rail Intelligence Newsletter The decrease in carloads in 2015 make volumes more important to railroads and this in turn makes rail- roads compete more aggressively for traffic that is at risk to other railroads or other modes. Railroads are large capital network businesses with high fixed cost which are amortized over carloads and the fewer the number of carloads, the higher the cost of doing business. Today’s market pressures railways to decrease expenses and increase carloads in order to improve margins. This means, that railroads may need to lower rates to capture new traffic and maintain existing competitive traffic. However, railroads will likely attempt to make up for these reductions on the backs of captive shippers. An increase in the disparity between rates for captive versus competitive traffic will lead many shippers to try and put more rail traffic at risk and pursue rate decreases with their railroads. Shippers that are not able to put traffic at risk to railroads, can be put at a dis- advantage in the current market as the disparity in rates for captive and competitive traffic will likely become larger. Shippers need to prepare their strategy for how to best take advantage of current market conditions so they do not lag behind competitors rates in their markets. (Continued on page 2)
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Shippers’ Negotiation
Leverage Increases as
Rail Carloads Decrease
In 2015 railroads were hit hard by decreases in carloads
for many commodities. Figure A shows that Coal, Sand
and Crude carloads on the big four US railroads (BNSF,
CSXT, NS and UP) decreased significantly in 2015 with
some of the largest decreases occurring between the third
and fourth quarter. These large decreases in carloads have
had a big impact on the price of railroad stock as Figure
A shows that the average price of CSXT, NS and UP
stock dropped 23% in 2015. When a company’s stock
price drops by 23%, management is under pressure to
improve results and this can have a significant impact
on shipper’s rates for moving freight.
The question is, when will the drop in carloads for major
rail commodities stop? This is an important question for
shippers to answer as the drop in rail carloads gives many
shippers greater leverage in their negotiations with rail-
roads.
April 2016 Volume 25, Number 4
RAIL PRICE ADVISOR The Rail Intelligence Newsletter
The decrease in carloads in 2015 make volumes more
important to railroads and this in turn makes rail-
roads compete more aggressively for traffic that is at
risk to other railroads or other modes. Railroads are
large capital network businesses with high fixed cost
which are amortized over carloads and the fewer the
number of carloads, the higher the cost of doing business.
Today’s market pressures railways to decrease expenses
and increase carloads in order to improve margins. This
means, that railroads may need to lower rates to capture
new traffic and maintain existing competitive traffic.
However, railroads will likely attempt to make up for
these reductions on the backs of captive shippers.
An increase in the disparity between rates for captive
versus competitive traffic will lead many shippers to
try and put more rail traffic at risk and pursue rate
decreases with their railroads. Shippers that are not
able to put traffic at risk to railroads, can be put at a dis-
advantage in the current market as the disparity in rates
for captive and competitive traffic will likely become
larger. Shippers need to prepare their strategy for how to
best take advantage of current market conditions so they
do not lag behind competitors rates in their markets. (Continued on page 2)
4Q2015 Commodity Results
Rates are Down for 12 of 13 Commodities
The fourth quarter 2015 commodity results (third to
fourth quarter 2015) for railroads in Table 1, show that
rates decreased on twelve of thirteen major commodity
groups. This combined with the fact that twelve of the
thirteen commodity groupings had decreases in the aver-
age rate per ton from the fourth quarter 2014 to the fourth
quarter 2015 show a continuing downward trend in rail
rates. Shippers that would like to look at results for spe-
cific commodities on their railroads will need to call Es-
calation Consultants or go to RailRateChecker.com and
click on Free Rate Data.
Rate decreases between the third and fourth quarters
of 2015 ranged between -7% and -2%; only Farm
Products (STCC 01) increased. Farm Products had a
4.1% increase over this time frame. Crude Petroleum
(STCC 13) had the largest decrease at 7.1%, followed by
Coal (STCC 11) at -4.9%.
Figure C shows the annual average change in rate per ton
by major commodity grouping between the fourth quar-
ters of 2014 and 2015 on US Class I railroads. Figure C
2 No reproduction in any form is permissible without written authorization.
RAIL PRICE ADVISOR
shows that over the last four quarters the average rate per
ton on all major commodity groups ranged between
-22.1% for Nonmetallic Minerals (STCC 14) and an in-
crease of 1.2% for Pulp, Paper or Allied Products (STCC
26). Figure C shows that, on average, shippers were pay-
ing lower rates at the end of 2015 than they were at the
beginning of 2015. Shippers should be aware that if they
had rate increases over this timeframe their rates in-
creased more than the average rail shipper.
