To Track 2021 Rail Freight Recovery, Bypass 2020

Written by Jim Blaze, Contributing Editor
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Photo: Jim Allen/FreightWaves

There’s not much statistical sense in using 2020 data as the benchmark when looking ahead to 2021. The statistical coverage of railway freight volume changes in Canada, Mexico and the United States is excellent. But after the extreme changes week-over-week due to the COVID-19 business impacts, maybe it is time to consider a different method.

Here is why: Weekly reports issued by the Association of American Railroads (AAR) employ a year-over-year comparison template. Most news media and investors follow this same template. For about 50 weeks this year, we have collectively been thinking of rail traffic health as a comparison to the previous year’s 2019 week.

Here is my contrary thinking: The disruptive impacts during the second quarter and the recovery pattern during the third and into the fourth quarter are something of an illogical basis for thinking about the railway freight trend lines into 2021. It might instead be appropriate to examine the weekly 2021 changes and four-week average changes against another standard. Two recommendations are offered.

It took the entirety of 2020 for rail carloads to approach year-ago levels. The blue line shows 2020 U.S. rail carload traffic originated, while the purple, green and orange lines show rail carload traffic originated in 2019, 2018 and 2017, respectively. FreightWaves SONAR: RTOTC.USA

First, for railroad carload traffic, a comparison to the base year 2018 or to 2019 might be more representative of a normalized pre-COVID-19 business environment. The case for 2019 as the base year is that it was the most recent annual period. But the case for 2018 is that it represented an overall healthy U.S. economy more so than did 2019, whereas 2019 witnessed a railroad traffic slowdown.

Intermodal container volume has consistently been above 2019 levels since early August. The blue line shows 2020 U.S. intermodal container traffic originated while the green, orange and purple lines show intermodal container traffic originated in 2019, 2018 and 2017, respectively. FreightWaves SONAR: RTOIC.USA

A second alternative is that for the intermodal sector year, it might be best to start directly comparing rail intermodal against year 2021 truckload freight volumes or a truck index.

These two alternatives are offered for your consideration before we enter 2021. That gives time to consider the pros and the cons.

During 2019

As 2019 closed, this was the rail traffic summary, using a four-week trailing average as the benchmark:

  • Total U.S. rail volumes were down about 9.3% over the trailing four-week period.
  • Merchandise carloads were down 3.7%.
  • Intermodal was trending down by about 9.6%.
  • Railways saw a coal traffic loss as natural gas power plant conversions continued.
  • There was also a lag of expected grain export traffic that is largely handled by rail to the ports.
  • Industrial chemical traffic started to flatten during the year, and there was no upside to construction that uses rail-hauled stone and gravel.

Here is a two-year comparison of critical rail freight trends, with four-week year-ending trends and the actual 2019-year-end commodity volume changes vs. 2020 recent December four-week commodity trends and year-to-date volume for 2020. The translation for 2019 is that there were signs of a slight growth recession for the railroad freight sector:

During 2020

Here are how the recent four-week trailing averages looked into early December, and for the close of 2020.

  • Grain will likely end up year-over year by nearly 4% in 2020. The ~23% surge in grain export movements during the last four weeks continues to be noticeable.
  • Simultaneously, the coal traffic year over year for the four-week period has dropped to now only about a negative 13% in recent weeks but still will be down for the year in about the one-quarter range.
  • Motor vehicle (finished autos and light trucks) recovered largely into the third quarter but will end up probably around a negative 20% range for the entire year.
  • Total rail volume of all commodity types will likely end up being down by only about 6.5% to 7% if intermodal cargo and grain hold up their recent third- and fourth-quarter year-over-year volume increases.
  • Trailer intermodal (TOFC) and doublestack container train movement surges over the third and fourth quarters were both unexpected and yet welcomed by the rail industry.  

Measuring 2021 With a Different Base Year

Looking ahead at 2021 as hopefully an economic recovery continues, there is an argument for making weekly and quarterly rail traffic comparisons against a normalized annualized pattern. There is not much statistical sense in using an anemic or crisis year like 2020 as the benchmark. Besides choosing between 2018 or 2019 as a benchmark for 2021, there is a second benchmark option. That would be to use a running averaged five-year trend. The period 2015 to 2019 is suggested.

We cannot dismiss 2020. Instead, let’s use 2020 as a footnote. The abnormal year of 2020 cannot be ignored. It simply is less relevant for strategic purposes when tracking freight rail’s progress.

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.”

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