Strong traffic growth in the rail industry has only slightly been boosted by shippers sending goods early to avert a possible strike in the West Coast ports, according to a second-quarter shipper survey by Cowen and Company.
The firm said only 21 percent of the shippers surveyed had pulled freight ahead of a possible labor action. That signals that the strong numbers seen and the overall strong feelings toward the market on behalf of shippers aren’t artificially inflated, the firm said.
“The response to this question also suggests that most shippers may believe that a strike is unlikely to occur,” Cowen said. The company doesn’t include respondent details of the survey, but said that respondents have a transportation spend of between $9 billion and $12 billion.
Rail traffic in North America ticked up by 7.3 percent, year-over-year, during the second quarter, Cowen said. Agricultural product shipping rose 16 percent, the largest commodity gain. Intermodal traffic grew during the quarter by 8.6 percent.
Looking out across the next year, shippers responding to the survey said they expect a base-rate increase of 3.8 percent in the next six to 12 months, a 0.1-percent decline from the projected rate increase in the first-quarter survey. In the fourth quarter of 2013 survey, shippers predicted rate increases of 4.1 percent, the highest level since the first quarter of 2012.
Shippers are skeptical of further consolidation in the rail industry, with 64 percent of respondents answering yes when asked if they would oppose a merger between Class I railroads. The analysts said the result comes as no surprise because “such mergers in the past have not been executed as smoothly as one would hope, resulting in operational hiccups, which temporarily affected service levels.” The group also noted that pricing would likely go up with another merger.
One good sign for the railroads is that shippers have shifted slightly more cargo from the road to the rails in the past quarter. Cowen said 35 percent of the respondents had gone to rail bulk or carload shipping instead of trucking, an increase from 29 percent in the first quarter. Shippers made the shift because of rising truck prices (34 percent, up from 29 percent in the previous quarter), tightening truck capacity (29 percent, down from 38 percent), and improved rail service (18 percent, up from 17 percent).
Cowen also measured a sharp decrease in shipper concerns about rail capacity. Of the respondents, 69 percent said they were concerned about capacity, down from 77 percent in the previous quarter.
“Shippers' concerns about rail capacity have become somewhat less pronounced after three consecutive quarterly results showing otherwise,” Cowen reported. “While the shift to rail from the highway continues to occur, and rail traffic levels remain robust, concerns about rail capacity have eased somewhat, likely due to the carriers restoring much of the fluidity of their networks after a difficult start to the year.”