Railroads: Exports Increase in ‘18, Flatten in Early ‘19

Reports from the biggest railways in the U.S. state exports have mostly offset the growing decline in domestic demand as of late, but the outlook is mixed

by jesse morton, technical writer

The major freight railroad companies in the U.S. have raised prices on coal cars over the last bit to make up for a general downward trend in coal shipments dating back several years. Weekly coal car counts reveal that trend bottomed in 2016. The companies report that, more recently, exports have offset the decline in shipments destined to U.S. power plants. Guidance for this year, however, projects a leveling-off in the coal shipment business in the U.S. Details from the top railroads, in alphabetical order, follow.

Burlington Northern Santa Fe

Burlington Northern Santa Fe (BNSF) operates 32,500 track-miles in 28 states and three Canadian provinces. In the U.S., it serves the Midwest, Pacific Northwest, Western, Southwestern and Southeastern regions. It works with roughly 200 shortline railroads.

More than 90% of coal transported by BNSF comes from the Powder River Basin.

For 2018, coal amounted to 18% of the freight revenues for the railroad, according to an annual report by the company. It moved 15,000 less coal cars in 2018 than it did in 2017. Revenue from coal, however, rose roughly 4% year over year (yoy) as the company made roughly $100 more per coal car. Revenue from coal rose roughly 14% yoy in 2017.

In 2018, “coal volumes decreased mainly due to plant retirements combined with competition from natural gas and renewables, mostly offset by market share gains and improved export volumes,” the railroad reported.

For BNSF, Q1 2019 revenues were up 2% over the same period last year; however, the total number of cars moved fell 5%. Revenue from coal for Q1 2019 fell more than 8% from the same period last year. BNSF moved 48,000 fewer coal cars in Q1 2019 than it did in the same period last year. “Coal volumes decreased primarily due to challenging weather conditions, partially offset by higher market share,” the company reported. Challenging weather means “severe winter weather and flooding on parts of the network.” BNSF made almost $50 more per coal car in Q1 2019 than it did in the same period last year.

Weekly car counts for the last couple years for BNSF reveal a general decline in the number of coal cars after a spike in late 2017.

Canadian National

Canadian National, one of the biggest lines on the continent, celebrates a century in business this year.

The company ships coal from mines in southern Illinois “or from western U.S. mines via interchange with other railroads, to major utilities in the midwest and southeast U.S., as well as offshore markets via terminals on the U.S. Gulf Coast.” For the purposes of its annual corporate reports, the term “coal” covers bituminous coal, coke and pet coke.

In 2018, the company’s revenues were up 10% yoy, but net income fell by 21%, which it said was due to taxes. Contributing to the increase in revenue was higher volumes of coal shipped, the company reported.

In 2018, revenues from coal were up 24% yoy. That follows a 23% increase yoy in 2017.

Total coal carloads were up 14% yoy in 2018.

The company reported the increase was due to the uptick in exports of U.S. thermal coal via the Gulf Coast and higher metallurgical coal exports via West Coast ports. Increased freight rates and fuel surcharge rates impacted those numbers as well.

U.S. coal for export in 2018 amounted to 33% of what the company calls commodity group revenues. That was up from 27% in 2017. U.S. coal for domestic usage in 2018 was 16% of those revenues, dropping from 19% in 2017.

In Q1 2019, the company reported an 11% increase in revenues over the same period last year. Higher volumes of coal shipped contributed to that increase. Coal revenues increased 15% over the same period last year. “The increase was mainly due to higher metallurgical coal and petroleum coke exports via West Coast ports, freight rate increases, and the positive translation impact of a weaker Canadian dollar,” the railroad reported.

The coal car count for the quarter was almost the exact same as the first quarter last year.

Weekly car counts for the railroad reveal coal shipments from the last seven years peaking in early 2014, bottoming in early 2016, and mostly moving sideways since. During that timeframe, at the peak, coal and coke cars briefly made up more than 11% of the total cars moved. Currently, it is in the neighborhood of a little more than half that.

In its Q1 report, the company stated it expected growth in Canadian coal exports, but it expects “U.S. coal exports to be flat for 2019 compared to 2018.”

CSX

CSX describes itself as a leading supplier of rail-based freight transportation in North America, with a network that reaches almost two-thirds of the U.S. population. That network sprawls across the eastern U.S. from the Atlantic to the Mississippi River. It serves “every major market in the eastern United States.”

The line moves coal and coke from the Appalachian coalfields and the southern Illinois basin to power plants and steel manufacturers as well as export coal to deep-water port facilities. About a third of the export coal and the majority of the domestic coal shipped goes to power generation, the company reported.

CSX increased revenue by 17% yoy in 2018. It shipped 887,000 carloads of coal, which amounted to 14% of the total carloads and 18% of the company’s total revenue for the year.

