2025 FREIGHT RAIL OUTLOOK, RAILWAY AGE DECEMBER 2024 ISSUE: If “regaining strength” best describes the state of the rail industry in 2024, “we’ll keep at it, however …” may well define 2025—indeed, the next four years. This past year, the railroads strived to maintain a steady speed, with clear signals, and their efforts have been paying off in improved service and recovering traffic levels. There have been signs of top-line growth, and the prevailing mood has been optimistic, but measured.
We approach this year’s Outlook report as a series of questions. On balance, the answers at this point are leaning toward the positive side. Will the Surface Transportation Board’s (STB) disingenuous, pointless lecturing of Class I CEOs on their business plans and investment strategy subside as the current Chair is stripped of that title and removed from his bully pulpit, so the agency can return to doing what it’s supposed to, with collegiality and consensus building? It now appears likely—thank goodness. Will the Federal Railroad Administration (FRA), free of its luddite, labor-lapdog leader, toss its politically driven agenda and return to fact-based decision-making based on science and data? We believe so. Will labor negotiations based on mutual trust and respect—despite navigating the uncertainty of collective bargaining outside of national handling—continue? We hope so.
On the negative side, will new transnational U.S.-Mexico-Canada services that show much promise be squelched by proposed massive tariffs on goods brought in from USMCA trading partners? Probably not, because such tariffs would violate the terms of the USMCA—which the President-elect himself signed in 2020. Will intermodal suffer from increases in existing tariffs on Chinese imports imposed by the outgoing Administration? We hope not. Keep in mind that in a trade war, everyone loses.
Following are two perspectives on what 2025 could bring. Keep the throttle in Notch 8, but be prepared for some rough track and Approach Medium signal aspects.
Pursuing Normalcy Amidst Discord
By Capitol Hill Contributing Editor Frank N. Wilner
New Administrations are Forrest Gump’s box of chocolates: “You never know what you’re gonna get.”
- Democrat Jimmy Carter penciled atop DOT Secretary Neil Goldschmidt’s priority list, “railroad deregulation.”
- Republican Ronald Reagan’s Economic Recovery Tax Act tossed railroads a $2.5 billion accelerated-depreciation windfall.
- Republican George H.W. Bush broke his “Read my lips: No new taxes” pledge.
- Republican George W. Bush retained Democrat Linda J. Morgan as STB Chairperson.
- Democrat Barack Obama declared war on coal.
- Democrat Joe Biden, “the most pro-union President in American history,” shoved rail labor under the bus to avoid an economy-jolting work stoppage.
Comes now President-elect Chaos, sowing discord while demanding congressional and judicial docility to facilitate a radical reformation of public policy.
A railroad rampart against the absurd could be supply chain-knowledgeable Sen. John Thune (R-S.Dak.), elected the new Majority Leader by Republican peers—the filter against daft legislation and Looney Tunes Presidential nominations reaching the Senate floor for vote. His legacy depends on his protecting from Executive Branch aggrandizement the Senate’s Constitutional role as a co-equal branch of government. Railroads should wish him a hearty Godspeed.
Thune was South Dakota’s rail regulator; consulted for regional Dakota, Minnesota & Eastern; served on the House Transportation & Infrastructure (T&I) Committee; mediated a BNSF-shipper rate dispute before his Senate election; and as Commerce Committee Chair, shepherded passage of the STB Reauthorization Act. He steered passage of the Fixing America’s Surface Transportation (FAST) Act, enabling the Consolidated Rail Infrastructure and Safety Improvements (CRISI) Program that funds grade crossing improvements, short line track upgrades and intermodal connectivity. Thune’s reputation for critical thinking, respect for contrary viewpoints and data-first demands should serve railroads well.
Also in the Senate, expect Ted Cruz (R-Tex.), an advocate for market-driven results, to chair the Commerce Committee. Todd Young (R-Ind.) likely will chair the Surface Transportation Subcommittee.
House T&I Chairperson Sam Graves (R-Mo.) will return to that post for a fourth two-year term after being granted by House Republicans a waiver from that party’s term limitations for committee chairpersons of three two-year terms. T&I Committee member Rick Crawford (R-Ark.) had sought elevation. Such waivers are rare—this one punctuating the respect Republican House members have for Graves. Since Republicans instituted committee chairperson term limits in 1992, no Republican has served as T&I Committee chairperson more than six years. Graves had been under consideration as the President-elect’s choice for Transportation Secretary.
The future is unclear for House Rail Subcommittee Chair Troy Nehls (R-Tex.), mired in an ethics investigation and embarrassingly weak on rail economics. Nehls also suffers a lack of independent thinking, saying if instructed by President-elect Chaos to “jump three feet high and scratch your head,” he would.
