By Nathan Gomes and Apratim Sarkar
Oct 22 (Reuters) – Record fuel prices are pushing freight off US highways and onto trains, helping railroad companies rake in higher revenue and profits as shippers look for cheaper ways to move goods long distances.
Union Pacific, Norfolk Southern and CSX all reported a jump in third-quarter profit and revenue this week, with company executives saying high fuel costs and fewer available trucks were sending more business their way.
“Railroads are much more efficient. It costs us way less per ton to move products across the US. So when fuel prices go up, it’s naturally an advantage,” Union Pacific CEO Jim Vena told investors on a post-earnings call on Thursday.
The shift gives railroads a chance to win back long-haul freight from trucks, though higher fuel prices are raising their own costs and squeezing margins as the Iran war keeps fuel prices elevated. Diesel, a key cost for freight carriers, reached a record $6.53 per gallon in September, according to AAA data.
Railroad gains are showing up most clearly in intermodal shipments, where freight is moved by rail for the long-haul portion of the journey, with trucks typically handling pickup and final delivery.
Intermodal shipments compete directly with long-haul trucking.
“We are seeing long-haul truckload shift to intermodal and increased use of transload and rail-served distribution centers,” said James Mourafetis, head of transportation, logistics and services at consulting firm EFESO.
Union Pacific’s domestic intermodal volume rose 13% from a year earlier in the third quarter, while CSX reported a 7% rise and Norfolk Southern 3%.
Shrinking trucking capacity is also moving some freight onto rail. A prolonged freight downturn has forced smaller carriers out of the market, with high operating costs and stricter driver enforcement limiting the return of trucking capacity.
“The truck market has certainly flipped this year, but recent tonnage levels confirm this is due to reduced capacity, not robust demand,” said American Trucking Associations’ Chief Economist Bob Costello.
However, higher fuel prices are also raising costs for railroads, making it harder to translate stronger revenue into higher profits, though fuel surcharges have offset some of that pressure.
Union Pacific said high fuel prices hurt its third-quarter operating ratio by 140 basis points, while Norfolk Southern said fuel costs accounted for about half of the year-over-year increase in both revenue and expenses.
(Reporting by Nathan Gomes in Bengaluru; Editing by Jonathan Ananda)
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