U.S. Class I railroad Norfolk Southern reported higher third-quarter revenue and profit, saying a tighter truck market and elevated fuel costs are pushing some highway freight onto rail.
What Happened
On its earnings call, the company said Q3 revenue rose 14% year on year to $3.52 billion, a record for the period. Operating income increased 5% to $1.15 billion and earnings per share rose 7% to $3.37. Fuel surcharge revenue accounted for 8 of the 14 points of revenue growth.
Overall volume was up 3% for the quarter, with merchandise, intermodal and coal each up 3%. The operating ratio was 67.4%, up 2.8 points year on year, which the company attributed largely to higher fuel costs; adjusted for derailment-related and merger-related expenses, it was 65.4%.
Operating metrics remained below year-ago levels but improved from Q2: terminal dwell improved 3%, train speed rose 5% and on-time train originations improved 18%. The intermodal service composite was 84%, down from 92% a year earlier, while merchandise trip plan compliance was 74%, down from 80%.
Background
Management said a tightening truck market and high fuel prices make rail more competitive in forest products, consumer products and domestic intermodal, with highway-to-rail conversions increasing. International intermodal remains weighed down by trade uncertainty.
The company noted nine consecutive months of manufacturing expansion, industrial development ahead of last year and modestly positive vehicle production. Coal is expected to grow on exports and utility stockpile replenishment. Norfolk Southern also rolled out new online customer tools to speed rate-request responses and improve shipment visibility.
Impact on Shippers
For Chinese exporters delivering to U.S. inland destinations, rising rail volume and rates mean last-mile costs via rail after West Coast discharge are unlikely to ease in the near term. With fuel surcharges a significant part of revenue growth, rail surcharges could face further upward pressure if oil prices stay high. On transit time, the year-on-year decline in the intermodal service composite suggests possible rail delays during peak season, so buffers should be built into replenishment cycles.
Customs clearance itself is unaffected, but dwell times and car-connection efficiency at rail hubs feed into port pickup and container return schedules, so shippers should watch for accumulating demurrage and detention risks.
Recommendations
Shippers should confirm rail rates and surcharge structures with last-mile providers in advance, consider a higher share of ocean-plus-truck delivery for time-sensitive cargo or allow longer rail transit windows, and verify bill of lading and arrival notice details to avoid extra storage and detention costs from hub congestion.