A Surface Transportation reauthorization bill could include rail economic reregulation, new rail safety mandates, and authority for longer and heavier trucks already underpaying bridge and pavement damage responsibility. Anticipated corporate tax reductions and eased environmental regulations will benefit railroads, but depending on the magnitude of new and increased tariffs—and retaliation against American exports—freight volumes could suffer. The President-elect says he will impose 25% tariffs on all imports from Canada and Mexico and an additional 10% on Chinese imports.
Amtrak federal funding and grant and tax rebate programs for short lines face particular scrutiny. Notable is the President-elect’s assigning his First Buddy, the Tesla, SpaceX and X guy, to head a fanciful Department of Government Efficiency—presumably headquartered in Winnie-the-Pooh’s Hundred Acre Wood—to trim $2 trillion in federal spending. He will learn that menacing such funding transforms local, state and federal Republican power brokers into disturbed hornets’ nests. The President-elect was fibbing when he said of Elon Musk, “I can’t get rid of him.”
Anxiety attends President-elect Chaos’ pledge to weaken Civil Service protections and cashier politically disloyal decision-influencing federal workers. The Vice President-elect said, “Fire every single mid-level bureaucrat [and] replace them with our people.”
FRA: For those understanding the transformative role of technology in reducing costs, increasing efficiency and improving safety, President Biden’s FRA chief Amit Bose is a regret, having shelved fact-based decision-making predicated on science and data in favor of a luddite agenda. He violated statutory instructions that rulemakings score positive benefit/cost ratios; sent dispatcher and signal employee certification rules deep into negative territory; impeded deployment of advanced train, air brake and track inspection technology; issued an evidence-lacking mandate for minimum two-person train crews; and failed to rule on requests for waivers to test new safety technology. All are before courts as “arbitrary and capricious,” in violation of federal law.
A new Administrator will report to DOT Secretary-nominee Sean Duffy. Although having no relevant transportation experience, Duffy, when in Congress, was a perennial co-sponsor of bills to extend a short line rehabilitation tax credit.
Congress can derail future Bose-like luddites by substituting performance-based safety standards in place of prescriptive regulation. Rather than prescribe specific actions, FRA would specify safety outcomes, allowing each railroad to devise its own cost-effective means of achieving the target. Performance standards had the support of former FRA Administrator Jolene Molitoris and former National Transportation Safety Board Chairperson Deborah Hersman—both Democrats.
On the short line wish list is FRA standardization and streamlining of the grantmaking process.
STB: At the STB, independent of the Executive Branch but where the President names a Chairperson from among five Senate-confirmed members, Democratic Chairperson Robert E. Primus, whose second (and final by statute) term expires Dec. 31, 2027, will be demoted.
Joining Primus and predecessor Martin J. Oberman in promoting labor’s agenda has been fellow Democrat Karen J. Hedlund, whose first term expires Dec. 31, 2025. A less doctrinaire Hedlund is said to be more open to collegiality and consensus building.
The new STB Republican Chairperson likely will be Patrick J. Fuchs, whose second term expires Jan. 14, 2029, or Michelle A. Schultz, whose first term expires Jan. 11, 2026. Both have avoided partisan posturing, focusing on fact-based pragmatic outcomes. Fuchs, who earned rail, shipper and labor support for his second term, may have the edge. His résumé includes drafting the 2015 STB Reauthorization Act when reporting to Sen. Thune. The President-elect also could name as STB Chair a new Republican member filling the vacant fifth seat.
Shippers seek reconsideration of a discarded competition-based standard that would allow second-railroad access to sole-served facilities (reciprocal switching). They bewail the STB’s exempting contract traffic and presuming a second railroad willing to compete. Railroads allege an alternative service-based standard exceeds STB authority.
Additionally, shippers complain the STB is ineffective in “responding to rate and service consequences of operating-ratio-focused Precision Scheduled Railroading.” They also wonder the fate of a decade-old challenge to charges for moving empty tank cars, and an eight-year-delayed decision on whether to reregulate certain classes of service.
Although Final Offer Rate Review (FORR) for determining maximum reasonable rates was court-vacated, a Congressional mandate to find simplified alternatives to a complex and expensive Stand-Alone Cost (SAC) test remains unsatisfied. Complicating the effort is the court’s ruling that rate reasonableness cases be formal, on-the-record proceedings. The STB says that contravenes Congress’ simplification instructions.
A court challenge to a California Air Resources Board (CARB) edict to banish from state operation less environmentally friendly locomotives is on pause awaiting an Environmental Protection Agency determination if the order is permitted under the Clean Air Act. A favorable Supreme Court ruling on the Uinta Basin Railway Project could relieve the STB of burdensome evaluations, such as the end-use of commodities, when deciding petitions for new construction authority.
