Railroads report firm final quarter pricing

Despite lower volumes, railroads plan to push rates even further

By Dave Hannon -- Purchasing, 1/23/2008 11:09:00 AM

U.S. railroads reported firm rates in the fourth quarter of 2007, despite concerns of a slowing U.S. economy that started to put the brakes on trucking demand and pricing. And, even with the specter of recession hanging above the market, freight buyers can expect more rail rate increases in the first quarter of 2008.

CSX reported stronger than predicted fourth-quarter financial results, saying strong pricing offset weaker freight volumes and higher fuel costs. CEO Michael Ward said CSX planned price increases of 5-6% for 2008 and expected freight volumes to be flat to slightly up. "We still anticipate being able to implement those price increases," Ward said in a recent Reuters interview. Norfolk Southern had a very similar fourth-quarter story to tell, as stronger pricing offset increased fuel costs and a 3% decline in freight volumes for the quarter.

In a recent research note, Bear Stearns analysts said: “The railroads should continue to see better than historical pricing going forward, albeit decelerated from the peak in recent years, as a result of increased demand, tighter supply and a more mature competitive environment. We also expect the rails to take share from highways over the next decade driven by Asian manufacturing, better fuel efficiency and increasing highway congestion.”