This site is protected by reCAPTCHA and the Google
Terms of Service apply.
Compiled By Jeff Stagl, Managing Editor
The coming year likely won’t be a barn-burner, but it won’t be a gut-puncher either when it comes to building and sustaining business, Class I chief executive officers believe.
There are several reasons for their guarded optimism: a strengthening U.S. economy, with growing consumer confidence; a tight trucking market; a rebound in crude-oil production; and a promising near-term future for certain energy and chemicals business — soon-to-soar petrochemical production chief among them.
But there are some developments that prompt caution, too. Coal production continues to erode as more utilities turn to natural gas to fuel their generation plants, and North American Free Trade Agreement renegotiation efforts keep a pall over the future of U.S. exports.
So, how do the Class I CEOs view the positives and negatives? And what are their expectations for 2018? We contacted them via email to find out. The comments that follow were provided by Canadian Pacific President and CEO Keith Creel; Union Pacific Railroad Chairman, President and CEO Lance Fritz; CSX President and CEO E. Hunter Harrison; BNSF Railway Co. President and CEO Carl Ice; CN President and CEO Luc Jobin; Kansas City Southern President and CEO Patrick Ottensmeyer; and Norfolk Southern Corp. Chairman, President and CEO James Squires.
Creel: We are optimistic about the future at CP. We have fixed the engine and are focused on sustainable, profitable growth in 2018 and beyond. We continue to receive positive feedback from shippers, and we are committed to continue to working to earn their business.
While we cannot predict the future or the weather, we expect to see continued growth from some key business lines in 2018. We are gaining momentum in the energy and chemicals markets, which we see as a strong endorsement of our trip plans, disciplined operating performance, and collaborative supply chain approach with our customers. We are near record levels of coal and potash movements, and have been moving record amounts of grain on the Canadian side. We see intermodal as a place where we can take control of our destiny and achieve growth through innovation. In 2017, we launched an entirely new service into the Ohio Valley through one interline partner and dramatically improved our service offering to Detroit with another. Meanwhile, we opened a new lift station at Portal, North Dakota, that dramatically reduces container delays due to customs inspections, and created a new Fast Pass system to expedite drivers entering and exiting terminals. We also see tremendous potential in selling our service in Asia, and have added key sales and marketing positions in China and Singapore to do just that. Combine that all with a new rail car-to-container transload in greater Vancouver and an expansion of our genset container fleet to power the cooling systems on neighboring containers, and I think we’ve proven that we can grow our offerings. So, I hope that we will grow broadly, and we now have in place the sales and marketing team that can achieve that. At the same time, these new and improved services give those folks something concrete they can sell against, and that will also be essential. We're going to work hard. We're going to stay humble. And we're going to earn our customers' business.
Fritz: Looking ahead to 2018, we see new opportunities as well as some headwinds across our business units. One exciting part of our business is our Cold Connect platform, offering seamless multi-modal logistics for food and other refrigerated products from coast to coast. It includes expedited food train service for fresh fruits and vegetables moving in temperature-controlled rail cars. We continue to make progress in the food and beverage markets and feel good about our ability to grow the platform.
Despite uncertainty around NAFTA, we consider our Mexico business an opportunity that could benefit some of our submarkets. Union Pacific moves 70 percent of U.S. freight-rail shipments to and from Mexico through gateways at Brownsville, Laredo, Eagle Pass and El Paso, Texas; Nogales, Arizona; and Calexico, California. We support trade that helps the U.S. and Mexico economies grow. Union Pacific touches different parts of the economy and serves large and growing population centers in the western two-thirds of the U.S. Tightening truck capacity in these markets will present highway conversion opportunities for intermodal and automotive parts. We have the ability to open more lanes and potentially grow as the market begins to turn our way. In addition, there are opportunities to help customers meet supply chain needs through new intermodal box-car programs. Coal and grain are question marks based on weather-related and market uncertainties. We will watch market developments closely and respond with a focus on productivity through longer trains and other efficiency initiatives. Our team is dedicated to operating a safe and efficient railroad, helping customers win in their markets. We will build on our value strategy successes and use innovation to enhance safety, customer experience and resource productivity in 2018.
