Our quarterly “North American Class I Freight Rail Performance” 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). All comparisons are for the current reporting quarter to the year-ago quarter (Q3 2024 to Q3 2023) unless otherwise stated.
Revenue and income improvement among major railroads
Third quarter 2024 earnings were stable and consistent across the Class I’s. All of the railroads saw higher revenue compared to Q3 2023, although these increases tended to be in the low single digits (except for CPKC which saw a year-over-year increase of 6.3%). Revenue ton-miles also increased for all of the railroads, although revenue per revenue ton-mile was relatively flat, with UP having the largest increase at 3%. CN’s operating income was essentially flat year over year, while all the other carriers registered an improvement in operating income.
With regard to other financial metrics, the railroads generally notched improvements in revenue ton-miles per employee, but CN was flat and CSX saw only slight improvement. Year-to-date capital investment was up for all the railroads except UP and BNSF, which were modestly down. The increase is likely due to inflation of materials and increases in labor contracts.
Year-to-date free cash flow is a mixed bag: NS, CN, and CSX had lower free cash flow. NS would have been positive except for the large purchase of the Cincinnati Southern line earlier this year. CPKC, UP, and BNSF all had increased free cash flow. Return on invested capital was essentially flat across the industry.
Growth in intermodal and carload traffic amid Q3 rail stoppage
Because of the Q3 work stoppage in Canada, only the US railroads showed increased traffic volumes this quarter. Much of this was due to a large volume lift of international traffic through West Coast ports, due to both the East Coast port strike and the railroad work stoppage in Canada.
An increase in intermodal units in Q3 offset a decline in coal volumes for the western carriers (although this is not an exact comparison). Because of the shift in traffic mix, the average revenue per unit was down for the US Class Is, but both CPKC and CN registered an increase in revenue per unit.
With coal removed, carload traffic grew on the all the railroads (except for CN) this quarter. Growth was in the low single digits with the exception of BNSF, which saw carload (excl. coal) traffic grow by 4.7% year over year for the quarter.
One item of special interest to note is that UP reported that coal has dropped to third place, behind intermodal and grain, as a generator of revenue ton-miles, and to seventh place for total revenue out of the 10 commodity groups reported by UP.
Operating efficiency in equilibrium among Class I railroads
All of the US Class I’s saw improvement in operating ratio (OR), and OR for all carriers is in a tight range this quarter, between 60- 65%. This suggests, short of some kind of technology breakthrough, that the industry is operating near its maximum efficiency level.
The US carriers’ OR performance is being driving mostly by cost improvements. Interestingly, BNSF had the lowest cost per revenue ton-mile, but also the lowest revenue per revenue ton-mile. This is likely due to its large proportion of unit train and intermodal volumes. CSX on the other hand had the highest cost per revenue ton-mile, but also the highest revenue per revenue ton-mile. NS had large adjustments to OR due to the sale of a line in North Carolina for transit service and receipt of insurance payments related to the 2023 East Palestine derailment.
Service quality and safety metrics for North American railroads
Service levels were relatively good for the quarter, with CN and NS both posting improvements in dwell time and average train speed. CSX was the only carrier to report worse performance on both metrics.
In terms of safety, both CSX and UP had higher employee incident rates, but all carriers registered a reduction in equipment incidents.
A positive outlook for Q4 2024 freight rail operations
The fourth quarter should continue to be strong, especially for international intermodal. Canadian port disruptions continue, and US East Coast dock workers have left the bargaining table over automation (increasing the likelihood of another walkout in January). The threat of tariffs by the incoming administration is driving shippers to pull demand forward and to West Coast ports. Carload traffic (excluding coal) also should continue to see growth, although in the single-digit range.
Note: FXE data is not included in the current version of the report, as the required data has not yet been made available. We will update the report once received.
