From SCDigest's On-Target E-Magazine
- Nov. 11, 2014 -
Logistics News: Rail Carriers Enjoy Mostly Blow Out Q3 on Strong Volume Growth
Record Low Operating Rations being Set Left and Right, On Strong Volumes Even in Face of Continuing Service Issues
SCDigest Editorial Staff
US rail carriers enjoyed something of a blow out quarter in Q3 for the second quarter in a row, with largely double digit profit growth based on strong carload volumes, even as rail pricing power continues to wane.
SCDigest Says: |
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| Union Pacific's operating ratio of 62.3% was an all-time quarterly record, 2.5 points better than the third quarter 2013 and 1.2 points better than the previous all-time quarterly record. |
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What Do You Say?
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We're back as usual every quarter with our review of the results and comments from leading public rail carriers, as the last of them finished up their Q2 2014 earnings reports in the last few weeks.
Last week, we covered the US truckload sector (see Q3 2014 Truckload Carrier Review and Comment).
Here 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)
Next week, we will wrap up our Q3 coverage with similar analysis for the less-than-truckload (LTL) sector.
Overall, carload volumes in the US rose about 4% in Q3, according to the Association of American Railroads, though Union Pacific and CSX both reported carload gains of 7% in the quarter. Overall, the US rail carriers seem to have stopped the bleeding on coal volumes, now seemingly up or down a little each quarter, versus the double digit declines seen in the past couple of years prior to 2014.
Profits were again strong as they were in Q2, up 16.7% versus Q3 in 2013, and net income as a percent of revenue rose to a very strong 19.7% across all the carrier combined, versus 18.4% in 2013. It wasn't that long time ago that railroads were a very challenged industry in terms of profits.
Union Pacific was able to achieve operating income as a percent of revenue of 22.2%, a number that would stand up very well in almost every sector. Procter & Gamble's net income as a percent of revenue in Q3 was 9.5%, for example. Net income as a percent of revenue in Q3 in the truckload sector was only about 6.3, and that will be better than the LTL numbers when we calculate them next week.
There was general improvement in the carriers' operating ratios, or operating expense divided by operating revenue, a key metric in the transport sector. Here again Union Pacific led the way, driving its OR down to a record 62.3%. But all four carriers sported operating ratios of under 70%, with an unweighted average of just 66.3%, down from 68.6% in 2013.
All that even as pricing power by the rail carriers seems to have waned a bit in recent quarters. A few years ago, pricing gains in the 5% range were commonly cited. In 2013, that dropped to more like 4%. In Q3, while Union Pacific said it was able to achieve core pricing gains of 2.5%, the other carriers implied rates were even flatter than that - but that didn't stop the rail profit machine in Q3.
Q3 2014 US Rail Carrier Results
For Quarter Ending Oct. 31, 2014 |
Data in $1000s |
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Union Pacific |
CSX |
Norfolk Southern |
Kansas City Southern |
Total Carriers |
| Total Operating Rev Including Fuel |
$6,182,000 |
$3,221,000 |
$3,023,000 |
$677,500 |
$13,103,500 |
| Change 2013 to 2014 |
10.9% |
7.9% |
7.7% |
9.0% |
9.2% |
| Total Volume Growth (Revenue Carloads) |
7.0% |
7.0% |
-1.1% |
4.0% |
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| Volume Growth General Merchandise, Auto, Ag, etc. |
8.1% |
9.0% |
9.8% |
6.0% |
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| Volume Growth Coal |
0.0% |
7.0% |
-2.3% |
-5.0% |
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| Volume Growth Intermodal |
10.0% |
5.0% |
10.0% |
5.0% |
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| Net Income |
$1,370,000 |
$509,000 |
$559,000 |
$138,400 |
$2,576,400 |
| Change 2013 to 2014 |
19.0% |
11.9% |
16.0% |
16.3% |
16.7% |
| Net Income as % of Revenue |
22.2% |
15.8% |
18.5% |
20.4% |
19.7% |
| Net Income as % of Revenue 2013 |
20.7% |
15.2% |
17.1% |
19.1% |
18.4% |
| Operating Ratio |
62.3% |
69.7% |
67.0% |
66.1% |
66.3% |
| Operating Ratio 2013 |
64.8% |
71.9% |
69.9% |
67.8% |
68.6% |
Service issues continued to be a problem, as they have been all year, with train speeds slowing again and train dwells times increasing for most of the carriers. At Norfolk Southern, for example, composite service performance fell to 68.6% in Q3 and is at 72.% year to date, down from 83.3% for all of 2013.
(Transportation Management Article Continued Below)
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