RBC Compass releases 2015 North American Railroad Shipper Survey

by Canadian Shipper

TORONTO, Ont.– RBC Dominion Securities Inc. has released its RBC Compass, 2015 North American Railroad Shipper Survey.

The survey taps into the views of the Class 1 railroads’ top customers, with key findings focusing on shippers’ expectations for 2015 regarding: the direction of rail rates; volume growth; and service performance.

This year, the survey also solicited shippers’ views on recent changes to Canadian rail regulation as well as anticipated market shifts between CNR and CP, said analyst Walter Spracklin.

The main takeaways from the survey are as follows:

1) Pricing gains to accelerate. Survey findings reflect a strong upward shift in pricing expectations as the share of respondents forecasting rate increases of +4%-+6% more than doubled to 53% (from 25% last year).

“In our view, positive pricing momentum reflects improving macro fundamentals and tightening transportation capacity. With a strong majority of respondents (85%) anticipating higher rail rates next year and few participants (1%) calling for rates to decline, we are confident that rail pricing will remain on a positive growth trajectory in 2015,” Spracklin said.

He also noted that severe network disruption has not precluded carriers from obtaining higher rates in contract negotiations this year and “we see incremental upside in rail pricing as service recovers to historical levels.”

2) Volume pipeline continues to build. Shippers’ volume expectations once again converged on flat to modest growth (+1% to +5%); “however, we note a positive shift in respondents’ forecasts as the share of participants anticipating modest growth increased to 51% (from 40% last year).”

Based on discussions with shippers, “we believe these findings signal greater business confidence due to favourable macro trends notwithstanding recent oil price volatility. Survey findings on volume reinforce our growth outlook for the Class 1 railroads as we are assuming volume increases of +1.4% to +5.1% across the group in 2015. The positive shift in shippers’ volume expectations points to strengthening demand and we see potential upside to the consensus outlook as shippers’ forecasts historically have reflected a healthy dose of conservatism,” Spracklin said.

While the recent collapse in oil prices could temper volume growth in energy markets, the survey is optimistic that freight volume growth will meet (or exceed) shippers’ expectations in 2015.

3) Shipper sentiment sours on North American rail service.

Survey findings indicate that shippers’ view of rail service has deteriorated in 2014 as negative ratings (“Fair” or “Poor”) surged to 77% of all responses, up from 32% last year.

“In our opinion, widespread customer dissatisfaction is largely the product of volume congestion and severe weather that impaired network fluidity across North America. We are not surprised that negative ratings comprise the majority of reviews on all carriers’ service levels this year,” the survey indicated.

While the negative service trend is significant, the decline in customer satisfaction is being viewed as a temporary sentiment shift driven by unforeseen factors that were out of carriers’ control (largely weather-related).

Notwithstanding the temporary nature of the negative service trend, and the positive trend in share values, the survey indicates that that rail players should concentrate on service levels in the year ahead.

Have your say

We won't publish or share your data