Tags: railroads | boom | fuel | weighs

Railroads Boom As Pricey Fuel Weighs

By    |   Tuesday, 21 Feb 2012 10:38 AM

U.S. and Canadian railroads are booming, hauling more freight across North America these days as pricey fuel weighs on their trucking and air freight counterparts.

U.S. economic indicators, while choppy, do indicate an improving labor market, a manufacturing rebirth and firming consumer confidence. That puts Canada National Railway (CNI) and fellow rail operators Union Pacific (UPN) and Norfolk Southern (NSC) on the right side of the tracks when it comes to recovery.

It's a continental story, not just a U.S. trend. For CNI, revenue during the fourth quarter of 2011 rose 12 percent on year to $2.37 billion, a record quarterly high. Net income rose 18 percent to $591 million.

Executives say business is gearing up thanks to a blend of rising demand and wise pricing strategies.

"We've had our record car loading performance, there’s a range of commodities where we are back at peak level, and we brought that also to the revenue line with solid pricing and a very responsive fuel surcharge has helped us cover for increases in the price of diesel," says CNI CEO Claude Mongeau.

King rail


Whatever happens in Europe, analysts are all aboard when it comes to domestic rail freight. "Despite these headwinds, our outlook on the sector as a whole remains stable going into 2012. The North American transportation companies we rate should, in most cases, continue to gradually increase revenues and cash flow," Standard & Poor's credit analyst Philip Baggaley writes in a report on the sector.

Industry associations agree: U.S. railroads originated 15.2 million carloads in 2011, up 2.2 percent from 2010 and up 9.7 percent over 2009, according to the Association of American Railroads.

"A good beginning, some uncertainness in the middle, and then a good ending — that describes U.S. rail traffic in 2011," John Gray, the association's senior vice president for policy and economics, says in a statement. "We continue to see hopeful economic signs as the industry prepares for 2012."

Like CNI, Norfolk Southern says business is taking off, reporting record fourth quarter net income of $480 million, 19 percent higher compared with the same quarter a year earlier. Railway operating revenues hit $2.8 billion, up 17 percent compared with the same period a year earlier.

Union Pacific reports similar surges in income and revenue. Net income during the fourth quarter rose 24 percent to $964 million, while operating revenue hit $5.1 billion, up 16 percent.

CNI reports next on April 24, NSC on April 26, and UPN on May 1.

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