TD Cowen 1Q25 Rail Shipper Survey Says …
Our survey is comprehensive and covers a broad range of industrial and consumer industries, among
others (see chart below). “Manufacturing”, “Transportation”, and “Logistics” comprised the largest percentages of participants. Shippers completing this survey had approximately $14 billion of transportation spend.
Pricing Outlook Steps Down, Below 5-Year Average
Rate hike expectations for the next six to 12 months came in at 3.2%, decreasing 20bps sequentially, back to similar levels we saw in our fourth-quarter survey, and below the survey’s long-term average of 3.6%. UP was confident in their pricing outlook when we hosted them for dinner last month, though the market, through macro fears, may have evolved through bid season. We expect a very difficult second-half for IM as carriers feel the other side of the pull forward, on top of a pricing outlook likely won’t see relief until 2026.
Pull Forward Grows with 44% Of Survey Respondents Seeing Goods Moved Ahead of Tariffs
Tariffs have dominated conversations with carriers, shippers and investors over the past week. For the second quarter, we asked shippers if they were pulling freight forward ahead of tariffs; 44% answered that they are, up from 26% last quarter. Of the shippers that are pulling freight forward, 48% are pulling forward between 0%-5% of volume, 33% are pulling forward between 5%-10%, and 16% are pulling forward between 10%-15%. Import data has corroborated this narrative that will likely lead to a significant volume decline in the second half, particularly if tariffs are here to stay. Gene Seroka, Executive Director of the Port of Los Angeles, said in a recent interview that he expects volumes to be at least a 10% drop for cargo imports beginning in July.
Business Growth Falls Sharply, Economic Confidence Back to Pre-Election Levels
Business growth expectations over the next 12 months fell 140bps sequentially to 1.6% in the first quarter, a steep drop following the post-election optimism shared in our fourth-quarter survey. Business growth expectations in the first quarter was the lowest reading since second-quarter 2020, during COVID lockdowns. 68% of shippers are not as confident in the economy as they were three months ago, back to pre-election levels. Last quarter, economic confidence soared; this has quickly retreated as tariffs plague confidence. Very similar results were seen in our trucking survey, where both economic confidence and business growth expectations faded off an election-bounce last quarter.
Shippers’ Expectations of Employee Counts Reverse Trend
18% of shippers expect their employee counts over the next 12 months to decrease, up from 5% last quarter. 50% expect their employee count to stay unchanged, down three points sequentially, and a bar we will continue to monitor going forward, particularly if tariffs hold. Shippers are having much less difficulty hiring employees; 35% are having trouble hiring employees, down seven points from last quarter.
Thoughts Into Rail Earnings
SURVEY QUESTIONS
How Much Of A Blended Base Price Increase Do You Anticipate Over The Next 6-12 Months?
Shippers anticipate rail prices to increase by 3.2% over the next six to 12 months, down 20bps compared to last falling further below the five-year survey average of 3.6%. Pricing outlook remains suppressed amid a deteriorating macro environment. UP had attested to firm pricing outlook at our March investor dinner but we acknowledge that a sharp macro decline could see competitive pressure from trucking rates remain persistent. Our proprietary trucking survey saw competing truck rate recovery timing pushed out.
What Is The Current Price Differential You Are Seeing Between Specific Rail And Truckload Freight Moves (Bulk/Carload)?
31% of respondents indicated that truckload is a cheaper option than rail, up four points compared to last quarter still materially above the survey average response of approximately 21%. Participants answering 5%-10% cheaper declined by a significant 7 points. Results are in line with pushed out TL rate inflection expectations and a worsening macro.
What Is The Current Price Differential You Are Seeing Between Specific Rail And Truckload Freight Moves (Intermodal)?
33% of intermodal shippers answered that truck is cheaper than rail compared to 29% a quarter ago, a four-point increase. The proportion of shippers who answered that rail is 0%-5% cheaper was up one point sequentially while 5%-10% cheaper was down 10 percentage points.
Did You Pull Forward Shipments In Anticipation Of New Import Tariffs Likely Being Implemented In 2025?
We again asked shippers whether they pulled forward shipments on tariff fears. The share of participants answering in affirmative stood at 44%, above last quarter’s 26% figure. We also asked shippers to size the magnitude of the pull forward. Of the shippers that made this adjustment, 48% of participants, pulled forward 0%-5% of shipments, 33% pulled forward 5%-10% and 16% pulled forward 10%-15%.
Over The Past Quarter, Have You Shifted More Off The Highway To The Railroads?
22% of bulk shippers and 23% of intermodal shippers now report having shifted volumes onto the rails, up six percentage points and five percentage points respectively. Most shippers continue to stick to the OTR mode.
If So, Why (Bulk/Carload and Intermodal)?
