Shippers see tighter capacity, higher rates continuing

David Hannon -- Purchasing, 3/2/2006

Rail carriers reported strong financial results for 2005, citing rate increases and fuel surcharges as major contributors to earnings growth. Rail freight buyers saw nothing but decreased capacity and continued price increases.

Canadian Pacific cited its rate increases in the past year for its more than $118 million increase in net income. On average, CP's prices per shipment increased 13% in 2005. Burlington Northern's chairman and chief executive, Matthew K. Rose, said the demand for rail freight service was unprecedented in the fourth quarter.

Canadian Pacific's revenue per coal shipment rose 45% in the quarter, reflecting settlement of a price dispute with Elk Valley Coal Partnership, a British Columbia venture that ships the fuel to Vancouver for export to Asia. Total shipments increased 1.2%, including a 7.5% rise for cargo handled by a combination of rail and truck or ship.

CSX CEO Michael J. Ward said the market was "an economic environment that favors rail transportation." According to its financial statements, Burlington Northern was able to increase its fuel surcharge by 9% and its rates by about 6% for an 18% gain in freight revenue. This is the ninth straight quarter Burlington Northern has increased its prices. "Pricing is key, and boy was it strong," said John Barnes of BB&T Capital Markets in a recent note to clients.