Railroads
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 613 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 613 railroads, which employ 146,600 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 Union Pacific, CSX Transportation, BNSF Railway, Canadian National Railway, Kansas City Southern Railway, Norfolk Southern Railway, and Canadian Pacific Railway.
- 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
Recent Developments
Mar 19, 2024 - Firms Increase Prices
- Railroads slightly increased their prices during the second half of 2023 following a slight decrease during the first half, according to the US Bureau of Labor Statistics (BLS). Industry employment was unchanged during the year, according to the BLS. Railroads industry sales are forecast to grow at a 2.13% compounded annual rate from 2022 to 2027, slower than the growth of the overall economy, according to Inforum and the Interindustry Economic Research Fund, Inc.
- The lean operating model that major freight railroads have embraced for several years is renewing concerns among unions and regulators about the effects that the cuts might have on safety and service, according to the Associated Press (AP). The model relies on fewer, longer trains that require fewer locomotives, workers, and railcars. The industry workforce has been reduced by a third over the last several years, according to the AP. The chairman of the Surface Transportation Board said in early March that he believes Wall Street’s focus on boosting short-term profits, stock buybacks, and dividends undermines safety and service. He also noted that the recent investor pressure on Norfolk Southern and Union Pacific could prompt every rail CEO to back away from investing for the long run.
- Canadian Pacific Kansas City (CPKC) was the only Class I railroad that reported higher transport volume in 2023, according to the Association of American Railroads (AAR). CPKC’s traffic increased 0.1% in 2023. Rail traffic in the US, Canada, and Mexico was down a combined 2.1% in 2023, according to the AAR.
- Canadian National, Union Pacific, and Grupo Mexico railroads said that they will work together to quickly move intermodal cars filled with shipping containers from Mexico north across the US to the key hub of Chicago and further north into Canada. Many industry experts say that the announcement is a response to the Canadian Pacific-Kansas City Southern (CPKC) merger. CPKC's new single-line network is currently the only railroad directly connecting all three countries. The three railroads say that they believe their service will be superior to CPKC because Grupo Mexico has a bigger rail network in Mexico and Union Pacific has a more direct route north to Chicago. The first major railroad merger in more than two decades was approved in March by the US Surface Transportation Board. Canadian Pacific, the sixth-largest freight railroad by revenue operating in the US, agreed to buy the next-largest carrier, Kansas City Southern, for $31 billion. The combined railroad will not overtake the fifth-largest carrier, Canadian National. Canadian Pacific said it could take control of Kansas City Southern as soon as April 14, creating a new carrier, Canadian Pacific Kansas City, that will span the US, Canada, and Mexico. The Transportation Board said that the new railroad “will facilitate the flow of grain from the Midwest to the Gulf Coast and Mexico, the movement of intermodal goods between Dallas and Chicago and the trade in automotive parts, finished vehicles, and other containerized mixed goods between the United States and Mexico.”
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