In 2018, total carloads increased 4% yoy. It increased 2% yoy in 2017.

In 2018, revenue from coal increased to $2.2 billion, up 7% yoy. It increased 15% yoy in 2017.

In 2018, domestic utility coal volume declined yoy due to “strong competition” from natural gas, the railroad reported. “Domestic coke, iron ore and other volume increased primarily driven by stronger domestic steel production,” CSX reported. “Export volume increased as global supply levels and elevated global benchmark prices supported continued demand for U.S. coal.”

In 2017, domestic utility coal volume declined 12% yoy “as the competitive loss of short-haul interchange traffic more than offset underlying growth at other utilities,” CSX reported. Domestic coke shipments also declined that year, “as a large customer temporarily halted production.” However, export volume increased 42% yoy “as global supply levels and pricing conditions supported strong growth in U.S. coal exports.”

For Q1 2019, CSX reported total volume from coal increased 5% over the same period last year. Revenues from coal increased 7%. Domestic coke volume increased “primarily driven by higher domestic steel production,” CSX reported. “Domestic utility coal volume declined slightly reflecting continued strong competition from natural gas.” Export volume declined as well. “Lower metallurgical coal shipments were partially offset by higher thermal coal exports,” the company said.

Weekly coal car counts going back to 2012 show an upward trend that peaked in late 2014, a decline that bottomed in 2018 followed by sideways movement. For that timeframe, total coal and coke cars as a percentage of total cars peaked in 2012 at roughly 35%, bottomed in 2016 at roughly 20% and have hovered around 25% since.

Genessee & Wyoming

Genessee & Wyoming is an international company with freight railroads in seven regions in North America that span more than 13,000 track-miles. The company operates two regional freight railroads in the U.S., and has rail in Australia and operations in Europe.

Coal accounts for approximately 16% of its U.S. business. Most of the line’s coal cars are destined for power plants and industrial customers, the company reported.

In 2018, the company’s North American operations logged a yoy revenue increase of roughly 6.6%. Carloads were up 6.1% yoy. Revenues from coal and coke increased 10% yoy. Coal and coke carloads increased 14% yoy. The increase in coal and coke carloads “was primarily due to increased demand and new business in the northeastern and midwestern U.S., as well as a maintenance outage at a customer facility in 2017.”

For Q1 2019, the company reported a revenue increase of 11% and a carload increase of 1% over the same period last year. That was in part due to higher volumes of coal shipped. For the quarter, revenue from coal increased 15% over the same period last year. “The increase was mainly due to higher metallurgical coal and petroleum coke exports via West Coast ports, freight rate increases, and the positive translation impact of a weaker Canadian dollar,” the railroad reported.

The number of coal carloads in Q1 was roughly the same for the same period last year.

The railroad reported expecting Canadian coal exports to increase yoy in 2019. It expects “U.S. coal exports to be flat for 2019 compared to 2018.”

On July 1, Genesee & Wyoming reported it would be acquired by Brookfield Infrastructure and GIC for $8.4 billion.

Kansas City Southern

Kansas City Southern’s (KCS) North American rail network comprises roughly 6,700 track-miles in the U.S. and Mexico. KCS hauls coal from the Powder River Basin and destined for power plants in the central U.S. It also hauls coal from the Midwest to industrial consumers.

The company reported a yoy revenue increase of 5% for 2018. Carload volumes were up only slightly yoy.

The closure of a Texas utility in January 2018 impacted utility coal volume, the company reported. Revenue from coal fell 21% yoy.

In 2017, utility coal volumes rose yoy “due to higher natural gas prices and lower coal inventory levels,” the company reported.

For Q1 2019, the company reported a revenue increase of 6% and a volume decline of 1% over the same period last year. Revenues from coal increased roughly 9% and total coal carloads increased 12% over the same period last year. The increase in coal volumes
was “due to stockpile replenishment” and “demand in the Texas market,” the company reported.

Weekly coal car counts dating back to 2014 show a peak in late 2015 followed by a bottom in early 2016. Coal shipments then rose meteorically to close out 2016 and have been in steady decline since. For the timeframe, coal and coke cars as a percentage of total cars peaked in 2015 above 15%, bottomed in 2016 at around 11%, and are currently hovering around 14%.

Norfolk Southern

In corporate reports, Norfolk Southern describes itself as one of the U.S.’s premier freight transportation companies, operating 19,500 track-miles in 22 states and the District of Columbia. The company serves every major container port in the U.S. It operates “the most extensive intermodal network in the east and is a principal carrier” of coal.

