Rail carload volumes showing mild signs of improvement but more progress needed, says FTR

Given the sluggish volume declines on United States rail carloads in 2016, it is fair to say that weekly volume readings continue to remain on a downward trajectory, depending on type of carload commodity to be sure.

That was made clear by Larry Gross, partner at FTR, speaking at his firm’s annual transportation conference last week.

Kicking off his “Carload Freight Outlook" presentation, Gross observed that carload growth has been weak going back to last winter, with carload volume down nearly 11 percent year-to-date, with the only carloads showing positive movement being agriculture products, including grain, and “other” carloads, which includes empty cars being used for replacement and storage.

Despite the spate of reports highlighting declining volumes, Gross said there is a possibility a trough has been reached, with some sequential volume gains in recent weeks that may provide some cause for encouragement, buoyed in large part by gains in grain loadings and even some improvement on the coal side, too.

“There are really two stories going on with carloads,” he said. “There is the secular story, which includes what has been happening in the coal industry. And the other one is cyclical. If we take out…special situations like grain, coal, and crude oil, it provides a better indicator of what the over all carload economy is doing, and the message is not particularly bad.  The average six-week volumes have actually been pretty flat since mid-April. While flat is not up, the deterioration has stopped. That is good news in that represents a bit of a level of stability with the question of where do we do from here?”

Looking at certain carload commodities, Gross showed some volume changes in actual percentage up or down year-to-date (based on AAR data) and the percentage amount of total carloads it represents, including:

• coal down 26.1 percent year-to-date and at 24 percent of total carloads, down from one-third;
• chemicals down 0.1 percent year-to-date and 13 percent of total carloads;
• grain up 16.6 percent year-to-date and 9 percent of total carloads;
• automotive up 3.4 percent year-to-date and 8.3 percent of total carloads;
• crude-by-oil down 19.4 percent year-to-date and 5.4 percent of total carloads; and
• lumber up 1.3 percent year-to-date and 2.0 percent of total carloads

Shifting gears to rail service, Gross train speeds are still in good shape, as railroads are operating efficiently as they are running fewer trains with fewer pieces, which is increasing velocity.

“What the railroads are trying to do is to right-size their network with regards to the capacity that is out there,” explained Gross. “Some of that right-sizing has to do with running longer trains to take advantage of, for instance, restricted power. It could be viewed as an indication of railroads adjusting to the new reality. There could be some further downward drifting of these operating statistics as railroads balance network velocity against saving costs within their operations. But if you are going to run fewer longer trains one of the consequences is going to be trains spending more times in yards and increasing dwell times. ”

Looking at the current state of volumes, Gross said current volume trends are not really close to where they stood in 2006, leaving the industry at a significant fork in the road and needing to find a way to grow the business.

“Freight is growing at a relatively tepid pace so we cannot necessarily count on the economy,” he said. “It is going to have to be conversion. It needs to find some growth mojo or face further declines.  That is the big challenge at this crossroads.”