Broad-Based Growth In Shipments To Drive Top Line Growth For Rail Companies

June 27th, 2017 by Trefis Team
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U.S. rail shipments have risen considerably in the first half of 2017, which reflect strengthening economic conditions in the U.S.  As per American Association of Railroads data, U.S. rail shipments have risen 4.6% year-over-year year to date, fueled by a broad-based growth in shipments. [1] The following table illustrates the major commodity groups that have witnessed sharp gains in the first half of the year.

Rail Freight YTD June 17 2017

Coal shipments have risen considerably this year as a result of a sharp increase in demand from utilities. Natural gas prices, driven by robust demand for Liquefied Natural Gas (LNG) exports and for natural gas in the domestic market, are expected to average around $3.16 per MMBTU in 2017, around 27% higher than in 2016. [2] This is expected to increase the attractiveness of coal vis-a-vis natural gas as the preferred fuel for utilities, which should boost the rail shipments of the commodity in 2017, as indicated by our forecast for the same.

Robust growth in U.S. grain exports has driven up rail shipments of grain, which is expected to prop up shipments of the commodity over the remainder of the year as well. This is reflected in our forecasts for the agricultural products shipments category, under which grain shipments are categorized.

Besides growth in coal and grain shipments, rail shipments of metals and non-metallic minerals are expected to rise in 2017, as well. Steady economic growth has driven up the demand for metals from the industrial and construction sectors. In addition, antidumping duties imposed by U.S. trade authorities on unfairly traded steel imports over the course of 2016 have resulted into improved business conditions for domestic steel producers, translating into higher production and rail shipments of steel. Lastly, improved conditions in the construction market, particularly non-residential construction, are expected to prop up the rail shipments of non-metallic minerals. The forecasts for metals and non-metallic minerals are subsumed under our forecast for the industrial products category, as shown below.

 

Given the robust growth in shipments across categories reported in the first half of the year and expected in the second half, U.S. railroad companies are expected to witness considerable top line growth in 2017, which should also be reflected in the Q2 results due next month.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Union Pacific

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Notes:
  1. U.S. Rail Traffic Data, AAR [↩]
  2. Short Term Energy Outlook, EIA [↩]