US Rail Traffic Slumps Again

Year-to-date U.S. rail volumes remain lower than the same period in 2019 as Class I rail executives cautiously pin their expectations for volume growth to the second half of this year.

Benzinga · 01/30/2020 16:41

Year-to-date U.S. rail volumes remain lower than the same period in 2019 as Class I rail executives cautiously pin their expectations for volume growth to the second half of this year.

U.S. rail traffic totaled 1.9 million carloads and intermodal units for the first four weeks of the year, a 7.6% drop from the same period in 2019, according to the Association of American Railroads. The data runs through the week ending Jan. 25.

Of that, U.S. rail operations originated 7.2% fewer carloads, at 924,394 carloads, while intermodal units slipped 7.9% to 976,238 intermodal containers and trailers.   

The continued slump in U.S. rail volumes dragged overall North American rail volumes lower for the first four weeks of 2020. North American rail traffic year-to-date is down 6.3% to 2.6 million carloads and intermodal units. Of that, Canadian rail traffic is down 5% to 561,844 carloads and intermodal units. But Mexican rail volumes are up 7.3% year-to-date, at 142,260 carloads and intermodal units. 

U.S. rail carloads over the last five years are graphed in SONAR as the blue line. Intermodal units are graphed on a relative basis to carloads. The orange line is intermodal trailers originated by the Class I railroads, and the green line is intermodal containers originated by the Class I railroads. (Source: SONAR Surf/AAR)

The Class I railroads have been pinning their expectations for rail volume growth to the second half of 2020. Trade uncertainties were among the headwinds facing the U.S. rail industry last year, but now the railroads are hoping recent trade actions will provide a boost to rail volumes later this year.

"The trade environment, when you look at how negative it was last year and how things seem to be at least turning [around] … at some point in the months or quarters to come, we will start to see some of the positives of that," Canadian National (NYSE: CNI) CEO JJ Ruest told investors during CN's fourth-quarter earnings call on Tuesday

"I know at the same time nothing is guaranteed, but our view [is] that we will build our plan and our capacity in house as well as our employee resource efforts, [and] we're looking at the second half" for more potential business, he said.

Kenny Rocker, Union Pacific's (NYSE: UNP) executive vice president for marketing and sales, said on his company's fourth-quarter earnings call last week, "There is still some positives that I am expecting will happen on the trade side and that will not just impact positively on the ag side during the, call it the September time range, but also our international intermodal side." 

Trade uncertainties also had put pressure on the U.S. industrial economy in 2019, but now many industries believe the recent agreements will encourage capital investments within the U.S. manufacturing sector. 

"Most business groups broadly welcomed the trade agreement [that the U.S. and China signed on Jan. 15], and took it as a sign that the U.S. and China are looking to pursue a period of peace in trade policy. However, with import tariffs remaining on two-thirds of Chinese goods, many of these same business groups were advocating for the U.S. and China to begin steps toward ‘phase two' of the trade pact," FreightWaves market expert Henry Byers said on Sunday.

More recently, the U.S. freight rail industry on Wednesday applauded President Donald Trump and Congress for signing the trade agreement between the U.S., Mexico and Canada (USMCA) into law. 

"Thanks to the tireless efforts at both ends of Pennsylvania Avenue, renewed trade ties with our closest neighbors will benefit all three countries for years to come. As an industry built on connecting goods and businesses, railroads know that free and fair trade makes both our supply chains and individual economies stronger," said AAR President Ian Jefferies. "Coupled with the Phase One trade deal with China, USMCA will provide certainty rail customers and American businesses need to grow and compete in world markets."

Image Sourced from Pixabay