Industry Observers Adjusting Rail Outlooks

North American Class 1 railroads will be issuing their second quarter financial reports later this month and ahead of that Wall Street analysts are issuing their expectations about what the carriers will report.

Cowen and Company, whose insights appear often in the trade publication Railway Age, said it has adjusted its rail models to reflect a number of factors that influence railroad performance in the second quarter, including carloads, fuel, foreign exchange, and cost implications as the supply chain remains tight.

It expects carloads trends to exceed previous expectations, noting total carloads are up approximately 23 percent.

Because the second quarter of 2020 was the height of the COVID-19 pandemic, Cowan has been comparing this year’s performances against 2019 to get a more accurate reading on 2021.

In that comparison, carload traffic last week was down 2 percent compared with 2019, the second consecutive week that 2021 has underperformed 2019.

“Unlike the first quarter, there were no material weather impacts for the railroads that affected volumes,” Cowan wrote.

Cowan expect supply chain tightness to persist for the remainder of 2021 and it also expects intermodal to continue to be robust as well.

The report said big box retailers have yet to see a slowing of orders. Thus far this year, intermodal traffic is up 18 percent.

The elevated demand has enabled railroads to choose their business, but increased intermodal traffic volume also has meant a decline in rail service.

This has included embargoes at terminals that are unable to take in more cargo.

Costs associated with these developments are expected to increase costs.

Diesel fuel prices are rising, although these tend to have a two-month lag in how they affect railroads because the carriers contract for fuel in advance to lock in prices.

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