TD Cowen 2Q25 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 $12 billion of transportation spend.
Pricing Outlook Flat Sequentially, Below Five-Year Average
Rate hike expectations for the next 6-12 months came in at 3.2%, staying flat sequentially vs. our first-quarter 2025 survey, and below the survey’s long-term average of 3.6%. The railroads (most notably UP) have been confident on their pricing outlook, despite macro uncertainty. Without any material rebound in the OTR market and spot rates stepping back down into July, we don’ t expect any upside to IM pricing in the near-to-medium term.
47% of Shippers Would Support a Transcontinental Merger
For the first time, we asked rail shippers if they would support a transcontinental merger; 47% answered that they would support it, a higher level of support than we would have expected. Of shippers that stated they would not support a merger (53%), 39% would support a merger if the railroads made concessions regarding service. We also asked shippers which concessions would be desirable; participants’ responses included full reciprocal switching, rate case reform and liquidated damages provisions based on service outcomes. Recall our recent call with former STB Chair Elliott, who sees a 20%-25% likelihood of a transcontinental merger. A fifth Republican STB Board seat will likely need to be filled before any rails would make a move. Given the long Senate confirmation process, the STB will be lucky if they fill the seat before the end of the year.
Tariff Uncertainty Presents Overhang, Little Sign of Pull Forward
We asked shippers if tariff uncertainty is causing them to change ordering patterns. A slight majority, approximately 54% of shippers are making no changes to procurement as uncertainty drives paralysis. Another roughly 25% of shippers are reducing orders. Only a small minority, about 9%, of shippers are pulling forward (recall 44% pulled forward shipments in our first-quarter survey). Survey results suggest tariff impacts on volumes are likely biased to the downside going forward. This would be in line with commentary made by Port of Los Angeles Executive Director Gene Seroka at our recent call.
Growth Expectations Hit Lows, Macro Confidence Remains Subdued
Shipper estimates of business growth stood at 1.5% and have now reached lows not seen since the initial COVID shock in 2020. Results also indicate a sharp spike in the share of participants expecting headcount to remain unchanged as decision paralysis remains elevated. A majority of participants (61%) are less confident in the economy incrementally despite a marginal improvement over last quarter. Confidence remains materially subdued compared to historical averages.
Thoughts Into Rail Earnings
Survey results are a negative for the U.S. rail group as pricing stalls and still sits below the survey average. Business growth expectations fell sequentially to levels not seen since 2020 during COVID, and economic confidence runs well below the survey average. We are cautious on the rail group into earnings though favor UP into the print given better coal numbers and strong overall second-quarter carload performance supported by healthy operating leverage from productivity initiatives that we have highlighted before. CSX’s service recovery out of a challenged first quarter is encouraging and should enable efficiencies going forward but likely came with some cost in the second quarter.
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 6-12 months, up 10bps compared to last quarter but still below the five-year survey average of 3.6%. Rails remain committed to passing on inflationary pressures per our channel checks but upside to pricing is limited due to TL pricing that remains choppy along the trough.
What Is The Current Price Differential You Are Seeing Between Specific Rail And Truckload Freight Moves (Bulk/Carload)?
28% of respondents indicated that truckload is a cheaper option than rail, down 3 points compared to last quarter but still materially above the survey average response of about 21%. Participants answering 10%-15% cheaper increased by a significant six points.
What Is The Current Price Differential You Are Seeing Between Specific Rail And Truckload Freight Moves (Intermodal)?
28% of intermodal shippers answered that truck is cheaper than rail compared to 33% a quarter ago, a five-point decrease. The proportion of shippers answering intermodal was 5%-10% cheaper increased by a significant 9 points. Bulk and intermodal results are likely reflective of intermittent firmness that TL rates saw around road check week.
How Are You Planning Your Business Around Tariff Uncertainty?
We asked shippers about how they are adapting to tariff uncertainty. The majority of shippers responded that they are not making major changes to procurement plans. Another quarter of participants noted they are ordering less. Only 9% are planning pull forwards. The average impact to ordering volumes is 0.4% per results, which we view as negligible.
Would You Support a Transcontinental Railroad Merger?
Shippers were roughly evenly split on the subject of supporting a transcontinental railroad merger; 47% said “yes” and 54% said “no.”
Would You Support One If The Rails Made Competition Service Concessions?
Of shippers that responded they do not support a railroad merger, 39% would support a merger if the railroads made concessions on service. Results imply that roughly a third of shippers would not support a merger under any circumstance. We also asked shippers which concessions would be desirable. Participants’ responses included full reciprocal switching, rate case reform, and liquidated damages provisions based on service outcomes.
Over The Past Quarter, Have You Shifted More Off The Highway To The Railroads?
18% of bulk shippers and 11% of intermodal shippers now report having shifted volumes onto the rails. Intermodal shippers have continued to keep freight in the trucking network despite volatility in rates we saw in the second quarter.
If So, Why (Bulk/Carload and Intermodal)?
“Concerns about tight TL capacity,” spiked sharply by 12 points among participants that did shift freight which tracks with rate volatility. Participants that cited higher truck prices decreased by eight percentage points to 32%. 26% of shippers answered, “improved rail service,” down one point from last quarter.
Are You Concerned About Rail Capacity?
30% of shippers answered that they are concerned about rail capacity, up two percentage points compared to last quarter. These are still below 2024 levels. Asked, “if so, why?”, compared to a quarter ago, one percentage point more shippers cited “Equipment,” seven percentage points more for “Track,” and three percentage points more answered “Manpower.”
Has Rail Service Impacted Your Modal Choices?
40% of survey respondents report that the quality of rail service has impacted their modal choices up five percentage points compared to last quarter.
How Would You Rate The Railroads On Service Measures, Using A Year-Over-Year Comparison?
The average “positive” (excellent or good rating) rating of Class I (including KCS, KCSM, and Ferromex) rail service declined to 55% in the second quarter, decreasing two percentage points sequentially. Results for the U.S. Class I’s were down slightly sequentially but mixed year-over-year.
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 55% in the second 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, 61% of survey respondents indicated they would push 0%-5% more freight toward the rails, down materially vs. last quarter, while the share of those responding they would move 5%-10% increased by seven points.
If Rail Service Improves, How Much More Freight Would You Push Toward The Railroads (Intermodal)?
On the intermodal side, 76% of shippers answered 0%-5% more freight would be shifted to rails, five points more compared to last quarter. Participants responding that 5%-10% of their freight would be shifted was down three points. At 10%-15% level, responses were flat. Finally, those answering they would move more than 15% of freight decreased by two percentage points sequentially.
Have ESG Targets Become A Part Of Your Decision-Making?
Responses that ESG targets were a factor increased to 22% compared to 19% 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 10bps to reach 1.5%. Growth expectations have now reached lows last seen during the COVID shock in 2020.
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 another eight points off the first quarter at 25%. This comes following a sharp drop last quarter. The percentage of shippers expecting to decrease headcount was down four points while those expecting it to be unchanged was up 11 points in the quarter. Results speak to the decision paralysis that has taken hold in the economy.
Is Your Company Having Difficulty Hiring Employees?
We asked participants if their companies are having difficulty hiring employees. Results were up six points compared to last quarter with 41% of participants stating that they are having trouble hiring employees, and 47% not having trouble hiring employees.
Are You More Confident In The Direction Of The Economy Today Than You Were Three Months Ago?
Economic confidence moved up in the second quarter but remains well below the survey average with a majority of participants still less confident in the economy.
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 38% of respondents, down four points compared to last quarter. These are the lowest levels on record barring the COVID shock lows.
