Rail rates will stay high despite logistics slowdown

Report says railroads will continue to see better-than-historical pricing in 2008.

By Dave Hannon -- Purchasing, 2/21/2008 8:35:00 AM

While other logistics modes continue to report slumping volumes and business, a recent report from Bear Stearns says that railroads will continue to see better-than-historical pricing as a result of increased demand, tighter supply, and a more mature competitive environment. “We also expect the rails to take share from highways over the next decade, driven by Asian manufacturing, better fuel efficiency, and increasing highway congestion,” the report said.

As an example the Bear Stearns analysis says Union Pacific’s rates will increase at minimum 2.9% in 2008, but could possibly average as high as 6% if the railroad is aggressive in its contract negotiations with shippers. 

“There remains the possibility that Union Pacific’s price discipline could potentially deter some long-term contracts should the company choose not to competitively price to the market at the time. For example, if it remains price-disciplined, as we expect, and the market weakens, the company has more potential business up for rebidding to lose to Burlington Northern Santa Fe or other modes of transportation than any other rail over the next few years.”