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Which US Railroad Was in the Revenue Fast Lane in 2Q16?

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Revenues in 2Q16

Railroads have been going through a tough phase in the past year. Not a single US Class I railroad was able to grow its revenues in 2Q16, and despite its Freightliner acquisition at the end of 1Q15, not even Genesee & Wyoming (GWR) could grow revenue.

In 2Q16, the star in investors’ eyes was undoubtedly the smallest US Class I railroad, Kansas City Southern (KSU). The company reported the lowest fall (3%) in railway operating revenues in the peer group. The next in line was GWR, which reported a decline of 7.5% in 2Q16 revenues. Canada’s largest freight rail, Canadian National Railway (CNI), saw its 2Q16 revenues slump by 9%.

The highest drop in 2Q16 revenues was reported by BNSF (Burlington Northern Santa Fe), Berkshire Hathaway’s (BRK-B) privately owned Class I railroad. The company’s revenues in the same quarter dropped by 15.1%. Canadian Pacific Railway (CP) also witnessed a big fall (12%) in its 2Q16 revenues.

Notably, the SPDR Global Dow ETF (DGT) is a global ETF related to the Global Dow Index. Major US airlines make up 2% of the portfolio holdings of DGT.

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The common thread of falling revenues

To be sure, falling crude oil prices have weakened the crude-by-rail story. Crude also adversely impacted the transportation of other commodities required in the oil and gas industry, such as fractionating sand and pipe, and cheap diesel eroded fuel surcharge recovery for these railroads.

The strengthening US dollar has meanwhile played the spoiler for US exporters. With the competitive disadvantage magnifying for US exporters, railroads’ prospects of hauling incremental commodities have faded so far in 2016. And with lower volumes, railroads’ ability to command higher pricing has suffered heavily.

In the next part, we’ll discuss which railroads have been affected the most by shrinking coal volumes.

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