(Dow Jones Newswires circulated the following story by Terry Kosdrosky on June 14.)
DETROIT — The financial chiefs of three major U.S. railroads said Thursday they expect their ability to set prices to hold this year and next even as volumes have been soft so far in 2007.
The railroad industry has seen solid pricing for the past several quarters. But a slump in the housing market and weaker production from U.S. auto makers has led to lower volumes this year.
Union Pacific Corp. (UNP), for example, said second-quarter volume is down about 4% so far, due to weakness in some markets and bad weather that affected shipping.
But the volume woes aren’t expected to affect pricing, said the financial chiefs of CSX Corp. (CSX), Norfolk Southern (NSC) and Union Pacific.
“We don’t see a risk to pricing,” said CSX Chief Financial Officer Oscar Munoz at the Merrill Lynch Global Transportation conference, which was broadcast over the Internet. He said the railroad expects to see a 6% to 7% increase in pricing on shipments with the same destination and origination for 2007 and the strength continuing into 2008.
Union Pacific Chief Financial Officer Rob Knight said that in addition to pricing, the railroad also is adding “enhanced” contract terms, such as fuel surcharges and volume caps.
“Pricing is still holding very firm,” he said.
Norfolk Southern Chief Financial Officer Henry C. Wolf said that he expects further price increases, though perhaps more modest than what the railroad has seen in the past year or so.
“But we believe there’s still further pricing opportunities as we move along,” he said.
Despite the drop in volumes this year, railroads in general have improved their footing in the past several years. At the conference CSX, Norfolk Southern and Union Pacific all outlined plans to spend on infrastructure and equipment as demand is expected to remain strong in the coming years.
The key to exploiting that growth is to keep improving service and operational efficiency to get more customers using rails instead of road transportation, CSX’s Munoz said.
The executives said growing congestion on the roads is a prime opportunity to sell the benefits of rail shipping.
Although all three painted a positive long-term picture for railroads, Union Pacific’s Knight said re-regulation of the railroad industry by the government would reduce growth and derail capital investments.
He said it’s up to railroads to point out “the value we bring to the table.”
As for volumes, Knight said there could be a “pickup from what we’re seeing thus far” in the second half of the year.