I recently spoke with Fredrik Eliasson, the CFO of CSX who offered his perspective on the US economy. He was kind enough to let me publish his responses here. CSX is the largest rail company in the eastern US and one of the most important transport companies in the US economy. Fredrik sees continued modest growth in the USA and little impact from the recent turmoil abroad. Here are his thoughts:
1. There are few indicators that are more foreshadowing of economic growth than the rail industry. We’ve seen a fairly robust rebound in rail traffic trends since 2009, but volumes have been a bit more volatile in recent years. What do you think the rail industry is telling us about the global economy today and what does CSX’s business say about the current state of the US economy?
Fredrik: It’s true that the rails are a bellwether for economic growth – we get a glimpse into the oncoming trends because we move so many of the raw materials and feedstocks for other American industries, as well as many of the finished products. Coming out of the global recession of 2008-2009, we saw a significant uptick in rail movements as we converted traffic from the already-congested highways and improved efficiency to attract new customers as the economy gained momentum.
Today we continue to see a steady U.S. economy that is growing at about 2 to 2.5 percent. While there are temporal challenges ranging from the strong U.S. dollar, which is impacting markets, such as metals as we see an increase in imported steel, to low commodity prices, which impacts our energy and agricultural markets. Even so, the core tenets of the economy, such as the auto and housing markets, still have a lot of upside. And our domestic intermodal business – which reflects demand for consumer goods in the U.S. and around the world – continues to be a growth engine for our business.
2. How does CSX view the recent declines in commodity prices? Is this a sign of global economic weakness or more a function of supply side driven policies such as the impact from OPEC and Iran?
Fredrik: From our perspective, the sharp decline in the prices of natural gas, oil, and even grain are more temporal, the result of global market forces that have created supply and demand imbalances. At some point, conditions should normalize and U.S. commodities will strengthen as a result. As we said, we see growth trends in the housing and auto markets, as well as in the intermodal market, that reflect both increasing consumer spending and the secular trend of converting more traffic from the congested highways to the efficient intermodal platform.
3. On a related note, the recent volatility in Chinese stock prices has many people worried about a contagion effect. What impact do you expect from the slowing growth in China and their stock market volatility, if any?
Fredrik: Though our eastern railroad, with service to major Atlantic and Gulf ports, is an important element in connecting U.S. shippers to global commerce, our direct exposure to the Chinese economy is limited from an export perspective. That said, we know that an economy the size of China’s creates a ripple effect throughout the global markets, especially given its historic consumption of foreign raw materials and its export of finished goods.
4. The Euro crisis remains a focal point of global growth. Is CSX seeing any direct impact from the crisis?
Fredrik: While we move many products to the ports for export, including grain, coal and other types of merchandise, we don’t see much direct impact from the changes in the Eurozone. Of course, greater stability and certainty in the global markets will help every American company make smart decisions about resource allocation and investment as we all try to create greater value for our customers and shareholders.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.