STB’s new Chairperson can help re-establish, through constructive dialogue, mutual trust with rail CEOs; encourage private-sector innovation; improve decision-making transparency; recruit analysts with expertise in rail economics, finance and operations; hire computer scientists to upgrade data processing tools; explore use of artificial intelligence; partner with Wall Street for revenue adequacy determinations; and engage in data sharing with FRA.
National Mediation Board: Barring a retirement, the three-member independent National Mediation Board, whose Chairperson rotates annually, will remain with two Democrats until at least July 1, when the three-year term of Deirdre Hamilton expires. Republican Loren Sweatt’s term expires July 1, 2026; Democrat Linda Puchala’s on July 1, 2027.
With a pattern already established in this round of multi-employer collective bargaining, unions not settling can expect to be parked in mediation indefinitely. If released, expect Congress quickly to head off a work stoppage by imposing the pattern.
With John Thune at the Senate helm, normalcy returning to the FRA and STB and contemplated labor peace, there is basis for optimism in 2025, no matter discord elsewhere.
(Wilner’s latest book, Railroads & Economic Regulation: An Insider’s Account, is available from Simmons-Boardman Books at https://www.railwayeducationalbureau.com/product/railroads-economic-regulation-an-insiders-account//, 800-228-9670.)
Off to the Races or Still Somewhat Challenged?
By Wall Street Contributing Editor Jason Seidl
Historically, most post-Presidential election cycles come with increased visibility for companies that unleash more business across transports; this one will likely not be much different. What is different is where we came from, the very clear expectations of a new Administration that has a majority in both Houses, and a Federal Reserve that appears to be on track to continue rate reductions. Let’s explore this backdrop and how it will pertain to our outlook for the rail industry in 2025.
2024 gave us a continuation of recessionary truckload pricing, a Canadian rail strike, an East Coast/Gulf Coast port strike, Canadian port strikes, Red Sea shipping disruptions and a few hurricanes to boot. Several of these events drove freight to the West Coast from the East Coast. While a good portion of the Canadian rail strike freight that shifted to the East Coast is more of 2024 phenomenon, the East Coast/Gulf Coast strike by the International Longshoremen’s Association (ILA) continues to have ramifications in the North American supply chain. Although the ILA returned to work, a permanent contract was not signed. A framework was agreed upon with the expectations that both sides would continue to negotiate until Jan. 15. As I write this, the ILA has walked away from the negotiation table over partial automation and shippers are already taking steps to divert more freight to the West Coast to protect their supply chains from yet another potential port strike. This continued shift to the West Coast will likely benefit not only the western carriers but also the eastern ones. Indeed, with truckload rates so low, some of the freight that came into the East Coast was not being transported via rail. Additionally, the length of haul on transcontinental moves tends to be longer for the eastern carriers.
The President-elect campaigned on placing tariffs on imported goods from all over the world (60% from China and 10% from all other locations). While there is some debate on the downstream economic impacts, there can be little doubt that shippers have reacted to the threat of such a policy. Indeed, we have seen several instances of shippers admitting to pulling freight forward. While hard to quantify at this time, we do believe that the impacts of freight being pulled forward will show up in fourth-quarter 2024 and first-quarter 2025.
Most expect the incoming Administration to help keep the corporate tax rate steady and work to further reduce governmental regulations. Reducing regulations would be welcomed for the rail industry as it is likely to help carriers obtain investments in their networks more rapidly, as well as to potentially help bring more manufacturing back to the U.S. (although that would likely have more of an impact beyond next year). The railroad industry will also keep a watchful eye on the STB, where we have two Republicans, two Democrats (including the Chairman) and a vacant seat. We fully expect the President-elect to replace Chairman Robert Primus and name one of the Republican Board members as Chairman. However, we do not believe the STB will be at the top of the list in terms of appointments (recall that during his first term the President-elect took more than a year to appoint someone to the STB). Although the STB is a non-partisan organization, under a Republican majority we would envision the appetite to impose further regulations on the rail industry to wane significantly.
So where does this leave us for industry expectations next year for U.S.-based railroads? We see low single-digit volume growth that benefits from interest rate cuts, the eventual recovery in industrial manufacturing, and modal shifts from the highway to the railroads. On the rail pricing front, our outlook is for roughly 3%-3.5% growth in 2025. Pricing should be somewhat constrained by the ongoing weakness in the truckload marketplace. While we expect truckload pricing to begin to recover, there has historically been a lag for intermodal pricing. Hence, the intermodal pricing recovery story is likely more of a 2026 event.
Given these assumptions, we expect to see a range of 5%-7% for the U.S. industry’s revenue outlook. Our forecast is for the railroads to improve their operating margins as the rate of rail cost inflation slows somewhat and carriers make operational gains. This should enable operating profits for the industry to reach double-digit growth in 2025. Given that we do not expect much of a jump in capital expenditures, the railroads should generate more cash, all other things being equal next year. This cash is likely to be used to modestly grow dividends and continue to buy back stock.
