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Rail performance falls while prices rise

Rail shippers expect their rates to rise 41/2% over the next six months, nearly twice the rate they forecast in March in the Freight Pulse survey conducted by equity research firm Morgan Stanley ( and Logistics Today. In the intervening months, shippers report the average ranking of rail performance — "delivery when expected" — fell from 5.9 to 5.4 on a 10-point scale, indicating continued erosion in service levels. As recently as January 2003, shippers were reporting average performance at 6.6.

Most respondents to this fall's Freight Pulse survey (see related story, "No rate relief in sight," on p. 1) are merchandise intermodal shippers, explains Morgan Stanley rail analyst Mike Manelli, and thus are more likely to be affected by the tight truckload market. However, strong international demand for U.S. grain and coal will also put pressure on bulk rail rates.

Top performing railroads will gain more of the shippers' freight, according to the survey. Shippers say they plan to tender 8.5% more freight to top-performing Norfolk Southern over the next six months. Kansas City Southern, with the next-best performance, will gain 5.7% and Burlington Northern Santa Fe will add 5.3%.

Conversely, Union Pacific (UP), which turned in the worst on-time performance, will see shippers move 3.4% of their volumes off the railroad. At 3.2 on the 10-point "delivery as expected" scale, UP received the lowest ranking in any of the seven Freight Pulse surveys over the past three and a half years.

Manelli points out that the performance rankings tend to be backward looking rather than forward looking, meaning ongoing efforts to improve service and other factors may not be reflected in the shipper forecasts. CSX, for instance, had begun to show improvements through July and August, before four hurricanes struck much of its network.

"Historically, railroads that are struggling take longer to recover from external shocks," Manelli notes. On the other hand, UP's performance began to stabilize in early June, albeit at a low level. Manelli believes that UP will have an opportunity to make gains on performance as the seasonal slowdown in rail volumes relieves some of the pressure during November and December.

Ironically, when shippers were asked where they moved the freight they diverted from lowperforming railroads, 55% shifted the freight to truckload carriers. (Tight capacity in the truckload sector is partly responsible for the rise of rail intermodal volumes.)

Asked what they believe to be driving increased intermodal volumes, shippers strongly agree that imports from Asia, rising truckload rates that make intermodal more competitive, and tight capacity in the truckload sector are the chief causes.

Delivery when expected on the rails (shippers' rating)

(1-10, with 10
the highest)

Change since
March 2004
Norfolk Southern



Kansas City Southern
Burlington Northern Santa Fe
Canadian National


Canadian Pacific
Union Pacific
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