“Concerns about tight TL capacity”, held approximately flat. Participants that cited higher truck prices increased by 13 percentage points to 40%. 31% of shippers answered, “improved rail service,” down one point from last quarter.
Are You Concerned About Rail Capacity?
28% of shippers answered that they are concerned about rail capacity, down 10 percentage points compared to last quarter. The last time capacity concerns were this low was during second-quarter 2020 amid the COVID shock.
If so, why? Compared to a quarter ago, one percentage point fewer shippers cited “Equipment,” two percentage points more for “Track,” and one percentage point less answered “Manpower.”
Has Rail Service Impacted Your Modal Choices?
35% of survey respondents report that the quality of rail service has impacted their modal choices down 10 percentage points compared to last quarter. This is now well below COVID congestion levels as Class I resourcing has improved materially and the forward volume outlook has deteriorated.
How Would You Rate The Railroads On Service Measures, Using A Y/Y Comparison?
The average “positive” (excellent or good rating) rating of Class I (including KCS, KCSM, and Ferromex) rail service rose to 57% in the first quarter, increasing seven percentage point sequentially. Results for the U.S. Class I’s were up materially sequentially but largely down y/y with the exceptions of NS and UP. This quarter, we again segment KSU’s operations by geography, separating Kansas City Southern (KCS, or KSU’s U.S. railroad) and Kansas City Southern de México (KCSM, or KSU’s Mexico railroad), and including service measure results for Mexican railroad Ferromex.
How Would You Rate The Railroads On Digital Ease Of Use And Freight Visibility?
We asked shippers to rate the Class I’s by digital ease of use and freight visibility as technology becomes an increasingly central part of rails’ efficiency strategies. The average “positive” (excellent or good rating) rating of Class I’s digital ease of use rating was 56% in the first quarter, down one percentage point compared to last quarter.
If Rail Service Improves, How Much More Freight Would You Push Toward The Railroads (Bulk/Carload)?
In the bulk/carload category, 68% of survey respondents indicated they would push 0%-5% more freight toward the rails, up materially vs. last quarter but taking this share from participants answering they would move 5%-10%.
If Rail Service Improves, How Much More Freight Would You Push Toward The Railroads (Intermodal)?
On the intermodal side, 71% of shippers answered 0%-5% more freight would be shifted to rails, eight points more compared to last quarter. Participants responding that 5%-10% of their freight would be shifted was down one point. At 10%-15% level, responses moved down by six points. Finally, those answering they would move more than 15% of freight decreased by a percentage point sequentially.
If You Ship Cross-Border (Mexico – US/Canada), Which Cross Border Intermodal Service Do You Use?
We again asked shippers about their cross-border intermodal choices. 39% of participants responded that they engage in cross-border shipping, flat from last quarter. Of those cross-border shippers, we asked participants which cross-border intermodal service they use. 64% responded that they do not use an intermodal service. In the first quarter, CSX-CPKC-G&W led the group.
What % of Your Cross-Border Intermodal Volume Do You Anticipate You Will Shift Off The Road To New Cross-Border Intermodal Offerings Over The Next Year?
We also asked shippers what proportion of their cross-border freight volume they anticipate shifting over to intermodal services in the coming year. On average, shippers plan to move 16% of volumes to intermodal, up three percentage points sequentially with responses ranging from 0% to 100%.
Have ESG Targets Become A Part Of Your Decision-Making?
Responses that ESG targets were a factor decreased to 19% compared to 26% last quarter. We will continue to monitor trends in this space.
Given Current Economic Conditions, How Much Do You Anticipate That Your Business Will Grow Over The Next 12 Months?
Business growth expectations over the next 12 months declined sharply by 140bps after a sharp post-election rebound, falling back to post-COVID normalization levels.
Over The Next 12 Months, How Will Your Employee Count Change?
The percentage of shippers expecting their employee counts to increase over the next 12 months was down nine points at 33%. The percentage of shippers expecting to decrease headcount was up 13 points while those expecting it to be unchanged was down three points in the quarter.
Is Your Company Having Difficulty Hiring Employees?
We asked participants if their companies are having difficulty hiring employees. Results were down seven points compared to last quarter with 35% of participants stating that they are having trouble hiring employees, and 55% not having trouble hiring employees.
Are You More Confident In The Direction Of The Economy Today Than You Were Three Months Ago?
Economic confidence also dropped sharply nearly back to pre-election levels amid tariff and macro scare.
On A Scale Of 1 To 5, 5 Being The Most Positive, How Have Business Levels Trended Over The Last 3 Months?
Business levels over the past few months were positive (“good,” “very good,” or “excellent”) for 42% of respondents, down 17 points compared to last quarter and a percentage point below pre-election level.
