Record fuel prices are pushing freight off US highways and onto trains, helping railroad companies post higher third-quarter revenue and profit as shippers look for cheaper ways to move goods long distances, Reuters reported on Thursday, October 22.

Source: Reuters

“Railroads are much more efficient. It costs us way less per ton to move products across the US. So when fuel prices go up, it's naturally an advantage,” Union Pacific chief executive Jim Vena told investors on a post-earnings call on Thursday, according to Reuters. Diesel, a key cost for freight carriers, reached a record $6.53 per gallon in September, according to AAA data cited in the report.

Source: Reuters

$6.53Record diesel price per gallon in September (AAA, via Reuters)
+13%Union Pacific domestic intermodal volume vs a year earlier
+7%CSX intermodal shipments vs a year earlier
$7.2 billionUnion Pacific Q3 revenue — yaani about $720 crore

The shift is showing up most clearly in intermodal shipments, where freight moves by rail for the long haul and trucks handle pickup and final delivery — the segment that competes directly with long-haul trucking, Reuters reported. Union Pacific's domestic intermodal volume rose 13% from a year earlier in the third quarter, while CSX reported a 7% rise and Norfolk Southern 3%. “We are seeing long-haul truckload shift to intermodal and increased use of transload and rail-served distribution centers,” said James Mourafetis, head of transportation, logistics and services at consulting firm EFESO, quoted by Reuters.

Source: Reuters

The company results behind the shift are broad. Union Pacific reported third-quarter net income of about $2.1 billion (yaani about $210 crore) and adjusted earnings of $3.53 a share, ahead of analyst estimates of $3.47, Dow Jones Newswires reported via Morningstar, with revenue up 15% to $7.2 billion. CSX reported record revenue of $4.02 billion, up 12%, with net income of $1.05 billion, up from $694 million a year earlier, US Transport News reported. Norfolk Southern's revenue climbed 14% to $3.5 billion, Dow Jones reported, and its adjusted profit of $3.62 a share beat the $3.47 estimate compiled by LSEG, Reuters reported.

Source: Dow Jones Newswires via Morningstar

Shrinking trucking capacity is also moving freight onto rail, Reuters reported: a prolonged freight downturn has forced smaller carriers out of the market, and high operating costs and stricter driver enforcement are limiting how fast trucking capacity can return. US weekly rail traffic was running more than 7% ahead of a year earlier in mid-October, according to the Association of American Railroads figures cited by US Transport News. Railroads face higher fuel costs too, but have largely recovered them through surcharges billed to customers, Reuters reported.

Source: Reuters

What is solid

  • Reuters, Dow Jones and company results all report higher Q3 profit and revenue at Union Pacific, CSX and Norfolk Southern, with intermodal volumes up at all three.
  • Diesel reached a record $6.53 a gallon in September, according to AAA data cited by Reuters.
  • Executives and analysts quoted by Reuters link the freight shift directly to high fuel costs and tight trucking capacity.

What is only claimed

  • How much of the shift is permanent is not established — intermodal still depends on trucks for pickup and final delivery, and a fall in fuel prices could move some freight back to the highway.