Knocked Off Their Rails—-Energy Slump Slams Big Railroads
By Laura Stevens & Betsy Morris at The Wall Street Journal
DavidStockmansContraCorner.com
January 22, 2016
The dismal energy market slammed two of North America’s biggest freight railroads in the fourth quarter, prompting them to slash jobs and driving profits below Wall Street’s expectations.
Union Pacific Corp. said it furloughed 3,900 employees last year amid steep declines in shipments of coal, crude oil and fracking sand. These, plus a sharp drop in fuel-surcharge revenue, pressured fourth-quarter profit down 22% to $1.12 billion.
Meanwhile, Canadian Pacific Railway Ltd., which has so far been stymied in an effort to take over U.S. rival Norfolk Southern Corp., said it would cut up to 1,000 jobs this year and posted a nearly 30% drop in earnings to 319 million Canadian dollars ($220 million).
The reports come a week after executives at CSX Corp. said the current pressures on rail volumes were at levels not seen outside of a recession.
The effects of the oil-market bust on the rail industry’s crude-related businesses were especially evident in the latest quarter.
At CP, whose network stretches across Canada and into the U.S., total carloads fell about 6% during the quarter, with declines in all but three categories of cargo. Some of the greatest declines were in CP’s crude-oil shipments, which fell 17%, and its metals, minerals and consumer-products shipments which plunged 24%.
“We’ve seen [in] the last three quarters of 2015 the economic headwinds across all business segments except for a couple of bright spots in forest products and Canadian grain,” said CP Chief Operating Officer Keith Creel. He said the strong U.S. dollar and low commodity prices weighed on business in the company’s bulk, energy and metals segments.
At Union Pacific, which is most active in the Western U.S., shipments of crude oil plunged 42% and loads of fracking sand used to drill oil and natural-gas wells fell by more than half in the quarter. Shipments of coal, one of Union Pacific’s largest businesses, fell by a fifth as temperatures were warmer than average and power plants used more natural gas.
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