Rail rates will continue to rise
Tom Stundza, Executive Editor -- Purchasing, 4/19/2006 6:00:00 AM
Railcars are in great demand and rail rates are the highest they've been in decades. Tight capacity and surging fuel costs pushed rail rates up 10% in 2005.
“Rail rates will be boosted further during 2006 as traffic growth accelerates and pressure remains from sky-high fuel costs,” says analyst Kenneth Kremar at Global Insight in Lexington, Mass. In a separate report, Morgan Stanley analyst James Valentine in New York also expects strong pricing trends to continue this year—possibly as high at 11%. Excess rail capacity “is almost used up,” says analyst Rick Paterson at UBS Investment Research in New York, who has become a rail-pricing bull. “If the supply of railcars and locomotives becomes too tight, growth would slow," he tells the Investors Business Daily newspaper, “but rates would go up even higher.” BMO Nesbitt Burns analyst Randy Cousins, in a letter to investors, maintains his forecast of continued strong pricing growth ahead by North American railroads. Reason: “Rail demand will stay high through 2006, while there is no incremental supply.” He points out that revenues at CSX Corp. increased 10.6% to a record $2.33 billion in the first quarter and CSX sees a “favorable pricing environment” continuing into 2006.
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