Our quarterly North American Class I Freight Rail Performance report provides comparative operating and financial metrics for the continent's seven largest railroads: BNSF Railway (BNSF), Canadian National Railway (CN), Canadian Pacific Kansas City Ltd. (CPKC), CSX Transportation (CSX), Ferromex (FXE), Norfolk Southern Railway (NS), and Union Pacific Railroad (UP). All comparisons are for the current reporting quarter to the year-ago quarter (Q1 2025 to Q1 2024) unless otherwise stated.
Consistent rail earnings but mixed unit revenue growth
With the exception of CSX, earnings were fairly consistent for all of the railroads for the first quarter compared to a year ago. NS and BNSF both registered service improvements, which led to lower costs and reduced their operating ratios (OR).
UP continued to operate with good service levels but saw flat quarterly revenue and net income year-over-year, while maintaining the industry’s lowest OR. UP is the only railroad with a consistent OR around 60%. CSX was hit hardest by service interruptions, due to weather and the Howard Street Tunnel project in Baltimore, and experienced significant congestion, leading to higher costs, lower revenues, and a higher OR.
CN, CPKC, and FXE were the carriers with the highest revenue growth during the quarter. But most of this growth appeared to come from increased revenue per unit rather than increased traffic volumes. The US carriers, except BNSF, saw the reverse: increased unit volume but decreased revenue per unit. This suggests a shift in the mix of traffic (which also may be the case for the non-US carriers). Revenue per revenue ton-mile was up for CN, CPKC, and FXE, but down for the US carriers (except BNSF), while revenue ton-miles were up for all carriers except CSX and BNSF. However, overall increases in revenue ton-miles were less than 4% year-over-year.
LNG exports driving a comeback for coal
On the traffic side, intermodal was generally up for the railroads, driven largely by growth in international intermodal through West Coast ports. But JB Hunt did note it grew volumes in the East by 13%, primarily with its eastern partner NS, and this would be domestic traffic.
Coal was notable this past quarter as well, as the western and Canadian railroads saw growth in coal volumes. Growing LNG export volumes helped keep natural gas prices high, making coal more attractive for electricity generation in the short term. The eastern carriers, CSX and NS, however, saw a drop in coal volumes, due to reduced demand for metallurgical coal exports.
Rail mergers bring mixed financial results
Operating income hit record levels for CPKC, due to the merger, and NS, due to insurance settlements from the East Palestine, Ohio accident. Operating income grew more modestly for CN due to revenue growth and for BNSF due to reduced costs. UP had flat net income, and CSX net income declined due to operating issues.
Return on invested capital (ROIC) was in the 10%-14% range for the quarter. CPKC is well below that number due to the merger, which has created a significant hole it will have to grow out of over the coming decade. CN and UP used to lead the pack on ROIC; now UP is the singular leader (excluding FXE). This is due to UP’s low operating ratio on a lean capital base (debt plus equity).
Rail service and safety metrics in focus
Both NS and BNSF, which are focusing intently on improving operations, saw improvements in dwell and velocity service metrics. CSX and both Canadian railroads did not: average dwell increased, and velocity dropped or was flat compared to the year ago quarter. Given that there is a strong correlation between service and cost, as well as service and revenue, service could be the most important metric to watch.
Safety is an important metric as well, because of public perceptions and the regulatory burdens that can result from poor performance. Employee injuries had been trending downward pre-pandemic, but then plateaued for a few years after COVID, as new employees had to be hired to make up for layoffs and attrition during the pandemic. Injuries now appear to be trending down again, as these employees become more seasoned in their jobs.
Equipment incidents were relatively flat until the East Palestine, Ohio derailment in Q1 2023, which led to a renewed focus on such accidents. With a new FRA that is more focused on safety than employment preservation, we hope to see more technology deployed to monitor equipment condition and hopefully see a continuing downward trend in equipment incidents.
Rail outlook — economic uncertainty but innovation potential
International trade represents some 40-50% of North American rail traffic and faces huge uncertainties at present. Railroads will need to stay focused on good service (which both lowers costs and improves customer satisfaction) and stay flexible. But a "pivot to growth" for the railroads may be difficult to make this year, given sluggish freight and economic turmoil. On a more positive note, it seems likely that we will see a regulatory environment favoring more innovation, which could open the door to significant safety and operational improvements.
