At the latest “Railroad Happy Hour” event at TD Cowen, leaders in the railroad market pointed to noteworthy signs of optimism looking into next year as industrial projects take stronger footing. Intermodal rates are expected to grow only 1%-2% through winter as the TL market continues to hold back the market; our panelist expressed optimism on a spring rebound. Cautious sentiment was shared on the railcar leasing market.
Following the election, there is a broad sense of optimism from rail carriers, primarily along the regulatory front. There is a belief that the incoming administration will offer relief on the permitting side (which really touches every agency, Federal Railroad Administration, Environmental Protection Agency, etc.), which may unlock a lot of industrial development. The rail executive on our call said his project pipeline is currently the largest it has been in his 28-year career; growth opportunities are coming from all geographies, not just the Southeast. Customers are mixed, with many customers optimistic about positive momentum in 2025, while some clean energy/EV projects may be negatively impacted. Our panelist believes the new Administration will fill the vacant seats on the Surface Transportation Board quickly, though noted the Board is already doing an exceptional job.
Our IM panelist cited a challenged market that has not improved and expects rate increases of 1%-2% through the winter, with the optimism of 4%-5% rate increases in the spring (we would view this as the earliest possible timing of an IM rate rebound and would require the TL market to recover beforehand). IM carriers still have a lot of boxes stacked that is a drag on the P&L. Asset-based carriers who are brokering mini bids have expanded contract duration in recent months (three months to six months, now one year), which should give optimism towards the trucking market becoming more balanced.
Panelists shared some anecdotes about certain customers pulling forward some inventory ahead of tariffs, though nothing significant to date. There is speculation that despite broad tariff headlines, the focus will likely be on steel and autos, as a more targeted approach should keep many shippers on a wait-and-see approach. As for the freight shift ahead of potential January port strikes, our panelist is seeing minimal shift and stated that for many hauls, it makes more sense (and is cheaper) to have freight sit on the East Coast vs. haul across from the West Coast.
On the railcar leasing side, many customers have worries that more railcars are being lost by attrition vs. what is being built. The bright spot for railcars in 2024 was covered hoppers of all types as grain continues to show strong growth. There have been new entrants into the plastics space as large companies look to grow into food-grade safe plastics. A cautious sentiment was shared by our panelist about the outlook into 2025 as many customers work on contingency plans. Optimism was shared about sand growth next year, as well as possibly coal given 1) the new Administration, and 2) growing energy demand (driven partially due to data center growth).