Harrison: CSX has been through a lot of change this year, and those changes are going to drive opportunity for us in 2018 and beyond. As we’ve implemented precision scheduled railroading and brought new leaders in who can drive that operating model deeper into the organization, our service product is improving and our costs are coming down.
Since we started making changes to the network, and gotten past the temporary issues we had late this summer, our velocity has increased, transit time system-wide has been reduced and dwell time is improving — all indicators that CSX’s service product is getting better. Shippers are smart actors, and they are trying to get the best service and the best price they can. We believe improving service will create new opportunities for growth in the future. Delivering better service is one of the fundamental principles of precision scheduled railroading and is one of the major factors that is motivating us to make the changes that we have. As CSX continues to strengthen, we see potential broadly across most of the markets we serve. Current market factors including GDP and IP growth are supportive of volume gains. A tight trucking market where we are seeing spot rates above contract rates also supports highway to rail conversions.If global demand remains stable, export coal will continue to remain strong for CSX, as we are very well positioned with our network and access to ports. Most importantly, as we continue to drive precision scheduled railroading into the CSX operation and deliver an improved service product to customers, we believe we will see increased opportunities.
Ice: The overall state of the economy is really one of the best indicators of what we should expect to happen with freight demand in the coming year. In 2017, we have seen some positive economic trends that we should expect to carryover into 2018, as consumer spending continues to grow and certain industrial segments see some positive momentum.
We expect that BNSF’s domestic intermodal business will continue to be our growth engine. Our domestic intermodal volumes are outpacing the economy as trucking capacity tightens and long-haul freight converts from over the road to rail. We also anticipate that industrial products demand will continue to move with the economy. The movement of sand has grown this year and last and we expect it to continue to be a solid commodity on our railroad. Oil and gas producers are becoming increasingly efficient and lengthening the life of existing wells, which requires more sand. While we may not see the record levels of grain exports that we experienced in 2016 and 2017, we expect that we will continue to move a lot of grain. Grain volumes will fluctuate depending on factors such as U.S. growers’ productivity, domestic and export demand, the conditions in the global marketplace, and shortages of grain storage domestically and internationally. We know that change is constant and the pace of change is accelerating. This has had a direct impact on our business mix. The coal industry is undergoing a structural change and we expect volumes to decline over the long-term as more coal plants are shut down and utilities shift increasingly to natural gas and other fuel sources. We also anticipate that our crude-oil volumes will be less as a result of pipeline capacity and lower demand. Looking to the future, we will continue to invest in our network, with a focus on ensuring BNSF operates a safe and reliable network that meets our customers’ expectations. Proof of our commitment is the fact that since 2000 we have invested more than $57 billion into capital expansion and maintenance projects, closing out 2017 having invested $3.3 billion back into our rail network. We will continue to focus our investments on ensuring the quality of our network and positioning us to grow with our customers.
Jobin: Through 2015 and 2016, CN experienced six consecutive quarters of declining volume which turned positive at the end of 2016. Going into 2017, we were optimistic for moderate growth, but as this year evolved, we saw a hockey stick-shaped recovery — an enviable position to be in, and one that translated into record workload and double-digit revenue ton-mile growth for the year.
We saw strong growth across a broad range of business segments, with significant increases in automotive, Canadian Grain, coal, frac sand and intermodal. We continue to see favorable economic trends in both the United States and Canada, where the environment remains very supportive and the prospects for export commodity are also positive. Consumer confidence remains positive and the energy sector recovery is driving shipments of frac sand and other products.We have good visibility on our Canadian grain as the crop looks good, plus coal and potash, and also our intermodal business where we are looking to sell the new capacity at the Port of Prince Rupert and in Vancouver in British Columbia.
Ottensmeyer: Volume performance in 2017 has been encouraging, as we have seen a return to mid-single digit growth on strength in several key segments, including automotive, energy, petroleum, and in the second half of the year, intermodal.
As we move into 2018, we feel good about our ability to continue this performance. We expect to continue exporting carloads of refined products and LPGs into Mexico, related to Mexican energy reform. We also expect to see growth in intermodal, automotive and crude oil.Furthermore, in the second half of the year, we look forward to growth in plastics as new petrochemical facilities in the Gulf coast begin to ramp up production.Additionally, we are encouraged by recent economic growth, which should translate into opportunity for our GDP sensitive segments like industrial and consumer products, and chemicals.
