Charting U.S. Rail Freight Through a Troubled First Half

Written by Jim Blaze, Contributing Editor
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Over the next few days and then amplified by mid-month investor reporting, we will learn more about how U.S. rail freight is trending. Association of American Railroads six-month data is out. In the interim, Susquehanna Financial Group (SFG) data scientists have circulated their freight market view. As well, we’ve added some FreightWaves SONAR intermodal data to the mix.

Courtesy of Bascome Majors and his analytical colleagues at SFG, here is a slice of their U.S. assessment. They have combined years of their own internal data slice and dice with AAR data sets and some trucking and rail analytics from the Chattanooga-based FreightWaves media and analytics staff. So, in a few selected graphics, here’s how rail freight has performed, with a touch of relativity vs. trucking.

The big economic association to keep in kind when viewing these visuals is that rail freight across the U.S. system is still largely energy, chemicals, agricultural and bulk industrial commodity-derived volume. We are focused here on volume. Revenues and net profitability are not discussed here.

It is still a large trucking world. Intermodal rail is the closest to the retail and consumer market that railroads get as a truck-like player. From this first graph, rail intermodal trails the trucking volume recovery pace. The graph uses FreightWaves’s SONAR platform to sort, calculate and then chart the pace recent pace of volume recovery.

Keep in mind that trucking serves as many as 165 market areas. Rail intermodal serves no where near that many, at least not statistically traceable with current tools. For the specific SONAR truckload traced units, it appears that the recovery slope line is a rapid like “V” pace. That might change during July. We can’t tell yet how confident consumers really are as outbreaks of new COVID-19 cases appear.

The pace of intermodal rail is a much lower slope of recovery.

KEEPING OUR EYE ON THE COMPETITION

It’s pretty clear from the next graph that contracted trucking recovery is on a strong upward pace, when using this data set. We see 20% to 30% increases. That’s a wow pattern, but, is this a replenishment of panic buying stockout during March/April? Or a sustainable three-month purchasing of new, desired and affordable summer goods? The data answers are weak. We don’t have a high confidence answer yet. We are mostly speculating.

Some sports goods outlets are seeing huge monthly year-over-year sales. For other retail outlets, no. The pattern is irregular. For answers, we need more data points.

As for the intermodal rail sector that competes with truck-like service, about half of intermodal is generally import/export container trade, bringing in goods manufactured overseas. That trade volume remains at best tepid—at worst poor—year over year. What recovery? is a better question.

Here is the international intermodal plot. There is no pronounced recovery slope. Best prognosis: We might see a recovery in mid-August.

Experts like CNBC investigative journalist Lori Ann LaRocco warn that U.S. purchases from overseas suppliers are off considerably from previous years. That’s a bad sign, because if less gets on the ship, less arrives for a potential rail haul. We need about three weeks more of data into late July to tell.

We can see isolated market origin/destination flows in other graphic plots like this Los Angeles-Atlanta example, as FreightWaves dissects the intermodal data. Selectively, yes, there is some recovery under way for rail intermodal.

We can also see that the so-called domestic internodal traffic volume is doing better than the international segment:

But the bottom line is that even the domestic intermodal isn’t keeping pace with truck recovery. There is no benefit yet from the PSR model translated into a rail intermodal share gain.

CARLOADS

Carload traffic isn’t yet on a fast-paced rebound. There are no China-export grain sales. No primary metals recovery. Even chemicals remain down about 15%. There is no coal recovery, as this next SFG/AAR 15-year indexed graph shows. There will not be a general coal recovery.

QUICK TAKEAWAY

A rail freight rebound is certainly doable, with available capacity and space on-track. But the pace awaits some kind of real stimulus. The rail pace is perhaps best described by FTR Transportation Intelligence analysts “as hooked with the industrial production” recovery pace. An earlier outlook offered by Eric Starks will be discussed soon in one of FTR’s on-line forums. This is where rail carload freight can take off—if industrial production leads the way.

Meanwhile, The AAR reports that as of July 1, 31.5% of the 1.67 million railcars in the North American fleet were in storage—526,050 units. That rate is up 6.5% vs. May 1. Back in October 2018, it was just 16.7%—no surprise, as the steepest rise in stored cars was tanks, up 10,600 units, a 7.3% increase, followed by covered hoppers, up 9,900 units, a 6.2% increase. The reason is a continuing “weaker industrial/manufacturing/construction demand.”

Class I railroad profitability is likely to remain relatively strong—but actual cash flow will likely decrease.

As always colleagues, for the best freight outlook, dig deep into multiple sources. Then, you’ll have to sort it all out, and fit it into your business model.

Independent railway economist, Railway Age Contributing Editor and FreightWaves author Jim Blaze has been in the railroad industry for more than 40 years. Trained in logistics, he served seven years with the Illinois DOT as a Chicago long-range freight planner and almost two years with the USRA technical staff in Washington, D.C. Jim then spent 21 years with Conrail in cross-functional strategic roles from branch line economics to mergers, IT, logistics, and corporate change. He followed this with 20 years of international consulting at rail engineering firm Zeta-Tech Associated. Jim is a Magna cum Laude Graduate of St Anselm’s College with a master’s degree from the University of Chicago. Married with six children, he lives outside of Philadelphia. “This column reflects my continued passion for the future of railroading as a competitive industry,” says Jim. “Only by occasionally challenging our institutions can we probe for better quality and performance. My opinions are my own, independent of Railway Age and FreightWaves. As always, contrary business opinions are welcome.”

Categories: Analytics, Class I, Freight, Freight Forecasting, Intermodal, News, Short Lines & Regionals, Switching & Terminal Tags: , , , , , ,