空运与地面运输：供应约束及高油价使铁路模态优势回归——重新探讨铁路行业的总可寻址市场

Game of Rails: Supply constraints and higher oil prices swingmodal advantage back to rail (revisiting the rail industry's TAM) Could rail and intermodal be returning to structural growth? A look at underlying modalshares and the economics of truck vs. rail suggest a 16% bigger market opportunity thanwe had last year, and if we are at the beginning of a broadening industrial cycle, rates couldremain elevated for longer. David Vernon+1 917 344 8333david.vernon@bernsteinsg.com Justine Weiss+1 917 344 8433justine.weiss@bernsteinsg.com Modal competition is the key factor shaping demand for truck competitive railtraffic.Truck rates have moved considerably higher, and the crisis in the Strait of Hormuz is only adding fuel to the fire (Exhibit 2). Contract truck rates — which are the bell-weather forchoosing intermodal or truck and are an input into the cost of shipping other commoditiesby highway — are moving up in the mid to high single digit level (Exhibit 3) after languishingin a record-duration lull post-COVID as non-compliant capacity stayed in the market,depressing rates to below replacement cost. There are a lot of moving parts on the drivershere — licensing, monitoring, enforcement, liability, training, and drug testing. We expecta large part of this move higher to last, as it will be difficult to resupply into an industrialexpansion and tighter enforcement, and that it will have a significant impact on modalcompetition. Specialist Sales Steve Song+1 917 344 8401steve.song@bernsteinsg.com Close but not perfect substitutes.Even in the traffic that is most competitive — domesticintermodal — the composition of each mode of transportation is very different as illustratedin Exhibit 1. In the broader surface transportation market for commodities that are truck /rail competitive, the larger and more competitive truck market is the rate maker and thesmaller, more derivative intermodal and rail market is the rate taker. There is a lag betweenwhen contract rates for truck and rail / intermodal move, with rail / intermodal lagging by2-4 quarters depending on the commodity. Broadly speaking, a discount to the cost of atruck is required to incentivize a shipper to deal with the added cost / complexity of usingrail or intermodal. Rail and intermodal are back on the menu. We have revised our break even calculator fortruck and intermodal (Exhibit 4 to Exhibit 7) and find that for a typical competitive shipmentof say 750 miles, intermodal has gone from being 20 miles out of the money to 187 miles inthe money with the break point shifting from an estimated 770 miles to an estimated 563miles (Exhibit 8). Shift in modal competition increases TAM by a conservative 16%.The shift in breakeven distance is significant, as the change in economics suggest that rail and intermodalmove from uneconomic to economic in 13% of the market (Exhibit 11). Under the logic thatshares will likely shift based on break-even distances, we can expect rail and intermodal toearn a higher share across a wider range of shorter distances. This shift in the modal sharecurve is illustrated in Exhibit 13. Based on that shift, we see the potential market for rail andintermodal service to grow by around 18% in volume terms (Exhibit 14, Exhibit 15). Thisestimate is for tonnage growth only and assumes rail rates observed in the first quarter of2022. The absolute increase in dollar terms is likely greater, as that should equal whateverprice gains they can earn on the base business + whatever mix of tonnage and rate theytake of the newly competitive market for rail and intermodal. BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS Rising costs for truck service and diesel fuel should favor rail and intermodal, increasing the size of the addressable market forrailroads and intermodal intermediaries. This makes it much easier to underwrite a growth narrative for US rails and intermodal(including Outperform-rated UNP and NSC). We also think it likely that the current spike in truck rates will work its way into themerger narrative at some point, as demand for faster, more reliable rail service will increase in the short-term. DETAILS Modal competition is the key factor shaping demand for truck competitive rail traffic. With truck rates structurally inflectinghigher due to a host of supply constraints, we believe the addressable market for rail services is16% larger than it was in2024/2025. The shift in modal competitiveness we illustrate in today's note is real, as is the evidence supporting the view thatintermodal conversions are starting to pickup. The continued strength of TL rates and rising fuel costs makes it much easier tounderwrite a growth narrative for the rail industry looking forward, if the truck labor constraints are structural we may be at thecusp of moving intermodal back into the structural growth column. FORCES AT WORK IN RAIL AND TRUCK COMPETITION Railroads and trucks are competitive but are not perfect substitutes. In evaluation compe