US Weekly Rail Traffic Sinks Even Further Amid Headwinds

U.S. weekly rail volumes tumbled nearly 22% last week as COVID-19 and lower crude oil prices take their toll on carloads.

Rail traffic in the U.S. for the week ending April 11 totaled 412,503 carloads and intermodal units, a 21.9% decline from the same period in 2019, according to the Association of American Railroads (AAR). Of that, weekly carloads fell 23.8% to 198,726, while intermodal units slipped 20% to 213,777 intermodal containers and trailers.

U.S. rail carloads (RTOTC.USA) are down by double-digit percentages from a year ago, as are U.S. intermodal containers (RTOIC.CLASSI) and trailers (RTOIT.CLASSI). Source: SONAR/AAR

Carloads of motor vehicles and parts tumbled again last week, down 87.7% compared with year-ago levels, to 2,185 carloads, while slower manufacturing production as a result of the coronavirus pandemic contributed to a 25% decrease in carloads for metallic ores and metals. Carloads for that category totaled 17,949. Meanwhile, low crude oil prices put pressure on petroleum carloads, while the moderating temperatures of the shoulder season likely contributed to the 36.1% decline in coal carloads.

Source: AAR
North American weekly volumes saw similar figures, considering that U.S. rail traffic represents about 71% of overall North American traffic. North American rail volumes totaled 580,062 carloads and intermodal units for the week ending April 11, a 20.1% decline from the same period in 2019.

"The pandemic is affecting firms in every industry, and railroads are no exception," said AAR Senior Vice President John T. Gray. "When rail customers suffer a drop in demand for their products, their need for transportation services declines as well, and that negatively impacts rail volumes. That said, railroads are continuing to move massive amounts of freight, including countless essential chemicals, food products and manufactured goods that we need in good times and bad." 

Gray continued, "It's still too early to say when the current crisis will end, but when it does – and it will – railroads will be ready to ramp up their service to safely, reliably and cost-effectively meet the freight transportation needs of our nation." 

Sluggish sectors could keep rail volumes slumping – for now 

The Class I railroads will be announcing their first-quarter financial result this week, with Kansas City Southern KSU reporting its results on April 17.

As the industry awaits the discussion of rail volumes and pricing in the second and third quarters, investment firm Morgan Stanley reduced its rail volume expectations for 2020 to the "recessionary territory" of 2009, according to an April 14 note from analyst Ravi Shanker. 

Rail pricing levels could also potentially fall to 2009 levels, although they might not reach some of the all-time lows reached in 2016 and 2019, according to observations made as a result of Morgan Stanley's survey involving 57 shippers, many of whom are in the manufacturing and intermodal sectors. The survey also fielded questions about the economy and parcel volumes as well as views on demand for the various transportation modes, including trucking. 

The percentage of shippers willing to increase their spending for the railroads is near an all-time low that was achieved in 2019, the firm observed.

"As expected, given the macro pressures from the COVID-19-related lockdown, shipper expectations for the economy declined sharply. For now, expectations dropped to the lowest level we have seen since the third quarter of 2009 – it remains to be seen whether we stabilize or deteriorate further from here in the next edition in three months' time," Shanker said. 

The sheltering-in-place and social distancing mandates have taken their toll on retail activity. FreightWaves recently reported that the U.S. West Coast ports, which handle a significant portion of the country's exports and imports, have seen an increase in cancelled sailings and a significant decrease in port volumes in recent weeks. Volumes in the trucking sector have also taken a hit in recent weeks. 

Meanwhile, the U.S. Commerce Department said yesterday that the value of U.S. retail and food services in March fell 8.7% from February and 6.2% from March 2019. This preliminary estimate for March is a record decline, according to various news reports. The National Retail Federation (NRF) says this percentage drop exceeds the 4.3% decline seen in November 2008.

Trade groups' reactions

Trade groups continue to report the pandemic's effect of slowing consumer activity to a standstill because of sheltering-in-place and social distancing mandates.

"COVID-19 has hit the retail industry unevenly," said National Retail Federation (NRF) Chief Economist Jack Kleinhenz. He was speaking on the U.S. Department of Commerce's retail sales estimates. "This is a market of haves and have-nots. The haves are the stores that remain open with lines out the doors to buy daily necessities while the have-nots are the stores that have closed and are taking the brunt of the impact of the pandemic. These numbers should come as no surprise given the mandated shutdown of our economy to slow the spread of the virus."

"March was a month that started out with many stores still open, but far more are closed now," Kleinhenz said. "Don't be surprised if the data going forward shows a worsening situation. Even if the economy begins to reopen in May, consumer behavior may take a long time to adjust. The road to recovery could be long and slow."

NRF said its calculation of retail sales – which excludes automobile dealers, gasoline stations and restaurants in order to focus on core retail – showed March was up 1.7% seasonally adjusted from February and up 4.5% unadjusted year-over-year. That difference is because the NRF data excludes some of the data that the Commerce Department includes. Gasoline sales were affected both by fewer people driving and lower gas prices, while auto dealers were among those affected by stay-at-home orders, NRF said.

Builder confidence for home construction is also at a low. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, which gauges builder confidence for newly built single-family homes, fell 42 points in April to 30. This decline is the largest single monthly change in the history of the index and is the lowest reading since June 2012, NAHB said.

"Before the pandemic hit, the housing market was showing signs of strength with January and February new home sales at their highest pace since the Great Recession," said NAHB Chief Economist Robert Dietz. "To show how hard and fast this outbreak has hit the housing sector, a recent poll of our members reveals that 96% reported that virus mitigation efforts were hurting buyer traffic. While the virus is severely disrupting residential construction and the overall economy, the need and demand for housing remains acute. As social distancing and other mitigation efforts show signs of easing this health crisis, we expect that housing will play its traditional role of helping to lead the economy out of a recession later in 2020."

Image: Flickr/Chu Shau-Luen