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Rail News: Rail Industry Trends

Rail shippers pay higher rates, live with roads' performance because trucks a 'less attractive' option, UBS survey says

Despite deteriorating service, Class Is are obtaining higher rates and a larger share of freight volume. That’s one of the conclusions UBS Securities Canada Inc. has drawn from its first-quarter “Railroad Customer Survey.” Earlier this month, the investment services firm released results of the survey under which UBS polled hundreds of rail shippers on Class Is’ pricing and performance, rail vs. truck competitiveness, and what railroads need to do to improve service.

UBS found that Class Is’ rates and volumes are increasing because trucks are a “less attractive” alternative — not because railroads have “reasserted their presence in the supply chain,” according to the company’s survey report.

“This is not likely to be a successful recipe in the long term,” UBS officials said. “This trend has to reverse if the railroads are to develop a value-enhancing business for their shareholders and customers.”

Norfolk Southern Railway topped UBS’ first-quarter survey scorecard for the second-straight year. The scorecard rates Class Is’ reliability/dependability, prices, ease of doing business and value. BNSF Railway Co. and Canadian National Railway Co. tied for second place. The score for Union Pacific Railroad — which received a below-average rating in every category — dropped 25 percent compared with first-quarter 2004.

“The survey results reflect the breakdown in operational efficiency at Union Pacific and CSX last year and, to a lesser extent, the difficulties that CPR and CN have faced on Canada’s West Coast,” UBS officials said.

The survey also found that:
• the average expected rate increase in 2005 is 7.1 percent compared with 2.7 percent in first-quarter 2004;
• respondents expect truck rates to increase 6 percent;
• more than 70 percent of respondents expect to do more or the same amount of business with railroads compared with last year; and
• the majority of the respondents don’t expect railroads to recapture market share from trucks because on-time consistency remains roads’ biggest weakness.

Contact Progressive Railroading editorial staff.

More News from 4/27/2005