NEW YORK — Wall Street analysts are approaching 2025 with questions for railroad executives about pricing, inflation, wages, the operating ratio, and, to a lesser extent, geopolitics. Officers of Class I railroads fielded questions with these themes during the recent third-quarter earnings calls, likely their last official remarks to analysts this year.
In 2024, railroads prioritized service improvements and addressing costs that they can control. In 2025, executives say they are confident they can price service above inflation because of those service improvements, and that they can improve productivity, bolstering the operating ratio even if volume growth isn’t there.
Independent rail analyst Anthony B. Hatch tells Trains News Wire 2025 arrives with uncertainty. He says railroads rely on trade for half of their volume and two-thirds of growth. And while many see the new administration as pro-business, the impact of its tariff plans on trade are hard to project, and the industry is still in a freight recession.
Hatch says in 2025, railroads will do well in what they can control, and they are more resilient with improved service. Beyond that, a rise in freight demand and an economic rebound is less of a guarantee.
Conquering inflation
During Union Pacific’s third-quarter earnings webcast, several analysts honed in on the railroad’s ability to take price — meaning to increase carload rates and generate more revenue — and improve the operating ratio given the economic environment.
UP officials acknowledged inflation is not easy to overcome, and the railroad is successfully pricing above inflation, while being cognizant that customers have to see value from price increases and the railroad must deliver on service at those prices. Later in the call, railroad executives reiterated that price has outpaced inflation throughout the entire inflationary period and that the trend should continue.
Norfolk Southern, CSX, and Canadian National all faced similar questions.
NS executives said they are confident pricing will outpace inflation in most markets, recognizing that outliers like coal benchmark prices outside of the railroad’s control could be a headwind. CSX said its dollars of price and the cost of inflation have remained positive, as they have for the past decade. Even though wage inflation is north of 4%, the railroad expects other inflationary pressure to be in the 2% to 2.5% range, or in line with the Producer Price Index.
Canadian National also expects pricing ahead of inflation, pointing to the successes in that regard this year. Its executives said its business should grow faster than the economy in 2025, attributable to about 50% of its own growth initiatives and the other half by improved macroeconomic conditions.
Productivity and the operating ratio
Many analysts are curious what railroads are doing to improve operating ratios in the absence of strong freight demand. Given persistent macroeconomic headwinds and uncertainty ahead, how much operating-ratio improvement can come through in-house productivity?
UP executives said the railroad has made record-setting improvements in locomotive dwell, workforce productivity, and train length, driving $1.4 billion in productivity gains since 2019. UP will continue improving recrew rates and closely manage fuel costs by refueling locomotives at terminals where fuel costs less.
Norfolk Southern said the railroad is just getting started on its labor productivity efforts under its new leadership and is taking a disciplined approach to how it deploys resources, including frontline railroaders. Under John Orr, its relatively new chief operating officer, the railroad is reviewing how crews are used, train structure, designing the number of train stops, and schedules to maximize productivity of resources including people and locomotives. Orr said the gains are getting traction.
Asked whether NS can improve its operating ratio solely on productivity without volume growth, railroad executives reiterated it will control what it can control, underscoring its previous commitment to $150 million in cost reductions next year. They said they are on track with earlier guidance to deliver operating ratio improvements next year, with a three-to-four-year goal of a sub-60% operating ratio. It will do this through identified cost reductions and a modest 2% to 3% top line revenue growth. Reaching the operating-ratio goal would be accelerated if the railroad sees a stronger recovery in top line revenue.
CSX said its service, customer experiences, and interactions with customers are creating growth opportunities that will support the operating ratio. The railroad also emphasized its available capacity, in the form of crews, locomotives, and line of road, to go after new business that bolster revenue growth and improve margin.
Recurring questions about labor costs
Most railroads fielded questions about increased employee compensation costs and how they are managing those expenses.
One analyst questioned CSX’s decision to ratify labor agreements early, suggesting a lower-cost deal might be possible later. CSX CEO Joe Hinrichs noted railroaders were unhappy with the previous negotiations — which required last-minute deals to avert a strike —went three years without wage increases, even as they were considered essential workers during the COVID-19 pandemic.