Squires: Norfolk Southern’s commitment to deliver reliable and consistent service is the driver of our value proposition. During 2017, we have grown volume and the top line while providing a high-level service product that our customers value. That’s our paradigm moving into 2018.
The broader economy supports an optimistic outlook for NS and the freight-rail industry. Overall, growth has been accelerating, inflation is tame and unemployment is the lowest in 16 years. The Purchasing Manager’s Index, an indicator of the manufacturing sector’s economic health, is at the highest level in 13 years, and consumer confidence remains high.We see truck capacity tightening, which, buttressed by an improving economy, is very positive for rail. In addition, the portfolio of active industrial development projects along NS’ network is as robust as it has been since the Great Recession. These projects fall into a very broad range of commodity and product areas, including chemicals and plastics, agricultural, tire manufacturing and metals. In this environment, NS has a unique opportunity to divert shipments from highway to rail. The structure of NS’ intermodal network was strategically developed and designed to support growth in our population-rich Eastern markets. Our corridor strategy provides efficient service on our Premier Corridor between Chicago, the mid-Atlantic and the Northeast; on our Heartland Corridor between Chicago, the Ohio Valley and Norfolk, Virginia; and on our Crescent Corridor between New Orleans, Memphis and Northern New Jersey.This opportunity extends past our intermodal franchise to include general merchandise traffic such as paper, forest, and food-related products. In energy markets, we expect continued year-over-year growth in frac sand. We also expect growth in construction-related products like aggregates, lumber, and cement. Our primary challenges revolve around coal, declines in crude oil and natural gas liquids due to pipeline activity, and reduced automotive production.
Creel: We are keeping a close eye on crude and broader energy-related markets, including frac sand. Recent signs point to strengthening, and we are prepared to execute on that should it come to pass. The key, however, is executing in a disciplined manner that protects existing service for our other customers. More broadly speaking, people are what make this business run. The CP family needs to operate at a high level for the company to operate at a high level, plain and simple. We have made a lot of progress building good relationships with our unions and negotiating agreements that are good for our employees, our shareholders and our customers. These progressive agreements give our employees better wages and benefits while giving our customers confidence in our ability to consistently provide our service. We will need to continue building bridges to our employees and making our railroad an even better place to work in 2018 and beyond. I am excited about the future. As a team of 12,000, we are putting more dots on the map, expanding our reach and working with current and potential customers to sustainably grow our business and theirs.
Fritz: Keeping up with accelerating technology advances can be challenging as it changes consumer behavior, supply chains and traditional ways of doing business. Innovation and technology are core Union Pacific business strategies. Beyond the walls of the research and development lab, cross-functional teams of technical and nontechnical employees are finding new ways to improve safety, service and efficiency. One of our teams developed Machine Vision, a train-sized erector-set-like portal with powerful lasers and high-performing cameras that receive thousands of detailed scans of trains passing at 70 mph. The system looks for anomalies that could derail a train such as cracked brake beams or shifted loads. Remote inspectors analyze 3D train images and determine if discrepancies should be repaired at the next siding or rail yard. We continue enhancing the system to help us address issues before accidents occur. Drones and ultrasonic rail tests also make train and track inspections more effective and allow craft professionals to spend more time on high-value work. Union Pacific’s conductors are using handheld devices to access work orders and provide real-time delivery reports, with approximately 98 percent of conductor work order reports submitted through handheld devices. The reporting platform and GPS mapping led to a pilot program providing advance arrival notification messages informing customers their facility is the train’s next stop, helping them prepare for shipment arrivals and making deliveries more efficient. Union Pacific is investing in hundreds of innovative projects — some homegrown and others involving Silicon Valley. We are exploring opportunities touching different parts of our business through a partnership with Plug and Play, a startup accelerator providing emerging technology companies with seed money, mentoring and connections to large companies. Some of our most exciting possibilities involve artificial intelligence software to provide real-time customer solutions and big data analytics using millions of external variables for more predictive forecasting models. Abraham Lincoln once said the best way to predict the future is to create it. Today, innovation and technology are tools helping Union Pacific build the railroad of the future.
