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Service Reliability Issues And Trade Uncertainty Could Help Push U.S. Rail Volumes Lower

Service Reliability Issues And Trade Uncertainty Could Help Push U.S. Rail Volumes Lower

Trade concerns and shippers' lingering doubts about rail service are factors that could contribute to a continued softening of U.S. rail carload volumes in the second half of the year despite some factors indicating economic growth, a consultancy firm said last week.

"The railroads haven't yet shown to shippers that they can provide reliable service," said Todd Tranausky, vice president of rail and intermodal at consultancy firm FTR Transportation Intelligence. Tranausky's comments were part of an August 8 webinar presentation entitled, "A New ‘Normal' for Carload?"

Tranausky and others who FTR polled expect U.S. rail carload volume in the second half of the year to be flat to as much as 5 percent lower than the same period in 2018, which would continue the downward trend that U.S. carload volumes experienced in the first half of 2019. 

To understand how shippers' service concerns and trade uncertainty might affect U.S. carload volumes, Tranausky pointed to how this year's downward trend in rail carloads differs from past years. 

In previous years, U.S. rail carloads would move in the same direction as some broader economic indicators. And right now, indicators such as the purchasing index of the Institute of Supply Management are still pointing towards economic growth, albeit at a slower pace, according to Tranausky. 

A FreightWaves' analysis also reported last week that although data from the Institute of Supply Management show a slowdown in expansion, they haven't yet indicated an economic contraction.

But even though signals are still pointing to an economic expansion, U.S. rail carloads aren't following suit, Tranausky said. 

Year-to-date, U.S. rail operations originated 7.82 million carloads for the first 31 weeks of 2019, which is 3.2 percent lower than the same period in 2018, according to the Association of American Railroads.

"U.S. carload growth has typically followed the economy, but we're breaking that pattern," Tranausky said. "You can't count on the carload markets to parrot the economy."

While the U.S. carload sector is generally in line with historical seasonal trends, the railroads face several headwinds. For starters, shippers are letting their perceptions about rail service influence their choices in transportation mode. Although rail service is in-line with its 10-year averages for service metrics, with train speeds improving and dwell times shortening, shippers are letting their perceptions of poorer service in 2018 influence their thoughts about 2019, Tranausky said. Rail service is also inconsistent by region, he said.

"People feel like it's worse than it is. If they feel like they can get a truck and a more reliable partner, then they're going to do that," Tranausky said. 

Trade uncertainty is also a headwind for certain commodities. China's decision to stop purchasing U.S. agricultural goods will hurt agricultural volumes, while changes in China's standards for recycled paper could lower pulp and paper volumes. Meanwhile, lumber and wood volumes were down earlier this year amid trade uncertainty between the U.S. and Canada.

"If the trade uncertainty gets worse, there's going to be a headwind, making it difficult for carloads to show growth," he said.

Image Sourced by Pixabay

Posted-In: Freight Freightwaves Logistics rail volumesNews Global Markets General


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