What are your thoughts on current rail traffic? (Tony Hatch)

Abhbw 2010

This past week’s volumes are too skewed by Labor Day to have any meaning, but we have seen good numbers continue for Intermodal & Ag, and perhaps an explanation (a lumber shortage) why forest product volumes haven’t matched the press around new housing starts. The Railway Tie Association notes that yellow pine is in very short supply; the Farm Journal network stated that building-grade lumber prices were up 200% YOY! That’s a lot of DIY and chick coops and new “victory gardens” and….

  • Intermodal is still thriving as the discussion turns to supply chain performance (WSJ hysteria: “Freight Network overwhelmed by a surge of imported goods”). UNP noted it's IM Trip Plan Compliance dropped to 72% in July (down 6 points YOY) and its IM velocity dropped  3mph to 30mph. UNP has also imposed surcharges on west coast IM, to drive (and serve) business that is “committed baseload volumes.”

    • LA/LB is still regaining share - & months data show it at 54% US total, up almost 4 points. This is very positive for rails – will it last? Is this “need for speed” (and the re-emergence of the ability to re-route shipments from California) a sign of re-stocking or the new economy?
    • The NRF says that August was so strong because it was a combination of re-stocking and the “normal” peak season beginning – but how will the continuing C19 impact (“back to school”?), etc distort the data?
    • Container rates from China are up 185% to LA/LB and 93% to NY/NJ (JoC) – in fact, the Chinese government is pulling a Don Corleone and insisting on a sit-down with the big steamship companies. I am sure they will make them an offer that they can’t refuse….
    • The ocean business is booming so much that some ships have been recalled from the scrap yard, given a stay of execution, and put to sea….meanwhile, NYNJ saw its largest ship in port, 15K TEUs, sliding under the newly raised Bayonne Bridge….
    • Not so fast: the always insightful Larry Gross (October “Trains” and quoted in last week’s WIR) wrote, “Railroads have turned from growth to profitability; this is all part of the PSR mantra.” Now, this is a recurring theme among some rail stakeholders, notably short lines – but I have to push back against my long-time friend here. 

      • 1) What is wrong with “profitability”? Shippers seek it – I am sure that you, dear reader, do too. It is really about re-investable returns – this is an expensive business. A focus on the short-term (the “Cult of the OR”) is bad, but making freight pay its, er, freight is critical; and remember, these are railways, not the United Way. 
      • 2) Blending PSR and growth can be done! Such statements ignore the PSR 2.0 successes of the Canadian rails (see below) as well as at KSU – and soon the rest.
      • 3) Larry and I will have lots to chat about (along with Rick Patterson) at RailTrends 2020 in November!

  • The USDA adjusted its grain numbers down slightly post storms (both corn and soybean production estimates were reduced about 3%); nothing to shout about (in fact, many traders as quoted on the “US Farm Report” said that more cuts may come. The economist at John Deere stated that the farm belt – and the general US economy - wouldn’t show full recovery until 2022, a feeling that is making the rounds. And on top of that, there is the worry about farmworkers in the current political environment (as in, where can we get them?). Corn growers received good news in the nick of (election) time when the USG said it would deny all 67 refinery waiver applications, boosting ethanol hopes….