Summary
The American Association of Railroads (AAR) reported that rail shipments decreased 24.3% during the week ending April 18. Unlike the AAR statements in previous weeks, this one did not contain an explanation about how weather or the Good Friday holiday caused the unfavorable comparison. In the detailed report available to AAR members, carloads were down by significantly more than 24.3% for most traffic segments, with Motor vehicles (-57.7%) and metallic ores and metals (-52.9%) suffering the most. Grain traffic was still down 21.3% and even coal shipments, which for the year are only down 5.8%, decreased 16.2%. Could rail traffic be settling at an even lower level than previously projected?
Analysis
After falling to around 260,000 carloads per week by the end of January, rail traffic quickly rose and stabilized around 280,000 carloads per week. Then at the beginning of April, shipments began to fall again to the 255,000 level, with the AAR explaining how weather in the West and then a statistical fluke caused by a late Easter resulted in unfavorable traffic comparisons with last year. These unfavorable weekly traffic comparisons have now continued for four straight weeks and it appears as though another factor is causing rail traffic to fall by be over 20% each week.
The weekly carload totals for most railroad traffic sectors have been consistently down for most of the year, and the traffic in these segments during April was not significantly worse or better than for the previous three months. Weekly carloads of coal however, are a different story. Coal has been one of the few relatively bright spots for the railroads, with traffic initially falling only 3% during the first part of the year. In recent weeks, carloads of coal have tumbled by double digit percentages in both the East and West and the year–to-date traffic totals were down 5.8% as of April 18. If this trend continues, rail shipments will likely stabilize around 250,000 carloads per week, an average traffic level not seen since the late 1990s.
Two years ago the railroads were worryingly about track capacity and their ability to handle freight traffic volumes in the future. Rising traffic levels and increasing freight rates were characterized as the Railroad Renaissance, with railroad profits more than doubling over the last five years. The railroads will fight to keep their rates rising, albeit more slowly, and they will keep investing in projects to increase their capacity and performance, for the time being. They should also be checking, however, to see if the pace of their freight rate increases has driven off some shippers and if the surge in imports which will be needed to justify all their CapEx projects will soon materialize.
As long as Coal is considered to be another four letter word, rail traffic will remain below track capacity. As long as consumers are taxed by high energy prices through carbon taxes, container imports and automotive sales will not climb back to old levels. “As long as” seems to be for a long time right now.
