November 1, 2016 / 3:07 PM / 2 years ago

UPDATE 1-Moody's ups outlook for North American rails, cites revenue growth

(Adds details from report, Moody’s analyst comment)

By Nick Carey

CHICAGO, Nov 1 (Reuters) - Ratings agency Moody’s on Tuesday raised its outlook for the North American railroad industry, citing the possibility of rising revenue as freight volumes stabilize.

Moody’s said it expected revenue for the railroads to be flat to up 2.5 percent over the next 12 to 18 months as they regain some pricing power following freight declines led by coal since early 2015.

Coal freight volumes have plummeted as utilities have switched to burning cheaper natural gas instead and coal exports have been hurt by the strong U.S. dollar. This has left the railroads scrambling to trim costs by mothballing locomotives and putting workers on furlough.

Senior analyst Rene Lipsch wrote in a report on the railroads that Moody’s expects coal freight volumes to be flat over the next 12 to 18 months because of a spike in natural gas prices over the last six months, but warned that uncertainty over how cold the coming winter will be and volatility in gas prices “continue to pose risks.”

He wrote that grain is currently the only rail freight commodity showing robust growth and that there is “no clear catalyst yet” for growth in intermodal services due to high levels of inventory among retailers. Intermodal shipments consist of containers of consumer goods that can be hauled by ship, truck or train.

“We expect that pressure on pricing will ease, as freight demand stabilizes, headwinds in energy markets moderate and an increase in fuel prices reverses some of the benefits that truck carriers gained from low fuel costs,” Lipsch wrote. (Editing by Chizu Nomiyama and Tom Brown)

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