Decline In US Rail Volumes Slows

Despite double-digit percentage drops in May, U.S. rail volumes on a weekly basis have been narrowing their declines over the same periods in 2019 as North America slowly opens up following COVID-19 pandemic closures.

Weekly U.S. rail traffic totaled 395,714 carloads and intermodal units for the week ending May 30, a 17.3% decline from the same period in 2019, according to the Association of American Railroads (AAR). While still a double-digit drop, the decline is less than the four-week average decline of 20.1%.

North American weekly traffic was 557,771 carloads and intermodal units, a 16.5% drop compared with the same period last year.

"Overall traffic levels last week were down from the prior week as would be expected for a week which includes a national holiday," said AAR Senior Vice President John T. Gray. "However, it is somewhat heartening to note that 11 of the 20 carload categories, including several major commodity areas, improved their showing versus 2019 when comparing their current loading rates to those we have seen the last four weeks."

U.S. carloads and intermodal volumes over the past year. RTOTC RTOIT.CLASSI, RTOIC.CLASSI)

Gray continued, "Perhaps most notably, automobile loadings improved to about one-third the normal level as assembly plants began the intricate process of reopening." AAR reported that weekly U.S. carloads for motor vehicles and parts were 6,629, a 54.8% drop from the same week in 2019. This weekly total is higher than the 4,874 carloads for the week ending May 23.

U.S. carloads for motor vehicles and parts, grain, and forest products over the past year. RTOMV RTOGM.USA, RTOPF.USA)

Meanwhile, May U.S. rail volumes were 20.2% lower from May 2019, at 1.65 million carloads and intermodal units. U.S. carloads slipped 27.7% to 740,171, and U.S. intermodal units fell 13% to 912,922 intermodal containers and trailers. 

The carloads declines in May included drops for coal, which was down 40.7%; motor vehicles and parts, down 75%; and crushed stone, sand and gravel, down 19.4%.

Are things looking up?

As the railroads wonder whether rail volumes have bottomed out in recent weeks, according to recent comments at investor conferences, there's still plenty of uncertainty among stakeholders over how and when an economic recovery will take shape.

"Is it possible the worst of the coronavirus pandemic is behind us? Maybe, but we are not out of the woods yet, and uncertainty abounds," said National Retail Federation (NRF) Chief Economist Jack Kleinhenz. His comments were related to NRF's monthly economic review that came out earlier this week. "Predicting what will happen is even more challenging than usual. While history often helps guide us, previous downturns offer little guidance on what is likely to unfold over the next six to 12 months. There is no user's manual in which government, businesses or consumers can find precise solutions for what we are going through."

Kleinhenz pointed to record drops in employment, gross domestic product and retail sales, among other indicators. The drops are "unparalleled numbers" that aren't comparable with anything in economic history, he said. 

Meanwhile, the housing construction industry is hopeful that demand recovery is on the horizon. The National Association of Home Builders (NAHB) said the housing market is showing signs of stabilizing in the wake of the pandemic, according to a housing market index produced by NAHB and Wells Fargo. According to the index, builder confidence in the market for newly built single-family homes rose 7% to 37 in May. This figure follows the largest single monthly decline in the history of the index in April, NAHB said. Single-family housing starts are also 1% higher for the first four months of 2020 versus the same period in 2019, the trade group said.

"NAHB anticipates that housing will help lead the economy out of this period of uncertainty and is likely to rebound faster than other sectors," said Dean Mon, chairman of NAHB and a homebuilder and developer from Shrewsbury, New Jersey. "Pent-up demand for housing and low-interest rates can pave the way for a potential industry bounce back as we head into the summer months."

A view of U.S. housing starts over the past year up to April. HOUS

The retail market can be an indicator for intermodal volumes, while housing starts can reflect potential market demand for lumber, wood, construction vehicles and other building materials.