During the first quarter, weather caused a 20-percent reduction in rail industry earnings, but the extreme cold did help boost domestic coal activity, according to an analysis by Cowen and Company.
After looking at results from all the Class I carriers, Cowen found that the extreme weather in the first two months of 2014 suppressed demand because of closed businesses and caused trains to operate at lower speeds due to the temperature drop. Heavy snowfall also hindered some rail operations.
Consumer demand for coal during the cold, though, helped ease the blow from a continued downshift in coal exports, Cowen noted. It found that coal activity for Class I railroads is up by 9.3 percent so far in the second quarter.
“The domestic utility coal overhang, which has plagued the eastern carriers for the last couple of years, appears to be coming to an end,” it wrote. “In the east, northern utility stockpiles are currently at, if not slightly below, normal levels, and southern utility stockpiles are at, or slightly above, normal levels.”
As for the second-quarter recovery from the weather, Cowen found that railroads have bounced back much faster than predicted, but attributed that to conservative expectations. For example, Canadian National has recorded 9.4-percent growth so far this quarter, whereas Cowen has anticipated a second-quarter volume growth total of 2.4 percent. Taking into account both U.S. and Mexico figures, Kansas City Southern has seen 11-percent volume growth so far; Cowen originally predicted 6.1-percent growth in the quarter. As pent-up demand decreases, however, these better-than-expected performances will start to normalize during the next seven weeks, the firm wrote.
Coal hasn’t been the only commodity fueling volume gains, Cowen wrote. Agricultural product transport is up 14.2 percent so far this quarter, and intermodal traffic has seen a 9.4-percent rise. Cowen wrote that the agricultural rise has been propped up by strong numbers in grain shipments and the transportation of other farm products.
“This occurred as the carriers scrambled to haul products that could not move in 1Q14,” the firm wrote. “The intermodal jump is likely attributable to restored networks and modal shifts driven by higher truckload rates.”