We are pleased to introduce our new quarterly analysis publication, "North American Class I Freight Rail Performance". This report provides comparative operating and financial metrics across the continent's seven largest railroads: BNSF Railway (BNSF), Canadian National Railway (CN), Canadian Pacific Kansas City Ltd. (CPKC), CSX Transportation (CSX), Ferromex (FXE), Norfolk Southern Railway (NS), and Union Pacific Railroad (UP).
Challenges across major North American railroads
The Class I’s did not have a strong showing overall in Q1 2024, with UP alone seeing both improved operating ratio and income, even as total revenues declined. CPKC was the only other railroad to reduce its operating ratio, driven largely by improvements in operating expenses. CPKC also showed a modest increase in freight revenues compared to Q1 2023, due to longer single-line hauls. All of the other Class I’s saw a decline in revenues compared to the year-ago quarter.
Financially, BNSF and NS had the worst quarter, with weak revenues driven by a large drop in coal traffic and fuel surcharge revenues. These two factors generally were a drag on all the railroads this quarter and will likely continue to be headwinds throughout 2024. (In the future, we will break out coal from other traffic as a better way to gauge commodity-level performance drivers.)
The ongoing post-pandemic freight recession continues to impact the railroads, and it is impacting truck volumes as well. An uptick in intermodal volumes this quarter mainly was driven by international containers (imports), while domestic intermodal traffic was weaker. But the railroads did considerably better than the trucking industry, their primary competitor.
Service improvement and employment trends
From a service standpoint, dwell was consistently better in Q1 2024, notably at CPKC, NS, and UP, although CSX showed more than a 10% increase in dwell. Velocity was stable as well, with NS in particular seeing major improvement (although its overall network velocity still lags behind the industry average).
On the employment front, railroads have tried hard to retain employees since the service crisis of 2022, when cutting back on labor ultimately reduced needed flexibility for when demand roared back. Labor costs increased in 2023 as new union agreements raised wages and benefits. In Q1 2024, the eastern carriers, CSX and NS, both increased headcount, while employment was stable on the other railroads.
The big question facing the rail industry for the rest of 2024 will be whether to double down on cost cutting to improve operating results, or if it can grow intermodal and industrial traffic volumes by improving the service product to meet customer supply chain needs.
