(Reuters circulated the following story by Carey Gillam on September 9, 2009.)
NEW YORK — Top U.S. railroad executives said on Wednesday a slight rebound in shipments of industrial and consumer-related goods signals the start of a slow U.S. economic recovery, though sluggish holiday goods deliveries show that consumers still lack confidence.
“We do see a few signs of hope,” said Robert Knight Jr., chief financial officer for No. 1 U.S. railroad Union Pacific (UNP.N). But “there is still a lot of uncertainty in the market today. We believe it could be some time before the economy fully recovers.”
The executives, in presentations at a Dahlman Rose & Co investor conference in New York, said rail volumes have improved in recent weeks on higher auto and agricultural shipments, and as some U.S. steel operations have reopened. They also cited stronger chemical demand and a resurgence in metallurgic coal exports.
“In terms of the economy we don’t expect a rapid ramp-up but we do see a lot of opportunity,” said Norfolk Southern Corp (NSC.N) Chief Marketing Officer Donald Seale.
Rail volumes have plunged about 20 percent this year, as public and private spending has fallen for everything from coal to clothing in a severe global economic downturn. High unemployment and restrained consumer spending also make retailers wary about stocking up for the holidays.
But recent industry data show that volume, though still well below 2008 levels, is starting to rebound slightly. It will likely be years before significant growth is seen again, according to several rail executives.
As volumes rebound, pricing could become more robust, they said, but the range of price increases headed into 2010 is estimated at about 3-6 percent.
Thomas Hund, chief financial officer for Burlington Northern Santa Fe Corp (BNI.N) — which operates a North American rail network of about 32,000 route miles in 28 states and two Canadian provinces — said the company was looking at pricing gains of 3 to 4 percent in a “modest recovery” in 2010 and 2011.
CSX Corp (CSX.N) raised its guidance on pricing for the rest of the year, from 5 to 6 percent to above 6 percent, said Lester Passa, CSX’s vice president of strategic planning.
Rail companies, which have sidelined thousands of railcars and locomotives in a series of cost cuts this year, have started bringing equipment back on line and putting furloughed employees back to work.
“We think, based on the activity we have booked, that (trend) will continue,” said Norfolk Southern’s Seale. He cited bookings to handle 2.3 million tonnes of metallurgical coal for export to China in September, about equal to all of that business in the second quarter.
Norfolk Southern, which is pushing ahead with development of multi-state infrastructure improvements and new facilities, said it has trimmed 2009 capital expenditures from $1.4 billion to $1.3 billion.
Like other rail executives, Seale was cautious in projecting a solid turnaround, but said current indicators offer hope.
“We take it that we aren’t going to see a V-shaped recovery but we’re seeing some improvement in some markets,” he said.