Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 600 railroads in the US transport cargo within a rail network, and include line haul railroads and short line railroads. Major types of rail freight include energy products (18% of industry freight revenue), motor vehicles and equipment (17%), food and beverage products (15%), chemicals (10%) and plastics and rubber (10%). Non-freight related revenue includes fees for rail car switching, rail car hire and rental services, and demurrage (when shippers or receivers hold railcars beyond the contracted period of time).

High Capital Requirements

Rail transport is a highly capital-intensive industry, with most companies having significant investments in tracks, terminals, underlying property, locomotives, and rail cars.

Competition From Alternative Carriers

Railroads compete with alternative modes of transportation, such as trucks, barges, ships, and pipeline operators.

Industry size & Structure

The US freight rail transportation industry consists of 637 railroads, which employ 149,200 workers and generate $80 billion annually in freight revenue.

    • The Association of American Railroads (AAR) classifies rail operators into one of three categories: Class I, regional, and local. Seven Class I railroads generate revenue of $74 billion annually. Regional and local railroads generate $4.6 billion in revenue.
    • Collectively, railroads operate nearly 140,000 miles of track.
    • The average Class I railroad employs 17,000 workers, has 247,000 freight cars and 3,500 locomotives in service, and generates about $10-11 billion annually in freight revenue.
    • The average regional or local railroad employs 24 workers and generates about $10 million in annual revenue.
    • The industry is concentrated at the top; the top seven Class I railroads account for 94% of industry revenue.
    • The seven Class I railroads are BNSF Railway, CSX Transportation, Grand Trunk Corporation (subsidiary of Canadian National Railway), Kansas City Southern Railway, Norfolk Southern, Soo Line Corporation (subsidiary of Canadian Pacific Railway), and Union Pacific Railroad.
    • Domestic firms, including non-Class I carriers, may have operations in foreign countries.
    • Canadian and Mexican-owned railroads have a significant presence in the US. Both countries operate railroads in the US with enough revenue to qualify for Class I classification.
    • The industry includes Amtrak, a federally-chartered company that provides national passenger rail services. Amtrak receives financial support from the federal government and fifteen state governments.
                                    Industry Forecast
                                    Railroads Industry Growth
                                    Source: Vertical IQ and Inforum

                                    Recent Developments

                                    Dec 2, 2022 - Congress Intervenes In Labor Negotiations
                                    • The US Congress passed legislation that binds the country’s Class 1 railroads and 12 rail unions to a September agreement brokered by the Biden administration. Eight of the unions had previously voted in favor of the agreement and four voted against it. Congress has authority granted in the Railway Labor Act to impose the resolution from Biden's Presidential Emergency Board. The bill now goes to President Biden, who is expected to sign it into law. Any strike after the bill is signed into law would be considered illegal and the strikers could be fired. Experts estimate that a rail strike could have frozen almost 30% of US cargo shipments by weight, stoke already surging inflation, and cost the American economy as much as $2 billion per day.
                                    • Experts say that if one union were to go on strike, others would likely refuse to cross the picket line, and rail companies could respond with a nationwide lockout. Experts also note that rail traffic may stop even if one or more unions cross the picket line. The Brotherhood of Maintenance of Way Employees (BMWE) rejected the agreement, for example, so there would be no one to build and maintain the tracks, bridges, buildings, and other structures for the crossing union(s) if BMWE strikes. All of the unions have said that they are opposed to Congressional intervention and want to be allowed to strike, but they would not be opposed to the US Department of Labor facilitating negotiations again.
                                    • Ongoing congestion at West Coast ports has railroads looking east. Norfolk Southern and Union Pacific railroads, for example, have partnered with ocean carrier Hapag Lloyd and the Port of Virginia to create a service through which West Coast bound freight would be brought into the Port of Virginia, loaded onto Norfolk Southern rail cars, and taken to Chicago. The containers would then be loaded onto a UP railcar in Chicago and taken to the West Coast. This service also moves containers West to East, enabling Union Pacific to move out its own containers. Pacific Northwest shippers say they have been using this new trade service because they can get their containers out of the Port of Virginia. They are also redirecting containers down to the Gulf ports.
                                    • The AFL-CIO labor union told the Surface Transportation Board rail regulator that freight railroad operators are contributing to rail delays and straining the nation’s food and energy supply chains by reducing employee counts to streamline operations. It specifically called out grain companies’ concerns about disruption on tracks operated by Union Pacific, Burlington Northern Santa Fe, and Norfolk Southern Corporation. Rail labor unions, along with agriculture and energy shippers, say precision-scheduled railroading has allowed for leaner operations, but at the expense of job cuts and service problems. PSR is a strategy used by railroads to streamline their operations by adjusting their scheduling and using fewer rail cars.
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