Join        Login             Stock Quote

Rail Freight Prices for Coal Rise; Firms Able to Pass Increasing Costs

 November 23, 2012 11:54 AM

The US Department of Energy today released historical data on costs of transporting coal via rail to electric power plants. Price increases vary considerably across locations, but at the national level these costs are up 50% in the past decade.

EIA: - The average cost of shipping coal by railroad to power plants increased almost 50% in the United States from 2001 to 2010. Railroad transport accounts for more than 70% of U.S. coal destined to the electric power sector, so changes in rail rates can have an important impact on the cost of coal delivered to power plants. Though they vary significantly, transportation costs accounted for 40% of the average overall cost of coal delivered at electric power plants in 2010.
Source: EIA

[Related -Running Of The Bears?]

A more up-to-date general rail freight data sets (up to Q2-2012) from the Department of Transportation seem to point to even larger increases. Given the shift toward natural gas by US utilities (chart below), shouldn't rail freight prices stabilize (aside from fuel prices)?

Source: EIA

[Related -7 Profitable Tech Stocks with 50-DMA turning Bullish]

Apparently a great deal of the freight costs have been driven by rising costs of operating railroads. The Association of American Railroads keeps track of price level of inputs to railroad operations: labor, materials, and supplies, and other operating expenses. Excluding fuel costs (which the rail industry charges separately as a "surcharge") the operating costs seem to have risen about as much (on a percentage basis) as the shipping costs paid by the coal companies. Of course the Association of American Railroads has an incentive to pump up the index, but they claim to have some regulatory oversight.

All-inclusive rail operations cost index less fuel (Q4-2007 = 100, source: Association of American Railroads)

This is bad news for the coal industry, particularly if rail firms continue to pass their cost increases to the clients. Except in a few cases, rail demand seems to be sufficient to maintain pricing power. The EIA pointed out that in some cases the cost of shipping is higher than the actual price of coal. It is only a matter of time before natural gas takes a larger share of that business.

iOnTheMarket Premium


Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article image7 Profitable Tech Stocks with 50-DMA turning Bullish

Lately tech has been coming out of the doldrums. That's good news for tech investors and the market as a read on...

article imageCommodity Traders Eye Strengthening Dollar

Commodity prices have been feeling the backlash of a strengthening dollar as of late, and investors it read on...

article imageThe Euro Crash?

As the US federal reserve might start soon raising interest rates and the ECB is about to being his read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

Commodity Traders Eye Strengthening Dollar
More Articles on: Finance , Oils/Energy

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.