Ask The Experts: June 26, 2019

Tony Hatch
Independent Transportation Analyst and Consultant

Q: What are your thoughts about the recent rail traffic reports?
A:
Bad news. Volumes aren’t recovering so the encouraging “reaffirmations” of 2019 volume/earnings outlook, so prevalent in the Q1/19 calls, will likely not be the theme for Q2/19 next month! Now, I don’t care about that, per se, but as we slowly pass the winter wet weather impacts, and try to decipher the tweet effects, it does lead us to ask: What’s going on? Yes, comparisons are tough but, still….

  • The May RTI (AAR) noted that the 3% decline in US/Canadian total traffic represented the 4th straight month of decline; only 6/20 commodities increased (CBR, chemicals) in the US (8/20 in Canada). In fact, Canada was the saving grace – US carloads dropped 2% and intermodal almost 6%; whereas Canadian carloads were up 2.5% and intermodal eked out a slight (+0.4%) gain. Canadian coal was actually up 5% (vs US -0.4%) and motor vehicles +8% (-3%). Must be the clean living….we the north!

  • More recent traffic is even more worrisome: the AAR reports that for the week ended 6/8/19 North American volume (Mexico gets to play in the AAR weekly but not monthly numbers) was down more than the YTD levels – carloads and intermodal both down 6%; once again only Canada showed positive results (+2%/1%).

Q: How has the weather been influencing rail traffic?
A:
You always take the weather with you, or there is something happening here: the news has been full of weather issues with relevance to rail. Here are five:

  1. The USDA reduced the grain outlook due to the wet (and “expected bigger rainfall conditions”) fields.

  2. Barge shipping has been jammed up by the Illinois, Arkansas, and portions of the Mississippi River closures, due to too much water.

  3. On the other hand, the Panama Canal is still suffering form too little, which looks to be chronic.

  4. On the Bright side, the Northern Sea Route, which cuts distances by up to a fifth, now looks more, er, promising, and COSCO has now entered a JV with the Russian line.

  5. The coming IMO 2020 rules, meant as a response to climate change to reduce emissions in ocean-going shipping (by forcing a scrubbing of bunker-fueled engines, or a fuel switch) will be very disruptive; from a NA rail point of view it will increase “slow steaming” and therefore sharply reduce schedule consistency putting pressure on landside operations (docks, dray, warehouse, and rails).

Q: Is rail becoming a more popular shipping option for the big retail companies?
A
: There has been lots of discussion on the idea that the retail/E-tail giants AMZN and WMRT were now negotiating directly with the rails – in the case of the former, I believe that was always the case. WMRT has also created a 53’ box fleet – a very encouraging event….

Click Here to learn more about Tony Hatch and ABH Consulting.

Alison Babcock