Ask The Experts: March 20, 2019
Independent Transportation Analyst and Consultant
Q: What are some signs that the economy is slowing?
A: The economy might very well be slowing, as expected, if rail traffic is any indicator (though we will need some time to unpack the impacts of the Polar Vorti (yep – “degree days” were up 17% last month) and the trade /”Lunar New Year” disruptions. That the overall market anticipates this is well known; the S&P 500 2019FYE has gone from expectations of ~6.6% earnings growth to +3/4% (FactSet) – since New Year’s Day! The February Rail Time Indicator made for some alarming reading – quoth its author “On the surface rail traffic in February 2019 wasn’t very good”. Indeed only 6/20 commodities showed increases in volume (US + Canada). US intermodal volumes fell for the first time since January of 2017, a depressing month for us all. US coal shrugged off the weather opportunity to drop 7%. CBR helped, of course – the US Petroleum/Products traffic was up 21% - but Canadian CBR showed the Bizarro World impact of Albertan intervention, growing at half the rate of January. No coincidence, the largest shipper, Imperial Oil (half the market) shipped nothing due to the collapsed spreads. The most recent weekly results (3/9), showing for all of North America , were actually slightly worse (volumes down 4.3% (carloads down 6.3% and Intermodal -2.4%)….On the other hand, the American Trucking Association’s economist (Costello) sees a good freight year ahead, “just not as great as last year’s”.
Q: What can we expect to see from CSX?
A: CSX – Change Seems expected:
CSX announced some (more) management changes, additive in this case with new positions created within Mark Wallace’s Sales & Marketing to include VPs of Marketing/Strategy and Sales/Customer Engagement; the former being headed by promoted IR honcho Kevin Boone (congrats!). CSX has a long history of really engaging their IR folks and promoting them; in addition CEO Jim Foote served as IR head at the C&NW (where we first met).
CSX stated in the related press release that there was to be “increased focus on port and short line development” – not just short line creation but developing short line related partnership business – which was over a quarter of the volumes historically but down to ~22%. That fact and below came form conversations with attendees in Florida (3/3-5). CSX admitted that they needed to refocus here and in merchandise traffic in general, and didn’t shy away from their plans to push down pre-blocking and to maintain the stick portion of the PSR plan (demurrage etc). CSX service is measurably improving (velocity/dwell but also meets, dead-heads, re-crewing, etc. CSX plans to increase manifest train size significantly in 2019 (by ~20%?) and at the same time achieve 95% reliability – a tall order..
Q: What are the latest developments with U.S. trade?
A: Trade – back to Crazy Town? Even as the trade deficit – always a distraction (and really, no way to view trade or the economy) but now actively “managed to” – has reached a 10-year high, the President stated yesterday that he was now in “no rush” to conclude a China trade deal. The 21% drop in Chinese exports got a lot of “play”, but the timing of the Lunar New Year means that two month numbers, January/February, down 5%, are more realistic. But it’s Mexico that wins this week’s “The president said wha?” award: after announcing in a UK roadshow a redirection of $2.5B from a controversial refining effort to Pemex (E&P) – and getting kudos for facing up to reality - on Monday, yesterday AMLO over-ruled his own Finance Department to say he is going forward with the refinery plans! This is important for two reasons – general confidence in Mexico (FDI was down 15% in Q4/18) and the refinery plans, as disparaged as they are by professionals, are an effort to reduce “dependence” on imported refined products from the US (on the KCS!).
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