A photograph of intermodal containers on a rail track.

Supply chain congestion, weather-related incidents such as wildfires and Hurricane Ida, and ongoing automotive production challenges could force the Class I railroads to revise their financial outlooks for 2021, according to a note from investment firm Cowen.

“We revise our rail carloadings and reflect cost implications to lower our Q3 rail estimates below consensus forecasts; we see Q3 consensus as stale and see further downward revisions. Given network challenges, we see a scenario where rails revise 2021 outlook downward,” Jason Seidl, Cowen (NASDAQ: COWN) senior transportation director, said in the Friday note.

Although some of the railroads, such as Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC), recently reiterated their guidance for the year, the chip shortage in the automotive industry, lower grain volumes and a “challenged” intermodal segment could put pressure on the upper range of the railroads’ guidance.

In fact, the intermodal segment has been stressed amid congestion at the ports and despite the railroads’ efforts to add capacity, according to Seidl. As a result, turn times and network velocity have been impacted. Cowen anticipates the intermodal segment to remain stressed into 2022.

Weather events could also result in higher operational costs, with UP estimating that its weather-related costs in 2021 could be $100 million for the year, Seidl quoted UP as saying.

“We are cautious ahead of earnings for the rail group given the congestion that is constraining velocity in the rail network, coupled with an elevated cost environment (labor, inflation, weather), partially offset by pricing that we expect to be well ahead of rail inflation,” the research note said. “While we expect 3Q consensus to move down from here for the group, we believe a post-earnings sell-off may be an attractive entry point for new money, particularly if downward revisions of guidance play out.”

Congestion at the ports: Ocean carriers

Meanwhile, ocean carriers have confirmed the extreme congestion that rail is experiencing at U.S. ports.

In a North America update emailed last Tuesday, Hapag-Lloyd said rail operations from all terminals at the ports of Los Angeles and Long Beach and from the off-dock ramps continue to “deteriorate as demand exceeds capacity.” As a result, “inland moves by rail can suffer considerable delays,” the ocean carrier said, with import rail delays up to 12 days in the terminal complex as of last week.

Import rail loads are also taking longer than normal to move off the terminal at the Port of Oakland, Hapag-Lloyd said.

On Thursday, Maersk said it is starting to see congestion clear up in certain areas such as Chicago and Memphis, Tennessee, following efforts by BNSF (NYSE: BRK.B) and CN (NYSE: CNI) to reopen nearby facilities or use nearby storage sites to handle the additional intermodal traffic. BNSF reopened its facility in Harvard, Arkansas, while CN is utilizing off-site locations to relieve congestion at its Harvey terminal near Chicago, according to Maersk.

CSX (NASDAQ: CSX) is also using the Forest Hill rail yard to address the overflow traffic at its Bedford Park facility near Chicago. Any containers dwelling over 10 days at Bedford Park will be targeted to move to Forest Hill, according to Maesrk.

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