(Reuters circulated the following article on November 30.)
CHICAGO — Rating agency Fitch Ratings said on Thursday that it expects U.S. demand for ground freight transportation to soften in 2007 as the country’s economic growth slows.
“Barring a full-blown recession, however, the results of both railroads and truckers are expected to be relatively good,” Fitch analysts Stephen Brown and William Warlick wrote in a report.
The analysts wrote that Fitch expects the “moderation in demand growth” to have a “more pronounced effect” on the U.S. trucking industry than railroads, as truck companies are more exposed to retail and industrial customers and therefore changes in economic climate.
Railroad freight demand in 2007 should be mixed with cyclical commodities such as lumber on the decline, but modest growth for goods such as coal and agricultural products should continue. Demand for consumer goods should continue to grow, but at a slower pace, the analysts wrote.
The lower demand for 2007 should also erode pricing growth, the analysts wrote, with railroads in a better position than trucking companies because they have tighter capacity.
Fitch highlighted two major railroads in particular – Union Pacific Corp. and CSX Corp. – for continued improvement in operating results in 2007. Both have been “focused for the past several years on turning around struggling networks (and) have the most opportunity for improvement,” the analysts wrote.