Of 74 top railway customers, 72 per cent expected higher prices next year
MONTREAL—Customers believe the cost of transporting goods by rail in North America will increase in 2013 but at a more modest pace than in recent years due to the lingering economic slowdown.
An RBC Capital Markets survey of 74 top railway customers found that 72 per cent expected higher prices next year, with 39 per cent forecasting increases of one to three per cent.
After two years of accelerating price expectations, the number of customers who believe prices will increase in excess of four per cent has been halved to 32 per cent.
Only three per cent expect price decreases.
Analyst Walter Spracklin said the reduced pricing forecasts reflect widespread economic concerns.
Expectations of higher prices is positive for railways such as Canadian National and Canadian Pacific because it means pricing that should outpace inflation, he wrote in a report.
Shippers are cautious about the amount of goods that will be transported in 2013, forecasting flat to modest growth.
Nearly 40 per cent expect no growth and 36 per cent expect one to five per cent volume gains.
However, few are anticipating volume decreases.
Spracklin says the survey results are consistent with the outlook of railway executives on recent third-quarter conference calls.
He says muted volume expectations are already priced into rail shares, suggesting that volume gains would propel stock prices.
The survey found that shippers had an increasingly positive perception of rail service.
Norfolk Southern Corp. edged out CN as the top performing railway as 78 per cent of respondents had a positive service rating for the U.S. carrier, compared with 69 per cent for its Canadian rival, which was in line with last year’s results.
The number of excellent ratings for CN decreased by seven percentage points to 22 per cent while the number that gave it a “good” rating increased by the same margin to reach 47 per cent.
CP’s favourable service ratings held steady at 60 per cent as a nine-day strike last May appeared to offset a double-digit improvement in the company’s key operating metrics such as train velocity and terminal dwell.
The number that gave it a fair or poor grade was steady at 40 per cent.