20 February 2024Deutsche BankGroup North America Canada United States Industrials Air Freight & Logistics Industry Early Morning Haul Date Industry Update Canada labor, Cass, Rail vol., Retail salesCanada labor - Both Canadian railroads - CP and CNI - filed a "Notice of Dispute" with the Federal Mediation and Conciliation Service. The notice is a fairly common development in these types of negotiations whereby one of the parties asks for the appointment of an officer to assist in reaching an agreement. But CP did say in its press release Friday evening that "Both CPKC and Union leadership remain far apart on the issues". The bottom line is we don't consider these items as meaningful for the outlook for CP and CNI shares, though the timing is unfortunate given both companies have seen recent volume momentum which has begun to be reflected in the share price. If there is any work stoppage, which may not happen, it's most likely (and rightfully) to be considered as an extraordinary event with limited impact to shares.Freight flows (Cass) - Late last week, CASS - which is a broad measure of freight flows - reported that the index was down 3.5% sequentially in January (a further step down from the prior two sequential declines of -1.3% in Nov. and -1.6% in Dec.) and down 7.6% year over year (the index was flat sequentially on a seasonally adjusted basis). The report noted that normal seasonality would be expected to drive a +5% sequential move in February. Meanwhile, the Cass Expenditures Index, which is a proxy for pricing, was -4% sequentially and -24% year over year. The next few weeks and couple months begins the start of the seasonally strong selling period, so it'll be an important time in assessing the timing of any improvement in freight conditions.Rail carloads - Most of the public Class 1 Rails reported last week's volumes yesterday. Total carloads for the group was down 2% sequentially, with intermodal down 3% and nonintermodal down 1%. Quarter to date numbers continue to improve from the worst during the mid-January weather. Against easier comps following last year's East Palestine incident, NSC's quarter to date volumes inflected to the positive at +0.4% year over year (up from -6.5% mid-January). CSX reached quarter to date volumes that are relatively flat at -0.1% year over year (up from -6.3% mid-January). UNP is now -3% (up from -9% mid-January) and CNI is -5% (up from -10% mid-January). The Rails also reported January headcount late last week, with the combined Class 1 figure up 0.3% sequentially, up 10% from the January '22 trough, and only 0.2% down from the recent June '23 peak. Rail employment, now down only 4% from January '20 pre-covid levels, continues to set the Rails up for service improvement and volume gains, in our view.Amit MehrotraResearch Analyst+1-212-250-2076Ben MohrResearch Ana...
