Railroad Cargo Growth Slows, And Execs Are Cautious About Pre-Holiday Shopping

Railroad executives said Wednesday that they are not expecting strong growth in cargo volume in the pre-holiday shopping season, but most future holiday gifts are delivered by trucks.

According to two rail executives speaking at a global transportation conference in New York hosted by the private investment bank Dahlman Rose & Co., rail cargo in the important pre-holiday season will exhibit subdued growth in 2012.

"We still do expect a peak season, which means year-over-year growth," Omaha, Neb.-based Union Pacific Corporation (NYSE: UNP) CFO Rob Knight told the conference, according to Dow Jones Newswires. "It's just muted versus what we previously said."

The CFO of Jacksonville, Fla.-based rail line CSX Corporation (NYSE: CSX), Fredrik Eliasson echoed Knight's sentiments, who said he didn't expect significant growth.

Union Pacific's stock price declined by as much as 2.56 percent to $119.11 on afternoon trading in New York on Wednesday. CSY was down 1.75 percent to $21.35. Union Pacific, the country's largest rail line, has seen its stock price gain 12 percent so far this year.

Despite the cautious words from top railroad executives, both maintained their companies will exhibit growth this year. Wells Fargo on Tuesday reiterated its Outperform rating for Union Pacific stock.

While the railroad companies are expecting modest growth, it doesn't necessarily indicate that businesses are making cautious orders for the holiday shopping season. The reason?

"Most moves via truck," said Jonathan Gold, National Retail Federation vice president for supply chain and customs policy. "Intermodal moves are growing but a majority still moves via truck."

What this means is that ship-to-truck transfers of imported consumers goods is still the primary way merchandise reaches its destination, which is why port traffic is a more important indicator of retailers' confidence.

And according to the latest Global Port Tracker of the National Retail Federation and Hackett Associates, imports through the nation's key maritime ports will be up 6.3 percent in August (the final figure will be out later this month). This year, the NRF expects total container traffic to rise 4.3 percent from last year.

The volume of shipping cargo this time of year can indicate just how "muted" the retail season will be in the all-important annual fourth quarter, when many merchandisers reap a majority of their annual revenue. Consumer spending represents about 70 percent of U.S. economic activity.