Most of the coal the railroad moves is from eastern coal basins, but it also moves coal from “major western coal basins received via the Memphis and Chicago gateways,” the company reported. “Our coal franchise supports the electric generation market, serving approximately 70 coal generation plants, as well as the export, domestic metallurgical and industrial markets, primarily through direct rail and river, lake, and coastal facilities, including various terminals on the Ohio River, Lamberts Point in Norfolk, Virginia, the Port of Baltimore, and Lake Erie.”

For 2018, Norfolk Southern logged a revenue increase of roughly 9% yoy, driven in part by higher prices and higher fuel surcharge revenue. Revenue from coal amounted to 16% of the company’s total railway operating revenue. Coal revenue was up 5% yoy, despite a 1% decline in carloads. “Revenue growth in 2018 was the result of higher average revenue per unit, largely the result of pricing gains, which more than offset volume declines,” the railroad reported.

The railroad moved 1 million carloads of coal in 2018.

Utility coal tonnage shipped fell 3% yoy in 2018 due to “lower network velocity, decreased coal supply, inclement weather in the first quarter, and plant outages,” the company reported. Domestic metallurgical coal tonnage shipped fell 1% due to “customer sourcing changes.” Industrial coal tonnage shipped fell 2% due to “customer sourcing changes and pressure from natural gas conversions.” Export coal rose 6% in 2018. “Volume through Norfolk was up 2.3 million tons, or 15%, in 2018,” and “volume through Baltimore declined 7%, in 2018.”

Coal ash volumes also reportedly declined in 2018.

In 2017, the company’s revenue increased 7% yoy, driven in part by price gains and an increase in coal volume, which soared 17% yoy. “The increase in 2017 was a result of higher volume, primarily in the export market, and higher revenue per unit, driven by higher fuel surcharge revenue and pricing gains,” the company reported. Coal carloads increased 16% yoy.

Utility coal tonnage shipped increased 4% yoy in 2017, “driven by market share gains, partially offset by limited coal burn due to milder weather,” the railroad reported. Domestic metallurgical coal tonnage shipped increased 13% in 2017, “a result of market share gains.” Industrial coal tonnage shipped fell 10% in 2017, “a result of plant outages, natural gas conversions and decreased coal burn.” Export coal tonnage shipped increased a staggering 81% in 2017. “Volume through Norfolk was up 57%” yoy, and the “volume through Baltimore rose 129% in 2017.”

In its annual report, the company reported it expected 2019 coal revenues to remain “relatively flat” yoy. “Higher export and domestic metallurgical volumes are expected to be offset by lower revenue per unit, primarily the result of lower pricing in our export market.”

The company reported expecting 2019 utility tonnage “to be relatively flat” yoy, “the result of continued pressure from natural gas prices and continued expected growth in renewable and natural gas capacity.” Export tonnage will “rise due to continued demand for U.S. coal.” Metallurgical coal tonnage “is expected to grow due to increased demand in domestic steel production.” Industrial coal tonnage will decline due to “continued pressure from natural gas conversions and customer sourcing changes.”

For Q1 2019, revenues from coal were almost the same as the 2018 period. Coal volume fell by 5% from the same period last year. Utility coal tonnage shipped fell by 1%, export coal tonnage shipped fell by 12%, domestic metallurgical coal tonnage shipped fell by 7%, and industrial coal tonnage shipped fell by 3% from the same period last year.

Weekly coal car counts going back to 2015 show coal shipments climaxing in early 2015, bottoming later that year, climbing until mid-2017 and moving sideways since. For that timeframe, as a percentage of total cars, coal and coke cars accounted for more than 15% at the peak and are currently hovering around 14%.

Union Pacific

Union Pacific operates 32,236 track-miles linking 23 states in the western U.S. The company reports it “operates from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada’s rail systems, and is the only railroad serving all six major Mexico gateways.

Coal from the Powder River Basin is the largest segment of the company’s coal business. “The Railroad’s network supports the transportation of coal shipments to independent and regulated power companies and industrial facilities throughout the U.S.,” the company reported. “Through interchange gateways and ports, UPRR’s reach extends to eastern U.S. utilities, as well as to Mexico and other international destinations.”

In an annual report, Union Pacific reported freight revenues increased 8% yoy in 2018. It did this in spite of decline in coal shipments. “Coal and coke shipments, which represented 73% of energy shipments in 2017, declined 5% (yoy in 2018) due to a commercial contract loss and certain UP-served facility retirements,” the company reported. Coal shipments, however, were up in Mexico.

For Q1 2019, the number of coal cars moved fell 14% from the same period last year. “Energy freight” revenues were down 16%. In its Q1 slide deck, Union Pacific reported its coal shipment business was facing “headwinds,” but provided no details.

Weekly coal car counts show coal shipments sliding steadily since 2012. Coal and coke cars amounted to almost 40% of the total cars moved in early 2012, hit a bottom in early 2016 at below roughly 20%, and now hover below 22%.