“Our view is this is the right approach for CSX, the right approach for how we’re working as ‘OneCSX’ team to make sure our employees feel valued and appreciated and respected and listened to,” Hinrichs said, “and that our belief is that you get the national agreements out of the way on the wages and benefits and then you can go to work on how you work together to improve the efficiency of the network.” The railroad is also focused on retention and hiring for attrition, executives said, and ensuring it has enough employees to move trains during 2025’s vacation peak. CSX is bullish that volume will grow in excess of headcount next year.
UP said more railroaders are graduating from training and new work-rest agreements require the railroad to carry additional employees. The railroad is adamant that good labor agreements are paramount to serving customers efficiently.
Geopolitical concerns
Analysts also asked railroads with cross-border franchises how they are managing the geopolitical unknowns that come with the incoming administration.
CN said it’s doing more than it has historically in this regard, and is focused on knowing the range of outcomes well enough to make informed decisions. An important part of that process is including customers’ feedback, said CEO Tracy Robinson.
Asked about the Falcon intermodal service, the Ferromex-UP-CN partnership serving Canada, the U.S., and Mexico, CN said it remains committed to the five-day-service to eastern Canada, calling it reliable and consistent. While the railroad wishes it would grow faster, the service is solid.
UP’s leadership, asked about potential changes in a call 12 days prior to the election, said it expects the new administration to be pro-business, but did not go into specifics about its cross-border business. The railroad is a major exporter of grains to Mexico.
Regarding potential tariffs, Canadian Pacific Kansas City said it expects Mexico to grow commerce in support of North America. It pointed to the United States-Mexico-Canada trade agreement created during the first Trump administration, saying the agreement ultimately turned into good policy for the three countries.
CPKC said it hasn’t seen a slowdown in foreign investment, and will navigate with its customers the potential impact of tariffs.
Look, I believe the tariffs will be the same as they always have. Trump’s tariffs of eight years ago were maintained by the Biden Administration and the goods have kept rolling in. Trump has only threatened an increase on Mexico and Canada (and additionally to China) and those leveraged threats have begun to see action by both countries who could otherwise see huge impact on their economies. “Imports” of people and drugs should be reduced and industry should be accommodated at more favorable pricing to the US, all while maintaining the intents of Trump negotiated trade agreement between the three countries. It is in the US interest to repatriate manufacturing back to the US and with sane tax policy that will happen. Inflation will slow and the economy will get going again just as it did 8 years ago. I suspect that railroads have much to look forward to but I also think that Wall Street will have to be satisfied with less than what grubby money managers had hoped. And that just breaks my achy heart!
I own stock in several railroads including Union Pacific. While I am concerned how tariffs will affect the traffic on their lines I feel Union Pacific is the one that will be hurt the most. They serve all the ports that bring in consumer goods from Asian countries that biggest tarrifs may be applied. If the tarrifs cause consumers to buy less their volume of intermodal traffic will hurt their earnings. Union Pacific also serves the big farm areas in the western part of the country and if other countries retaliate against our tariffs by refusing to buy American farm products then Union Pacific gets hurt again by loosing their export business as well. While other railroads will also be affected most don’t have as much international intermodal and export farm products as UP.
The Wall Street cretins have ruined the industry.
That’s a Rog…
I’m trying to read this on my I-pad. So why am I getting pop-up ads on top of this story on a magazine that i’m already paying for?
Money talks and bovine by-product walks. OR is god. Wall Street still pulls the strings.
My key takeaway is the industry is price-gouging by use of near monopoly status and a lack of regulation by stuffed shirts like Mayo Pete (obviously Trump will be light-touch also)
>UP officials acknowledged inflation is not easy to overcome, and the railroad is successfully pricing above inflation
>NS executives said they are confident pricing will outpace inflation in most markets
>Canadian National also expects pricing ahead of inflation
I wonder how much this vulture makes per year for his “analysis”:
>”One analyst questioned CSX’s decision to ratify labor agreements early, suggesting a lower-cost deal might be possible later.”
Wall Street gives their todie executives orders, executives respond like trained seals.