Rail Industry Positioned For Resilience Despite Coronavirus Toll

North American rail volumes have fallen both week-over-week and year-over-year in the face of the coronavirus pandemic. The fall comes as nonessential businesses close up shop and consumers become less inclined to spend money in light of a likely recession.

Still, North American railroad leaders believe that the industry is resilient and have reported ongoing demand for rail services. 

"For the most part, we have seen there is ongoing demand for transporting goods by rail. While rail demand in some industries, such as energy, has decreased in recent months, the majority of business sectors we serve are as strong as ever," OmniTRAX Director of Business Development Chris Richter said.

In China, where the coronavirus overwhelmed the nation months before settling into America, rail volumes showed signs of a relatively swift recovery once the virus was largely contained. Chinese rail volumes began to rebound around mid-March.

Companies are pivoting their business practices to move into new markets and stay afloat during the pandemic. According to Richter, OmniTRAX is seeing increasing demand for transloading services across their portfolio of short line railroads. In addition, companies in some of the most impacted industries are taking advantage of railcar storage options.

"For those industries impacted by the pandemic, we are working with our customers to store empty and loaded railcars across our properties to help alleviate demurrage costs and maintain fluidity for the Class I Railroads continuing to ship freight by rail," Richter said. "We have found that Commtrex has made it much easier for shippers to find railroads with capacity for these services."

Commtrex is an online marketplace that works to connect rail shippers with asset owners, railcar storage, transloading and rail services. During times of economic instability and market volatility, these connections become more important than ever. Being connected with the right network can be the difference between weathering the crisis or succumbing to the chaos.

Martin Lew, CEO of Commtrex, states that demand for railcar storage and transloading has increased significantly over the past few months. "Shippers across various commodity groups have been leveraging our platform to quickly (in many cases in a matter of hours) identify and secure available storage capacity in the U.S. and Canada," Lew said.

According to AAR's monthly storage report, as of April 1, there were 394,200 empty railcars in storage, representing over 23% of the North American fleet: 24.5% tank cars, 34.5% hoppers, 23.2% flat cars and 23.7% gondolas. "We're frequently seeing all of these car types move into storage," said Lew.

"Loaded storage is also a viable option for shippers that is becoming harder to find, as many storage providers that accept loaded nonhazardous and hazardous cars into storage are filling up their capacity quickly," Lew said. "We're seeing an unusual increase in demand for loaded storage, particularly for crude near the oil trading hubs. The concern for the lack of near-term storage capacity is intensifying as the front of the price curve is continuing to plummet to historic lows."

Commtrex has also seen a heightened demand from shippers searching for Transload facilities. "Our members have stated that they are looking to diversify their freight portfolios," said Lew. Shippers are finding it important to include more rail exposure as a hedge to COVID-19's potential future impact on drivers and truck reliability. "In light of COVID-19, shippers are looking for ways to increase efficiency, reliability and flexibility while reducing costs. Transloading provides them with a way to optimize their logistics strategy and network," said Lew.

While Richter believes there is good reason to be optimistic about the long-term future of the rail industry, he also acknowledged that a prolonged shutdown could lead to a larger downturn. Still, he is committed to serving OmniTRAX customers while placing the highest priority on safety.

"We hope to get back to business as usual quickly but understand there are many unknowns at this point. We will follow government guidelines, erring on the side of caution to make sure all of our employees are safe," Richter said. "If the pandemic continues into May and beyond, we do anticipate more of a slowdown. However, we will continue to work safely to meet the needs of our shippers and the communities we serve."

In the meantime, Colorado-based OmniTRAX has employed its extended supply chain network to the City and County of Denver, a local hospital near its headquarters, and communities serviced by its managed railroads and terminals around North America. The company collaborated with Boulder-based J&L Distilling to turn its production over to making antiseptic lotion using ethanol it had in stock. The initial order was provided to train operators and others at the company's rail properties to keep them safe while at work. Once the ethanol reserves were depleted, OmniTRAX found a supplier in its network to link up with J&L to make more hand sanitizer for local front-line workers.

Kansas City Southern (KCS) is also providing COVID-19 pandemic relief in the U.S. and Mexico to communities in its service territory. In the U.S., the KCS Charitable Fund has directed COVID-19 relief contributions to 15 local United Way agencies where KCSR has employees and a community presence. In Mexico, KCSM is working with local health ministries to provide financial assistance for needed medical equipment and supplies where available.
"As critical infrastructure in the U.S. and Mexico, KCS has focused on two key priorities," said KCS Executive Vice President and Chief Marketing Officer Mike Naatz. "First, we are focused on protecting the health and well-being of our employees and others; and second, we are working to assure the continuity of our business operations for our customers."

Commtrex is keeping rail industry professionals up to date on the COVID-19 situation with information, articles, expert Q&A and resources. "We hope our exclusive content and data helps our members stay current with the developing situation and how it is affecting the rail industry," said Lew. "We want our members to have the tools they need to make the best decisions possible."

It has become abundantly clear that the logistics industry will play a critical role in sustaining America throughout the pandemic. Replenishing supplies and delivering goods on time can be a herculean task in and of itself when the rest of the world has seemingly shut down.

Still, logistics companies have gone beyond what is expected to ease the burden on our communities and share their resilient spirits with the rest of us. 

"There are a few reasons why rail is so resilient and will continue to grow for many years to come, including the fact that it is still the safest, cheapest and most reliable mode of transportation," Richter said. "Right now, it's great to see all modes of transportation working harmoniously to address the supply chain challenges we're facing as a country and getting the medical supplies, food and other materials to where it's needed most quickly and efficiently."