Intermodal bolsters railroad profits

Continued growth in demand for intermodal services boosted revenues and profits for the major railroads in the third quarter this year

Continued growth in demand for intermodal services boosted revenues and profits for the major railroads in the third quarter this year – demand driven in large measure by shippers seeking to cut transportation costs.

“In today’s environment, manufacturers and distributors are highly focused on gaining greater efficiency in their supply chains and railroads offer them the best transportation alternative,” said Michael Ward, chairman, president and CEO of Jacksonville, FL-based CSX Corp.

CSX reported third quarter earnings of $382 million – a 40% increase from the same period in 2007 – on an 18% gain in revenue to $3 billion. Ward noted that nine of the CSX’s 10 market segments producing revenue gains despite ongoing softness in the housing and automotive sectors of the economy – led by shipments of export coal, grain, ethanol and metals, as well as strong yields and fuel recovery in all markets.

Norfolk, VA-based Norfolk Southern said that, despite flat volumes, intermodal revenues were up 16% to $560 million for the third quarter compared with the same period of 2007. The railroad reported net income increased to $520 million in the third quarter – up from $386 million in the same period last year – as operating revenues increased 23% to $2.9 billion compared to the third quarter in 2007.

Norfolk Southern noted it hit those numbers despite continued weakness in the automotive and housing-related industries, contributing to a 1% reduction overall traffic volumes compared to this time last year – though those declines were mostly offset by strength in coal shipments.

Omaha, NE-based Union Pacific also did well, achieving record quarterly financial results despite a challenging economic environment and record-high diesel fuel prices, said Jim Young, UP’s chairman and CEO. “Solid pricing, increasing fuel cost recoveries and strong operating productivity all made positive impacts on our third quarter earnings,” he said.

Young noted freight revenue grew 16% to a best-ever $4.6 billion in the third quarter this year as five out of the UP’s six business groups – agricultural, chemicals, energy, industrial products, and intermodal – posted all-time record revenues and boosting average revenue per car to a record $1,931. Though business volumes in the third quarter, as measured by carloads, were 5%t lower than the same period in 2007 due to the slower economy and disruptions from hurricanes, growth in higher density, long haul shipments boosted UP’s, revenue ton-miles by 1% to 145.8 billion.

Overall, UP’s net income soared to $703 million in the third quarter this year, compared to $532 million in the same period of 2007.

Even Canadian railroad giant CN benefited from intermodal growth, as its third-quarter net income increased to C$552 million (US$433.4 million) from C$485 million (US$380.4 million) in the same period last year – based on a 12% jump in third-quarter revenues to over C$2.25 billion (US$1.76 billion) Those numbers resulted from big revenue growth in five of CN's seven commodity groups, led by coal (41%), metals and minerals (29%), intermodal (24%), petroleum and chemicals (9%), and automotive (3%).

"Looking forward, the uncertain economic landscape in North America and around the world will pose challenges to CN and its customers,” said E. Hunter Harrison, Montreal-based CN’s president and CEO. “But we believe CN is well positioned to weather the headwinds – we have a unique business model anchored on precision railroading, and a strong freight franchise with growth prospects in intermodal, bulk commodities and energy-related developments in Western Canada.”

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