This is not a forecast. It’s a prudent warning. The continuing COVID-19 pandemic and our social reaction so far are driving our business culture toward a high-risk economic impact. Stay-in-place warnings and increasingly mandated government requirements will drive down income and gross domestic product (GDP). Fundamentally, the American economy will likely face choosing survival spending tactics.
There are multiple contrasting intermodal market outlooks for 2020. Intermodal volume growth is illusive in 2020. One thing is certain: Fewer new intermodal cars are needed.
There is a great deal of confidence in the North American railway freight business model. This is because rail freight profitability is huge compared to the low returns in trucking. Rail enjoys margins close to 40% of gross revenues to operating income. While trucking unquestionably commands the largest modal freight business share, its operating profitability lags well behind railroading at a range of 8% to 12%.
After each major crude oil train or hazardous commodity freight train accident anywhere in Canada or the United States, there is a rush of safety-related outcries. Quite a bit of fear is expressed. The poster children for rail freight safety are hazardous materials like crude oil and liquefied natural gas (LNG), which has been proposed. Yet to those who examine the evidence, rail freight is unquestionably the safest mode to ship these materials.
True or false: Freight rail growth might require fewer cars in the future. As Class I railroads reported their 1Q2020 and full-year 2019 quarterly financial results, the expectation set by the individual railroads was that returning customers will help spur volume growth. Though 2020 is starting out slowly, most senior railroad executives and shipper logistics managers are talking about a possible recovery in the second half of the year. However, there is little statistical economic data published yet to support that optimistic outlook.
Since railroad freight is often bulk or shipments of large goods, changes in the economy or in global trade can impact the flow of railroad traffic in large up and down movements. Translation: There will often be cyclicality.
There is a great deal of passion about coal as a railroad commodity. Some suggest that the railroads have been in denial about coal’s decline as a business sector. Yet, I bore witness to an awareness of the risks of the coal decline a long time ago.
INTERNATIONAL RAILWAY JOURNAL, JANUARY 2020 ISSUE: A stagnant North America freight market is set to continue in 2020. However, technological advances and potential growth in intermodal and heavy-haul offer Class I railroads room for optimism.
Premise: The golden age of railroads taking trucks off of the highways might be over. Why? Because the low-hanging fruit may already have been harvested. Translation: Most rail intermodal traffic may be in fewer than two-dozen origin-destination lanes across the United States. That was the low-hanging fruit. Now, It’s mostly in growth hypostasis.
There is a great deal of technology and data science that can help extend track and bridge structure life. But the railroads are not always out in front in exploiting the opportunities. Engineers can see the practical uses of bridge “micro movement” sensor technology. But at the big executive table that allocates the budget resources inside railroads, identified economic opportunities point to the need for the chief financial officer and his or her risk management staff to get directly involved in examining the identified options not seen before sensor data analytics entered the tool box. Perhaps as many of one-half of all visual inspection-based bridge capex decisions are wrong. Why? Because the visual data entered into the sophisticated engineering spreadsheet formulas isn’t accurate enough.
