Rail investors hope for better 2nd half of 2022 - FreightWaves

The second half of the year could be the time when the Class I railroads rebound from their service challenges and see performance ... ITVI.USA12,543.970-13.690-0.1%OTLT.USA2.879-0.009-0.3%OTRI.USA8.4700.0300.4%OTVI.USA12,586.450-13.290-0.1%TSTOPVRPM.ATLPHL2.8300.1606%TSTOPVRPM.CHIATL2.660-0.020-0.7%TSTOPVRPM.DALLAX1.8400.0905.1%TSTOPVRPM.LAXDAL2.1900.0000%TSTOPVRPM.PHLCHI2.010-0.020-1%TSTOPVRPM.LAXSEA2.9400.1003.5%WAIT.USA119.000-2.000-1.7%ITVI.USA12,543.970-13.690-0.1%OTLT.USA2.879-0.009-0.3%OTRI.USA8.4700.0300.4%OTVI.USA12,586.450-13.290-0.1%TSTOPVRPM.ATLPHL2.8300.1606%TSTOPVRPM.CHIATL2.660-0.020-0.7%TSTOPVRPM.DALLAX1.8400.0905.1%TSTOPVRPM.LAXDAL2.1900.0000%TSTOPVRPM.PHLCHI2.010-0.020-1%TSTOPVRPM.LAXSEA2.9400.1003.5%WAIT.USA119.000-2.000-1.7%Railinvestorsandobservershopeforimprovedrailserviceinthesecondhalfof2022.(Photo:Shutterstock/snvv18870020330)ThesecondhalfoftheyearcouldbethetimewhentheClassIrailroadsreboundfromtheirservicechallengesandseeperformanceimprovementsbecauseoftherailroads’springtimeeffortstobolstertrainandengineemployeeranks,investorsandindustryobserverstoldFreightWaves.Theadditionalconductorsandtrainengineerswhowillbeworkingfortherailroadsinthesecondhalfoftheyearwill“helptremendouslywithsomeofthe[railroads’]abilitytopreserveefficiencieswithinthenetworks,”saidJeffWindau,atransportationanalystwithfinancialadvisoryfirmEdwardJones.RailserviceissuesandtheSurfaceTransportationBoard’sresponsetothemwereprominentthemesduringthismostrecentearningsseasonastheClassIrailroadspresentedtheirfinancialresultsforthefirstquarterof2022.“Ithink[theClassIrailroads]showedprogressthroughthe[first]quarterbutnotenoughtobedemonstrable,soI’mnotsurethesecondquarterisgoingtobelovely.…[But]I’mreallyhopefulforthesecondhalf,”saidTonyHatch,atransportationanalystandconsultantforABHConsulting. Althoughserviceissuesdominatedthediscussionofresults,thefirstquarterappearedtoshowsomestabilizationsequentiallybetweenthefourthquarterof2021andthefirstquarterof2022despitesomedeteriorationintherailroads’operatingratios,observerssaid.“WhatIreallyhopeistheycanestablishandshowtousonaconsistentlevel,notjustonce…thattheirtripplancompliancenumbershaveimprovedandthatthey’veimprovedinthesecondquarter,notonlysequentiallybutwithinthequarter,monthtomonth.ThosearethenumbersthatIwillbelookingfor,thatwe’llhavetowaituntilJulytosee,”Hatchsaid.Tripplancomplianceisametricthatcomparesthetimeittakesforcustomers’railcarstotravelendtoendwithanestimatedtimeofarrivalcommitment. Otherissuesthataffectedfirst-quarterresultswereoutofthecontroloftherailroads.Thoseincludedinflationandhigherfuelcosts,bothofwhichwereinfluencedbytheconflictbetweenRussiaandUkraine. Theautomotiveindustrywasalsostrugglingtoreturntonormalproductionlevels,theysaid. “ThewholeRussia-Ukraineconflicthasreallyimpactedsupplychainsandweseesomepotentialreroutingofsupplychainsforalotofthecommoditiesthattherailshaul,whetherit’sfertilizersorgrains,”Windausaid.“That’sgoingtotakesometimetoflowthroughthesystem,butwedobelievewe’regoingtostarttoseeimprovements[fortherailroads]throughouttheyear.”Although“therewerenorealbrightspotsintheearnings,”thetoneofthecallswasmoreoptimisticandhopeful,withquestionsfromWallStreettransportationanalystsproperlyfocusingonserviceandgrowthopportunities,Hatchsaid. “IsawsomegreenshootsouttherethatIhopewe’lllookbackonandsaythat’swhen[therailroads]begantoflower,”suchasgrowthopportunitiesfordomesticintermodal,someindustrialproductsand,fortheshortterm,coal,Hatchstated. Themovementtowardsupportingenvironmental,socialandgovernanceprinciplescouldalsoeventuallybecomearevenueenhancerfortherailroadsasshippersseektouserailtosupportshippers’ESGinitiatives,Hatchcontinued.TherailroadshavealsobeguntoshiftawayfromfocusingonloweringORandtowardsupportinggrowingtheiroperations,andthatmovewillbenefitboththerailroadsandshippers.Whileinvestorsarehopefulthatthesecondhalfofyearwillbeanimprovementfromthefirsthalfoftheyearintermsofserviceandfinancialperformance,anumberofheadwindscouldstillcomeintoplay,suchastheonesseeninthefirstquarter:theongoingconflictbetweenRussiaandUkraine,inflationandhighfuelcosts.Butregulatoryuncertaintiesalsoloom.TheSTBcouldactonsomeshipper-friendlyproposalsbeforetheboardthataddressrailservice,suchasreciprocalswitching.However,otherpowerswithinthefederalgovernment,suchastheDemocrat-controlledU.S.HouseCommitteeonTransportation&Infrastructure(T&I),arequestioningwhetherSTBshouldbegivenmorepowertoaddressrailserviceconcerns.TheHousecommitteeisholdingahearingThursdayduringwhichitwillintervieweachofthefivemembersoftheSTBonhowtheboardshouldrespondtorailserviceissues. Theconcernbysomewithintherailindustryisthattheboardcouldbegivenmorepowerthanwhat’swarranted,sincetherailroadsdon’tcarrythemajorityofU.S.freightvolumes,andthetruckingandbargemodesoftransportationdon’tfacethesamelevelofscrutinythattherailroadsdo.“Ifyou’retherailroadindustry,playyourusualWashingtondefense.Y’know,alltheguysattackeachother,thengohaveascotchattheCapitalGrilleafterwards.Dothat,”Hatchsaid.“Butatthesametime,you’vegottoimproveyourservice.Imean,everythingcomesfromthat.Ifyoudon’tdothat,notonlydoyouhaveanannoyedHouseT&Icommittee,anannoyedSTB,annoyedshippers,butyoualsodon’thavebusinessthatyourshareholdershavebeentoldisgoingtobecominginthisnewgrowthphaseforrail.”SubscribetoFreightWaves’e-newslettersandgetthelatestinsightsonfreightrightinyourinbox.ClickhereformoreFreightWavesarticlesbyJoannaMarsh.Relatedlinks:Fedswantserviceimprovementupdatesfrom4ClassIrailroadsCommoditygiantsandunionsareslammingrailroadsasperformancetanksRailregulatorswanttospeedemergencyserviceresponses‘Industriesdependentupontherailroads’serviceareforsaken’GrainshipperswantregulatorstopressrailroadsonserviceissuesTagsClassIrailroadsfirstquarter2022FirstQuarterEarningsrailserviceSurfaceTransportationBoardJoannaMarshWednesday,May11,20224minutesreadFacebookTwitterLinkedInRedditShareviaEmailJoannaMarshJoannaisaWashington,DC-basedwritercoveringthefreightrailroadindustry.ShehasworkedforArgusMediaasacontributingreporterforArgusRailBusinessandasamarketreporterforArgusCoalDaily.RecommendedArticlesTitleMonday,August23,2021Whittlingaway:IndictedNikolafounderdumps7MmoresharesSaturday,August14,2021TruckTalk:RiskybusinesseditionFriday,August13,2021Breakthroughsandmisconceptions:9questionswithChargePoint’sRichMohrFriday,August13,2021Coldone:ManhattanBeerDistributorsallinonelectrifyingbeveragetrucksThursday,August12,2021StrugglingbatterystartupRomeoPowertapsveteranexecutiveforCEOFriday,August6,2021WATCHFWTVINHDSubscribetoNewslettersTheonlythingmissinginyourinboxisFreightWaves.SubscribeNowYourE-mailAddressFieldisrequired!Fieldisrequired!SubscribeFreightWavesanywhere,anytimeDownloadtheFreightWavesappforunlimitedaccesstonewsandinsights(Android&iOSAvailable)YourE-mailAddressFieldisrequired!Fieldisrequired!GettheAppDailyMarketUpdatehttps://vimeo.com/708615222?loop=0PartnerContentPricingPowerIndexFollowUs57288Fans24034Followers13500Subscribers37848Followers98536Followers4982SubscribersLatestPodcastEpisodeFacebookTwitterLinkedInRedditShareviaEmailFacebookTwitterLinkedInCloseSearchfor:RSSFacebookTwitterLinkedInYouTubeInstagramCloseSearchfor