TD Cowen 1Q26 Rail Preview, Quarterly Rail Survey, Railroad Roundtable (Updated)

Why It Matters

The updated outlook and UP’s merger filing could reshape competitive dynamics and capacity in the U.S. freight rail market, while rising fuel costs and shifting modal preferences impact profitability and supply‑chain strategies for shippers.

Key Takeaways

• U.S. rail volumes rose 0.8% in Q1, led by grain.
• Union Pacific beats forecasts; merger refiled by April 30.
• Diesel fuel surcharge lag pressures near‑term margins.
• Industrial shipments grow, while intermodal and consumer traffic weaken.
• CSX posts highest carload growth; auto segment remains weak.

Pulse Analysis

The first quarter of 2026 shows a modest rebound for U.S. Class I railroads, with total volumes edging up 0.8% as agricultural shipments, especially grain, surge 18.5%. This growth is tempered by an 8.3% decline in forest products and weather‑related disruptions in the East. At the same time, rail pricing expectations have climbed to their strongest level since 2022, reflecting a tighter trucking market and higher diesel costs that are only partially passed through via fuel surcharges. Shippers are increasingly viewing rail as a cost‑effective alternative to trucking, especially as truckload capacity tightens under regulatory pressure.

Union Pacific’s performance stands out, delivering better‑than‑expected volumes and a resilient network that operated with roughly 24% fewer trains than in 2019 while still handling higher loads. The railroad is poised to refile its merger application with Norfolk Southern by the April 30 deadline, a move that could reshape the competitive landscape and create a mega‑carrier capable of absorbing up to two million additional loads without major capex. Regulators, particularly the Surface Transportation Board, are scrutinizing the deal for potential anti‑competitive effects, as recent rulings on lease renewals signal a willingness to block transactions that limit market access.

Beyond the merger, industry surveys highlight a shift in demand patterns. Industrial and energy‑linked shipments are gaining strength, whereas intermodal and consumer‑focused traffic remain soft, with some participants reporting double‑digit declines. The ongoing diesel surcharge lag continues to pressure margins, but higher rail rates are expected to offset inflationary pressures. Infrastructure initiatives under the Infrastructure Investment and Jobs Act, such as the Howard Street Tunnel project, promise long‑term capacity gains for minerals and metals, while the broader macro environment remains uncertain due to geopolitical tensions and tariff concerns. Companies that can navigate fuel volatility, leverage rising rail pricing, and adapt to evolving modal choices are likely to emerge stronger in the coming years.