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— by Pat Foran, editor
Class I second-quarter earnings announcements were two to three weeks away as we prepared to finish our July issue, but Class I execs already had let the world know that the year-over-year comparisons weren’t going to be good. They told us that in April during their Q1 earnings conferences and reminded us last month.
On June 21, Canadian Pacific announced that Q2 revenue likely will decline about 12 percent compared with the same 2015 period. Among the reasons: lower-than-anticipated volumes in bulk commodities and a strengthening Canadian dollar. CP, which will release its Q2 results on July 20, continues to focus on “controlling costs in a difficult environment," Chief Executive Officer E. Hunter Harrison said. On June 29, The Wall Street Journal reported that CP had begun laying off 500 track maintenance workers earlier that week. A CP spokesman cited lower volumes and softening demand for the job cuts, according to the report.
At CSX, a larger-than-projected coal-volume decline prompted the railroad to adjust its Q2 earnings guidance, as well. The Class I now expects total volume to drop 7 percent to 9 percent compared with Q2 2015’s totals, CSX Chief Financial Officer Frank Lonegro told Citi Industrials Conference attendees, according to a June 15 S&P Global Platts report. CSX, which will reports its Q2 results on July 13, previously expected a 5 percent decline.
In April, a number of rail execs said during Q1 earnings conferences that they believed a traffic pickup was possible later this year or early next. On June 21, CP’s Harrison said "stronger volumes in the back half of the year" still were possible. But I wasn't hearing many predictions of any kind as June came to a close. There have been too many international twists (the latest: Brexit) and domestic turns (the surrealism that has enveloped this presidential election cycle) for execs to tell me they had any confidence in predicting what might happen, economy-wise or traffic-wise, in the next few months. Of course, that lack of confidence spreads across all segments of the economy and might end up resulting in even less business activity. This "near freakish uncertainty" (phrase courtesy of a rail exec I know) doesn’t bode well for the near-term prospects of a freight traffic uptick.
The Q3 and Q4 comps probably will be better than Q2's (I’m not sure they could be worse), but I suspect it'll be awhile — at least until after the U.S. election and probably well into early 2017 — before rail execs talk with a bit more confidence about the industry’s medium-term traffic prospects. Until then, we’ll all continue to monitor, navigate, and now and again curse the uncertainty curve.