The fourth quarter of 2024 saw mixed results for North America’s seven largest freight railroads, reflecting ongoing economic uncertainties and shifting trade patterns, but carriers should see steady if unspectacular results in 2025 after taking proactive measures, according to a new study.
Consultant Oliver Wyman surveyed key performance metrics, and found revenue performance in Q4 2024 was generally flat or slightly down compared to Q4 2023, continuing the slower business trends seen throughout 2023 and 2024. Only Canadian Pacific Kansas City (NYSE: CPR) and Ferromex (FXE) of Mexico, both with significant Mexican market exposure, reported year-over-year revenue increases. These two carriers were also the only ones to show compound quarterly revenue growth over the past two years.
Canadian and Mexican railroads saw improvements in revenue per unit, while U.S. carriers did not. This discrepancy is largely attributed to U.S. railroads experiencing most of their growth in lower-revenue intermodal traffic. CPKC’s revenue gains were primarily driven by longer single-line movements, a direct benefit of their recent merger.
Despite flat revenues, railroad earnings generally improved in 2024 compared to previous post-pandemic years. This improvement stems from enhanced service levels and successful cost-cutting measures.
The U.S. carriers and FXE reported increases in unit volumes for Q4 2024 compared to the previous year. CPKC, FXE and Norfolk Southern (NYSE: NSC) saw growth in revenue ton-miles, with NS’ increase largely reflecting improved service levels.
Intermodal traffic surged for Union Pacific (NYSE: UNP) and BNSF, with double-digit growth in Q4. This spike was primarily driven by increased international traffic through U.S. West Coast ports, as shippers diverted cargo away from East Coast, Gulf Coast and Canadian west coast ports due to labor issues.
Carload traffic saw modest increases for most Class 1 railroads, excluding coal. NS and CSX (NYSE: CSX) experienced the smallest declines in coal traffic, benefiting from their larger share of metallurgical coal for both domestic use and export.
Four of the seven railroads reported improvements in adjusted operating ratios in Q4. Union Pacific achieved an operating ratio below 60% for both Q4 and the full year, even while increasing its workforce. Both CPKC and UP recorded their highest Q4 operating income in four years, though other railroads have yet to match or exceed their 2022 post-pandemic highs.
Capital expenditures for 2024 increased modestly for most railroads, in line with inflationary pressures. The exceptions were BNSF and UP. Return on invested capital remained in single digits for CPKC, due to merger-related factors, and for NS, which is still recovering from the East Palestine, Ohio, derailment.
Cash flow performance varied, with CPKC, UP, BNSF and FXE reporting increases, while Canadian National, CSX and NS saw declines. NS would have nearly doubled its cash flow if not for a significant infrastructure purchase.
Railroad stocks began to diverge from the S&P 500 index in 2024, with this trend accelerating in the latter half of the year. All public Class 1 railroads, except CPKC, are trading well below their year-end 2021 stock prices.
Norfolk Southern was the only railroad to improve both dwell time and average train speeds in Q4 year over year. CSX reported higher dwell times and reduced train speeds, while other carriers showed relatively flat service performance.
CPKC, NS and UP improved both employee and equipment safety metrics in Q4. However, the industry as a whole reported slightly higher employee incidents, likely due to an influx of less experienced workers post-pandemic. Equipment incidents decreased overall, suggesting an increased focus on track and equipment condition following the 2023 East Palestine incident.
The rail industry faces an uncertain 2025, with potential headwinds from tariff discussions and broader economic volatility. Railroads are particularly exposed to international trade fluctuations, with 38% of rail traffic associated with imports/exports. Despite these challenges, rail volumes and revenues are expected to remain stable, with solid but not record-breaking earnings anticipated.
Three of the four U.S. Class 1 railroads have already secured contract renewals with many of their unions, reducing labor-related uncertainties for the coming year. This proactive approach should help minimize external variables impacting their operations in 2025.
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Find more articles by Stuart Chirls here.
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