Harrison: Barring unpredictable storms and other outside factors, I don’t see any barriers to us continuing to strengthen the company’s performance. We’re working our way methodically through the CSX operation and have already made significant changes, some very difficult for both our employees and customers, to set the railroad on a course to improved performance.
We reduced the number of hump yards, we’re consolidating our dispatching, we’ve made major changes to the train plan especially on the merchandise side, and we’ve taken a lot of excess cars and locomotives off the network — all these efforts have positioned the company for growth with plenty of capacity, and now we’ve got the right team as well.
We have even more confidence now that we’re going to be able to produce the results that have been talked about over the next four years, and the opportunities are bright going forward.
Ice: One of the challenges that continues to face the rail industry and the larger economy is the length and difficulty of permitting new infrastructure. Permitting serves a good purpose, but it is a process that is too easily leveraged as a tool for those wanting to delay or stop a project. If we expect the economy to continue to grow, we must be able to build the infrastructure to handle that growth.
We are hopeful that permitting reform efforts are successful in preserving the integrity of the review while allowing projects that meet the appropriate criteria to proceed on a reasonable timeline.
Jobin: We feel very good about the future and look forward to next year. We are committed to provide superior service to our customers, and with the volume growth momentum still ahead of us, we see good growth opportunity.A major focus as we move into 2018 is putting more of our resources in place: the people, the equipment and the capital investments. In this strong North American economy, we are hiring hundreds of new employees, particularly in Western Canada, and moving on our capital investments to meet our commitments to safety, service and efficiency.We’re making investments in some of our intermodal terminals to handle record volumes, building capacity in our Winnipeg-to-Chicago corridor and expanding our infrastructure in Wisconsin to accommodate the large increase in frac sand business. We will continue to work closely with our supply chain partners to ensure their needs are met and CN remains committed to investing to support our business for the long term.Finally, CN will continue with our intensive PTC installation plan and remain engaged in ongoing discussions about the railway regulatory environments in the United States and Canada.
Ottensmeyer: Although we are well-positioned for growth in 2018, the abundant supply of natural gas in the United States has made certain unregulated coal burning power plants less competitive over time. As a result, we expect to see a reduction in coal shipments to one key power plant on our network in 2018. With that said, we believe that plentiful natural gas and the resulting opportunity to grow our chemicals franchise will more than offset any reduction to our coal carloads.We also acknowledge that the weakness in the Mexican peso seen in 2016 and 2017 has been a contributing headwind to growth in our Mexico intermodal franchise. Although we expect our Intermodal business in Mexico to grow in 2018, we remain conscientious of the possibility of continued impacts in future years.Lastly, we are monitoring NAFTA renegotiations, and hopeful that the result will be a trilateral agreement to modernize the 23-year old agreement that has resulted in a $425 billion increase in trade between the U.S. and Mexico. We see firsthand the importance of trade between these two countries, as export grain is our largest southbound cross-border commodity.Certainly, if the U.S. would like to make progress toward closing the $63 billion trade deficit with Mexico, look no further than the opportunity to export refined products, LPGs and plastics into Mexico. With all of this considered, KCS remains optimistic about the future of both its domestic and cross-border businesses.
Squires: Norfolk Southern’s focus will be to maintain high levels of service and achieve ever-improving productivity as traffic volume grows. There is a balance that has to be reached. We’re paying close attention to ensure that top-line growth resulting from increased volume is cost-effective and does not disrupt our ability to provide consistent and predictable service to our existing customer base. Our goal with service is to enhance the competitiveness of our customers in an evolving marketplace, allowing them to quickly adapt and compete for growth. In turn, this grows our business while strengthening our role in their supply chain. Our current service levels allow us to take on short-term opportunities and position us to have more impactful discussions about long-term opportunities with customers.Our market approach and current opportunities are consistent with our strategic plan that encompasses safety, service, stewardship of resources and growth. We will advance our goals by continuing to implement a plan of strong service: schedules that meet our customers’ needs, an equipment strategy that supports growth, and technology improvements that optimize the distribution of equipment and make it easier to do business with us.
Email questions or comments to email@example.com.