After several soft volume quarters in which profits nevertheless remained fairly strong, Q1 saw a rebound in volumesr rail carriers– perhaps surprisingly based in part on increases in coal shipments.
We're back as usual every quarter with our review of the results and trends across freight modes, starting last week with US truckload carriers (see Yet Another Soft Quarter for US Truckload Carriers in Q1, as Volumes, Rates Remain Weak).
Supply Chain Digest Says... |
 |
| Net income as a percent of sales was 18.0%, up from 17.5%, in numbers that compared favorably with almost any industry. |
 |
What do you say? |
| Click here to send us your comments |
 |
| Click here to see reader feedback |
|
|
This week, we look at the rail transport sector, and then next week we'll review results and trends in the less-than-truckload group.
As part of that review we look at the four major Class I public carriers that make up the US rail sector (Burlington Northern is of course part of public company Berkshire Hathaway, but its results are not broken out in any detail and thus are not included).
Overall, carload volumes in our group were up from just 0.3% at Union Pacific to 6% at Kansas City Southern, with many of the carriers reversing many quarters of double digit declines in coal shipments seeing a rebound in the quarter, up 21% at Norfolk Southern, for example,
According to the Association of American Railroads, total U.S. carload traffic for the first three months of 2017 was 3,324,102 carloads, up 5.7%, or 180,665 carloads, from the same period last year; and 3,387,680 intermodal units, up 1.4%, or 47,977 containers and trailers, from last year.
The big news in the quarter was Hunter Harrison taking over as CEO of CSX, after having previously turned around Canadian Pacific in a big way.
Harrison is making moves already, and CSX's stock price is soaring. For example, CSX has aready closed four so-called "hump yards," with several more potentially on the chopping block, as the former CEO of both major Canadian railroads is bringing his legendary focus on efficiency to his newest gig.
What is a hump yard? It is an approach to reshuffling inbound cars to a terminal to match them up with outbound trains scheduled to take them away. Using this process, long trains are broken down into individual cars by pushing them over a hill, then letting gravity send them down different tracks. From there, they are reassembled and connected to a train headed to their next destination.
Harrison has said such facilities are inefficient because of the time-consuming way they work and the high costs of manning and maintaining them. Instead, he favors an approach called "flat switching," in which locomotives are used to break down and assemble trains. In this approach, considered part of "precision railroading," train cars are sorted into blocks as they are picked up from shippers. The blocks are more organized than the jumble of cars that typically arrive at hump yards, which makes for faster swapping and assembly, cutting days off transit times, railroad experts say.
Some of the 9 other CSX hump yards may stay, according to reports, based on their traffic profiles.
Profits for our group in Q1 were up a strong 10.1% in the quarter. Net income as a percent of sales was 18.0%, up from 17.5%, in numbers that compared favorably with almost any industry. Kansas City Southern led the way, with net margins of a very strong 24.1%, with Union Pacific was not far behind at 20.9%.
That of course meant average operating ratios (OR), or operating expense divided by operating revenue, a key metric in the transport sector, were strong, at 68.8% (unweighted average) up fractionally from the 68.7% in Q1 2016. That level of OR is of course far superior to that seen in the truckload or LTL sectors, which generally see ORs in the high 80 percent levels and low 90 levels, respectively.
Q1 2017 US Rail Carrier Results
Source: SCDigest Analysis from Company Earnings Releases
(See More Below)
|
CATEGORY SPONSOR: SOFTEON |
|
|
| |
|
|
As usual, highlights of the comments from each carrier in their earnings releases are provided below, most of which even more brief than usual this quarer.
Union Pacific
Quarterly freight revenue improved 6% compared to the first quarter 2016, as volume growth, increased fuel surcharge revenue, core pricing gains and positive mix all contributed to the increase.
Union Pacific's 65.1% operating ratio was flat compared to the first quarter
2016. Higher fuel prices negatively impacted the operating ratio by about 1.3 points.
CSX
Union Pacific's 65.1 percent operating ratio was flat compared to the first quarter
2016. Higher fuel prices negatively impacted the operating ratio by about 1.3 points.
CSX said it "is making adjustments throughout the company to improve asset utilization, achieve greater operations efficiency and reduce its cost structure."
New CEO Harrison said that "As the business environment continues to improve and we implement Precision Scheduled Railroading, CSX will realize these objectives while driving volume growth and achieving a new level of financial performance."
Norfolk Southern
First-quarter net income was $433 million, up 12% year-over-year, a result of a 7% rise in income from railway operations.
Commented that "Our strategy provides a strong foundation for growth at low incremental costs, a powerful formula for enhanced shareholder value."
The railway operating ratio, or operating expenses as a percentage of revenues, was 70.0 percent, a first-quarter record.
Kansas City Southern
Record first quarter revenues of $610 million, an increase of 8% over first quarter 2016 on a 6% increase in carloads.
Operating income of $211 million, a first quarter record and 12% higher than prior year.
Excluding the estimated impact of
Mexican peso depreciation, revenue increased by 11% compared to the first quarter of 2016.
Any reaction to the Q1 review of the rail sector? Let us know your thoughts at the Feedback section below.
Your Comments/Feedback
|
