Volume Catch-Up from Arctic Blast Complete

Written by Rick Paterson, Managing Director, Loop Capital Markets
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BNSF Logistics Park Kansas City. BNSF photo

I’ll start with the good news, which concerns volume trends in the three reported weeks following the Arctic Blast, which struck the railroads in the third week of January.

The quick operational recovery enabled a quick volume recovery, and in the updated table below you can see the normalization of the year-to-date run rate for all but one of the Class I’s. CN started January at a 5% YoY volume deficit, which blew out to 10% after the Arctic Blast, but has now recovered to within one percentage point of where it was (–6%). In every other case, the networks have either fully recovered, or over-recovered volumes in terms of the YTD run rate. While this is encouraging from a recovery standpoint, the absolute numbers are still underwhelming, with only BNSF posting YoY volume growth so far, thanks to a +16% YTD surge in its intermodal business. Intermodal strength also hasn’t been confined to BNSF, with CSX and Norfolk Southern also posting container counts in recent weeks that are commensurable with what we typically only see at the height of the Fall peak.

But it comes with a small service backstep. Following two strong weeks of service recovery from the Arctic Blast, all the railroads, again except for CN, then slowed in the week ending Feb. 9. Union Pacific, NS and CPKC saw network velocity slow by 2%, sequentially, while BNSF decelerated by 3% to within 2% of its YTD low. We don’t want to overstate the problem here—it’s only a ~2% pullback after all—but in terms of the causality of the industry-wide shift from forward into reverse, it appears to be the combination of some volume pressure from the catch-up effect, particularly in intermodal, plus the usual and seasonal compounding winter brake effect on the networks. It’s a good reminder that in the rail world, it’s very rare that you’re able to both have your cake (volumes) and eat it, too (velocity).