“If I cross your path again,
Who knows where,
Who knows when
On some morning without number,
On some highway without end….
Keep your distance, oh keep your distance
When I feel you close to me what can I do but fall
Keep your distance, keep your distance!”
/Richard Thompson- “Keep Your Distance”
Well, what can one say? The world has turned upside down….for how long? Supply was hit first, of course, for North American Freight rails. And, of course, financially they are dealing from a position of great strength, and even operationally they are in a solid (and improving) position. But, from a marketing/revenue perspective, the timing of the pandemic was poor (I do realize how stupid that reads – is there ever a good time?). The NAFR were already suffering from weak traffic, tariffs (the trade war is not over and tensions with China are once again heading in the wrong direction; the Administration passed on a chance for crisis tariff relief – see below), the ongoing leaking-wound that is coal (and now with the price of nat gas….), truck overcapacity (at least that appears to be correcting; let’s see how the FMCSA regulations relaxing program impacts the IM market)….now as Asian supply is ramping up, what about NA demand destruction?
First a personal note:
I wanted to thank all of you clients, subscribers and rail folks (friends) for your patience. I have been waiting for “normalcy” to catch up on regular rail events (the ending of Canadian rail blockades; a look at western rail performance and market share, etc. But time is moving quickly….so I will just get writing done now ASAP and forget about timing the market or the pandemic. Life, and rails, go on. At least I am already well-accustomed to working from home – and airport lounges, hotel rooms, and conferences. That part is suspended of course (below). I am on self-quarantine day 9, almost 10 (a 3rd or 4th degree of separation contact; all concerned are a-symptomatic). So a bit of a backlog will be forthcoming. Thanks for your patience. Also:
- Rail-related business travel is all or seemingly mostly postponed. I called into SEARS (South East Association of RR Shippers) and so missed the chance to mingle in Atlanta. As of now, NEARS (North East….) has been pushed back from April to June; two of the biggest for me, the ASLRRA Short Line Conference and the North American Association of Railroad Shippers (NARS), both scheduled for May, have yet to be changed but I personally suspect that they will be. The only upside is that if NARS is delayed it extends my “reign” as the NARS Person of the Year!
- I have opened a Twitter account and soon will go live via my friends at Commtrex – so I will not have the issue of holding back reports to see what the latest news impact might be, etc. Details to follow.
- I have culled my list to ~35 Top (current and former) rail leaders and asked them, off the record, about this short, and more importantly, long term impacts they see coming from c19 for the industry – I have already gotten back some great, well thought out (and often contradictory) replies and will total that up at the beginning of next week.
- I suggest listening to the Roy Acuff version of “The Wabash Cannonball” (as highlighted in the Ken Burns “Country Music” docu-series, also recommended); that is if you don’t have the Norfolk Southern Lawmen’s version from “Live at the Forest”. Also Marty Stuart’s “Ghost Train” recordings.
Some rail-related updates:
- This has been a boon to Amazon, of course – remember, an increasingly important rail customer. They have pledged to hire 100K employees; at the same time, they are beginning to suspend moving “non-essential” traffic….
- As has been stated ad infinitum, a pandemic-related economic hit is very, very different than that of a weather event (hurricane, floods, etc) – the latter requires rapid rebuilding, often quite good for rails. But after the flu crisis of 1918-19, there came the “Roaring 20s” expansion….so….who knows? But the Economist warned that unlike 1919 (after the effects of WW1), “C19 strikes at what may be the tail end of a long successful period of rapid globalization”. That is my biggest fear for the trade-dependent rails…
- On the other hand, the chance existed (and was debated at the White House) for a lifting of the still considerable tariffs, not only on China but on global metals producers – which would have been a great move (IMHO). It was supported by the vast majority of the US business community (The Chamber, NAM, etc, etc), That glimmer of hope appears to be extinguished (perhaps because it would have required the trade “hawks” to agree that tariff expense is borne by the consumer, not the trade partner). So you get this response:
- “This whole crisis is a vindication of (the administration’s) tariff policies”/Peter Navarro
- The US borders have been closed for non-essential traffic “but trade will not be affected” (oh, really). Both of our NAFTA partners haven’t been impacted directly to the degree that the USA has. Canada appears to be taking an aggressive stance, Mexico much more laissez-faire (allowing major festivals, etc to go on, etc), which could cost them in the longer term….
- The impact on China was tremendous – industrial output for January/February was down 13.55 (Reuters: biggest contraction in history) and unemployment jumped to 6.5% (and, remember, those are official PRC statistics). Exports were down 17%+ in those two months, before beginning to correct….
- Chinese factories are ramping up, as has been widely reported, and ports as well. There remains big supply chain disruption (containers poorly distributed, etc). But one thought some China-watchers have pursued is to watch the Chinese plantings – their internal Ag supply chain disruption may cause shortages (that may compensate for the thesis that the C19 crisis will allow China to miss its promised US Ag purchases in 2020).
- Will the biggest short term impact be the removal of GUIDANCE as we have seen from FDX and others so far? Sometimes (often) Guidance is too much, too managed; but if the entire market offers no guidance, well….
Some random or general updates:
- Here is a Primer courtesy of Oliver Wyman.
- Wabtec moved their Analyst Day at the NYSE to webcast (and provided a “constructively conservative outlook” according to the “ax” on WAB, Nick Heymann of William Blair. SEARS went on as scheduled but the analyst panel called it in (Mr. Patterson and myself); the rest going or gone as stated….
- Scary coverage from the Times vis Imperial College, London, HERE.
- The Economist: America has been transformed in a few short weeks (and the next few will be even tougher). Click HERE.
- The latest (3/16) issue of Bloomberg BusinessWeek is a superb, full issue summary – with a scary title: The Lost Year” (gulp!)
- The WSJ, hardly MSNBC, wrote today “The US fails the Coronavirus Test” – erp!
Anthony B. Hatch