2Q26 Rail Preview: Volume Inflection Broadens; Fuel Lag Flips to Tailwind in 2H

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2Q26 Rail Preview: Volume Inflection Broadens; Fuel Lag Flips to Tailwind in 2H

rge revenue billed in May and June was priced off peak March and April diesel while spot 6% 7% 6%

5% 5% 5%

fuel expense eased through quarter-end as Brent retraced toward $70. Assuming trends hold, we 5%4%

3% 3% 3% 2%

expect fuel to swing from a headwind to a net OR tailwind in the 3Q and 2H across the group, with 2% 1% 2%

the largest benefit accruing to the carload-heavy franchises that carry the longest FSC lags. Beyond 1%0%

the mechanical lag, we continue to see outsized structural OR improvement at CSX on self-help (1%)(2%) (0%) (1%)

execution through 2026 and 2027. BNSF UP1Q 2Q YTD NS CSX

.

Source: Company filings, Jefferies

Setups Broadly Favorable, With CSX and CN the Cleanest Prints: We view setups as favorable

across the board but with clear differentiation. CSX and CN carry the cleanest fundamental setups, Figure 2 - Canadian Rails Total RTM Growth

with CSX seeing a broadening merchandise story beyond the initial 1Q chem and plastics tailwind Through Week 26

and CN tracking a beat-and-raise dynamic as YTD RTM growth of 4-5% is running well ahead of 6%5% 5% 4%

its "flattish" full-year guide. UNP's underlying trends are very strong with carloads tracking up ~3% 4% 4% 4%

YoY and a 14ppt sequential intermodal acceleration, though we expect the stock reaction to be 3% 2% 3%

dominated by ongoing UNP-NSC merger process updates now that the STB clock has started, 2%

implying a decision by mid-to-late 2027. CPKC is the one setup carrying discrete 2Q noise, 1%

CN CPKCwith roughly $25-30mm of incremental stock-based comp pressure and ~$30mm of derailment- 0%

related PS&O and casualty expense clouding the sequential OR bridge, even as the underlying yield .