Americans are using less coal, and Class 1 railroads are running down the track towards a wall.
According to a report issued by Moody’s, freight railroad companies in North America are looking at $5 billion in lost revenues over the next few years as consumers turn more towards cheaper forms of power like natural gas and solar. Moody’s says coal will generate 10 percent less power in 2030 compared to 2020, when the cut will be 20 percent. BNSF and Union Pacific and their Powder River Basin franchises, along with CSX and Norfolk Southern, will be hit the hardest. Coal revenue for CSX, based on 2018 numbers, stands at 18.3 percent of total revenue, while BNSF pulls in 16.8 percent. Norfolk Southern and Union Pacific are at 15.9 percent and 12.5 percent, respectively. In total, coal accounted for 13 percent of Class 1 volume in 2018.
Union Pacific is expecting to haul less as 2019 comes to a close. The Class 1 says car volume will be down about 5 percent during the second half of the year.
U.S. dependency on coal is dropping. According to Energy Information Administration data, coal has accounted for 23.9 percent of power in the U.S. In 2018, it was 27.4 percent.
Moody’s says Class 1s will be more reliant on coal exports moving forward, which puts Canadian Pacific and Canadian National in a better spot than their competitors. Eight-seven percent of CP’s coal tonnage is linked to exports, while CN logs in at 80 percent. Union Pacific is exposed to the least regarding coal exports at 10 percent of its coal revenue. Export numbers, however, can be volatile.
The Moody report says that intermodal demand could help make up the loss in coal revenue, but also indicates coal train speeds may drop to help minimize maintenance costs.
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