As rail freight traffic rebounds, making sense of “volume volatility” has been difficult, says Dahlman Rose & Co. Director Equity Research and Railway Age Contributing Editor Jason Seidl in his latest weekly analysis.
“The month of September has likely marked the dawn of a better day in rail traffic,” he reports. “This week’s sharp improvement in volumes over last week seems to support our thesis that a meaningful turnaround in the numbers is likely to emerge due in large part to easier year-over-year comparisons with the historic plunge of global markets in the last quarter of 2008. (The adverse effect of Hurricane Ike in Week 37 2008 helped improve Week 37 2009 further.) We believe that the positive trend is also partly fueled by a real, albeit slight, strengthening of the sector fundamentals and the economy as whole. The aggregate of the last four-week period yields a volume decline of 14% in 2009 over the same period last year. The rate of decline in Week 37 dropped by more than 50% from the exceptionally high decline in Week 36. The sharp slip in volumes in Week 36 followed the prior week’s abrupt improvement, which was largely due to easy year-over-year comparisons with a shortened holiday week in September 2008. While the dizzying volatility in traffic patterns as of late can obfuscate the real overall trends, examining volume changes for weeks 34-37, which reveals the aforementioned 14% rate of decline, provides a better understanding of rail volumes.”
Seidl says the 14% rate “is a better reflection of the market dynamics than what any of the last four weekly changes can separately reveal. That volume declines have decelerated in seven out of the last ten weeks are indicative of volume stabilization under way. The next five weeks will see decline rates largely inline with our computed normalized rate of 14%. A phase of progressively easier comparisons is likely to begin around week 43, with volume changes potentially entering positive territory in the last few weeks of the year.”
“All regions are seeing improvement,” Seidl notes. For Week 37, in the West, BNSF and Union Pacific volumes, respectively, declined 12.7%, compared to 22.6% in Week 36, and 5.6%, compared to 20.6% in Week 36. In the East, Norfolk Southern volumes declined 16.1%, vs. 25% in Week 36, while CSX’s volumes were down 11.5%, vs. 20.5%. Kansas City Southern volumes were up 12.6%, vs. a 2.6% decline the prior week, while KCS de Mexico declined 7.8%, vs. 11% in Week 36. CN and CP volumes were down 7% and 14%, respectively, compared to 19.4% and 27.4% in the prior week. Service levels, he reports, “are mixed. Overall performance level in Week 37 was slightly below that in week 36 as train speed increased 10.5% vs. an increase of 11.1% in the prior week. Cars on line improved 5.7%, in line with the prior week, and terminal dwell time deteriorated 1.2% vs. 8% in Week 36.