Two Class I railroads are prepping to handle expected policy changes under the Trump administration, while another has already implemented contingency plans in anticipation of a work stoppage Tuesday.
For Union Pacific and CSX , the rail companies share concern, but remain hopeful about the end result of Trump’s imposition of tariffs , particularly on neighboring trading partners Canada and Mexico as Feb. 1.
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“We’ll deal with it, and we’re waiting to see what actually happens,” said Jim Vena, CEO of Union Pacific, in an earnings call on Thursday.
“I’m hoping that it’s a negotiating position by the president and because I don’t think anybody—the consumers in the U.S.—would love to have an increase in prices because of dispute, unless there’s some strategic reason that the president needs to do that for security of the country,” Vena said.
Kenny Rocker, executive vice president of marketing and sales at Union Pacific, acknowledged in the call that potential tariff changes could further impact volumes at the railroad, with revenue carloads increasing 5 percent in the fourth quarter to 2.16 million.
A month prior, at the UBS Global Industrials and Transportation Conference on Dec. 4, CSX chief financial officer Sean Pelkey sought to keep a maintain a positive outlook on the tariff situation as well.
“Within our business, when we talk about tariffs, there’s always going to be puts and takes,” said Pelkey during the event. “There’ll be some markets that benefit and others that maybe don’t. But in terms of exposure in terms of international trade, Mexico and Canada are probably the two largest countries that we do trade with, but it’s still a relatively small portion of our overall revenue base.”
Pelkey said the countries ranged between 10 percent and 15 percent of total revenue, with Canada’s share “being a little bit larger than Mexico, particularly on the merchandise side.”
In the fourth quarter, revenue at both railroads had low-single digit declines, with both saying that declines in fuel surcharges offset the benefits from increased volumes and higher price points. CSX saw sales decrease 4 percent year over year to $3.5 billion, while UP revenue declined 1 percent to $6.1 billion.
At CSX, the company earned $733 million, or 38 cents per share, in the quarter as volume increased 1 percent to 1.58 million units. Union Pacific generated $1.8 billion in net income, or $2.91 per diluted share.
There was optimism across both railroads regarding an easing of regulations by the Federal Railroad Administration (FRA) under a second Trump presidency. FRA regulations like the requirement of two crew members on most train routes are largely panned by the railroads citing a lack of evidence that it is actually safer. Railroads also argue that such regulations often undermine efforts to invest in automated safety technology that increases productivity.
Additionally, the railroads have filed various petitions with the FRA in recent years to obtain waivers that would enable them to deploy automated track inspection technologies and cut the frequency of human inspection. The FRA has not granted any of the petitions, with the Brotherhood of Maintenance of Way Employes Division (BMWED), a union that represents the workers who inspect and repair tracks, having opposed these types of requests.
“We need to get more technology on the inspection side into this industry and we need to work with our union partners to make that happen, but there’s a lot we can do to advance efficiency and safety while still having plenty of work for our teams to do,” said CSX CEO Joseph Hinrichs, in a Thursday earnings call. “We’re feeling really good about a supportive environment for the industry when it comes to safety and technology and working together to advance…the next several years look very supportive for us working together to make more advancements than we made in the last four.”
Vena said in the UP call that the Omaha, Neb.-based railroad applied “for a lot of waivers” that have been “outstanding for years now” that would help boost its efficiency and customer service.
“We hope with the turning of the page and how regulations are being talked about at the federal level that we get those improvements,” said Vena.
Following in the footsteps of the Association of American Railroads, both Hinrichs and Vena also praised Trump’s appointment of Patrick Fuchs as chairman of the Surface Transportation Board.
As the Class I railroads maneuver the new administration’s policies, Canadian National Railway (CN) is set to endure yet another potential work stoppage in January.
The International Brotherhood of Electric Workers (IBEW), which represents 750 signals and communications employees who work at CN, gave the railroad a 72-hour strike notice on Saturday. Barring a negotiated settlement, the 750 employees will strike at midnight on Tuesday
Unlike the one-day nationwide lockout that CN and fellow rail giant Canadian Pacific Kansas City (CPKC) instilled last August prior to the Canadian government intervening , the railroad says there will be no impact on its operations due to the strike action. “CN will continue negotiating with the IBEW in hopes of resolving the outstanding issues at the bargaining table,” the railroad said.