Table 2, on page 3, shows the macro picture for rail rate
changes for all commodities with and without fuel sur-
charges on each of the US Class I railroads from the
fourth quarter 2014 to the fourth quarter 2015. UP and
NS rates without fuel surcharge increased 1.8% and
0.9%, respectively, while CSXT rates decreased by 2.2%.
When considering the total rate, plus fuel surcharges
Table 1
Ranking of 4Q2015 Average Rate Changes Per Ton by
Commodity on U.S. Class I Railroads
From Same Qtr. Last Yr.
4Q14 to 4Q15
From Prior Qtr.
3Q15 to 4Q15
01-Farm Products -5.9% 4.1%
20-Food/Kindred Products -4.3% -0.2%
26-Pulp/Paper/Allied Products 1.2% -0.5%
29-Petroleum/Coal Products -6.3% -0.5%
32-Clay/Concrete/Glass/Stone Prod. -5.7% -0.5%
33-Primary Metal Products -3.1% -0.6%
24-Lumber/Wood Prod. -1.2% -0.7%
28-Chemicals/Allied Products -4.4% -0.7%
46-Intermodal - Misc. Mixed Shipments -5.4% -1.1%
14-Nonmetallic Minerals; Exc Fuels -22.1% -3.8%
37-Transportation Equipment -9.7% -4.2%
11-Coal -10.6% -4.9%
13-Crude Petroleum/Nat. Gas/Gas -15.1% -7.1%
Note: Commodities ranked from high to low rate of change over last quarter (3Q2015 to 4Q2015).
Source: Railroad's Quarterly Freight Commodity Statistics filings to the STB.
Shippers’ Negotiation Leverage Increases as
Rail Carloads Decrease (Continued from page 1)
The average change in stock prices of CSXT, NS and UP
through February 2016 included in Figure B indicate that
railroads will be having a difficult time for the foresee-
able future as stock prices continue to fall. Shippers
should be prepared to take advantage of the situation to
the same extent railroads did when the shoe was on the
other foot.
Railways. The bottom of Table 3 summarizes changes in
tons moved and revenue per ton by carrier e.g. CSXT
total tons moved decreased by 11.5% and average reve-
nues per car was flat at 0%, CNUS volumes are down by
22.8%, but revenue per ton is up 6.6%. NSC volumes
and revenue per ton both decreased.
The Western carriers shown on Table 4, on page 5, all
suffered decreases in the average revenue per ton for all
commodities.
Tables 3 and 4 track 13 two-digit commodity codes for
seven Class I railroads. Railroads have had double digit
percent reductions in the average dollars per ton (rates) in
a large number of commodities. At the bottom of Tables
3 and 4 the overall performance for each railroad is sum-
marized. The big four US Class I railroads all had
negative changes in volume and three of the four had
negative changes in average dollar per ton; only CSXT
avoided a drop and its change was 0.0%.
3 No reproduction in any form is permissible without written authorization.
RAIL PRICE ADVISOR
three carriers had rate decreases, while BNSF rates in-
creased 0.9%. The amount of change attributable to fuel
surcharges ranged from a 1.2% decrease on NS to a 2.3%
decrease on BNSF.
Figure D shows the largest rate increase by two-digit
commodity code for the major US Class I railroads be-
tween the third and fourth quarters of 2015. The CSXT’s
6.5% rate increase for Farm Products (STCC 01) ship-
ments is the highest average rate increase for a two-digit
commodity. Figure D shows the largest rate increases
by two-digit commodity code for the railroads yet
25% of the changes shown are negative, this gives an
indication of the market conditions faced by railroads.
Figure E shows the commodities with the lowest rate
changes for US railroads from the third to the fourth
quarters of 2015. The -11.5% change in the rate per ton
for Transportation Equipment on the BNSF is the biggest
reduction. Nonmetallic Minerals, which includes frack
sand, not unexpectedly, has rate decreases on all four of
the major US Class I carriers, Petroleum or Coal Products
and Crude Petroleum, Natural Gas or Gas (STCC 29)
also has significant reductions on CSXT and UP.
Table 3, on page 4, tracks the change in major two-digit
STCC commodity grouping volumes and revenues be-
tween the fourth quarters of 2014 and 2015 for Eastern
The Rail Price Advisor is published by Escalation Consultants, Inc. Jay Roman, Editor Shade May, Associate Editor Cathy Ferguson, Coordinator Copyright 2016. No reproduction in any form is permissible without written authorization nor shall any information herein be put into any type of retrieval system without prior written permission. Escalation Consultants makes every effort to supply accurate data, but it does not assume responsibility for the reliability of information attributed to other sources. Subscription rate $500 U.S. (via email) Escalation Consultants, Inc. (301)977-7459 4 Professional Drive, Suite 129 Fax: (301)977-9248 Gaithersburg, MD 20879