Freight railroads don't expect big trade changes under Trump

OMAHA, Neb. – Major U.S. freight railroads expect their business to fare well as long as the economy continues growing despite President-elect Donald Trump’s promises to overhaul U.S. trade policy and renegotiate bad deals.

Railroad executives didn’t seem worried about major trade changes Wednesday when they spoke at a Credit Suisse investor conference in Palm Beach, Florida. And railroads would benefit if major infrastructure projects are approved or the Trump administration relaxes environmental restrictions on coal.

“At this point, we think logic will prevail,” Union Pacific’s Chief Financial Officer Rob Knight said. “If we want to grow our economy, it’s going to require healthy trade.”

All the railroads benefit from international trade because they haul containers of goods that ships bring into port hundreds or thousands of miles inland before trucks carry them to their destinations.

Those intermodal shipments accounted for nearly half of the 31.5 million carloads North American railroads have delivered this year. And Knight said that shipments to and from Mexico account for about 12 per cent of Omaha, Nebraska-based Union Pacific’s volume.

So Trump’s criticism of the North American Free Trade Agreement between the United States, Mexico and Canada would seem troubling for railroads. Trump says NAFTA and deals like it provide incentives for companies to move factory jobs abroad.

But Edward Jones analyst Dan Sherman said that based on the people Trump has picked to join his cabinet, he doesn’t expect major changes in trade.

“I think we’re still going to have trade,” Sherman said. “It just might be on slightly different terms.”

And even if international trade suffers, railroads can hope that coal shipments might finally stabilize after several years of decline or that major infrastructure projects requiring many carloads of raw materials will be approved.

The variety of different goods that railroads haul helps them endure a variety of market conditions. But falling demand for coal has been a challenge for railroads because low natural gas prices and tough environmental rules on coal prompted many utilities to switch.

Norfolk Southern Executive Vice-President Alan Shaw said it’s still too early to determine what Trump’s policies will mean because the administration is still taking shape. So Shaw said his Norfolk, Virginia-based railroad is focused on market forces like consumer spending, fuel prices and whether cold weather forces utilities to burn more coal.

CSX Corp.’s Chief Financial Officer Frank Lonegro said he hopes the administration will be able to balance efforts to restore America’s competitive position with efforts to promote trade. But regardless of where a product is made, railroads will be happy to help deliver it.

“If the product is produced in Mexico or overseas it ultimately wants to go to where the people are, and we serve that population,” said Lonegro, with the Jacksonville, Florida-based railroad.