Market Overview

US Rail Volumes Still Sluggish

US Rail Volumes Still Sluggish

Year-to-date U.S. rail volumes fell yet again for the week ending Sept. 7, according to the latest data from the Association of American Railroads.

Compared with the same period in 2018, year-to-date U.S. rail volumes were 3.7% lower at 18.67 million carloads and intermodal units. Of that, U.S. carloads were down 3.4% to 9.11 million carloads, while intermodal units were down 4% to 9.56 million intermodal containers and trailers. 

Of the commodities that have shipped more than 1 million carloads year-to-date, U.S. coal carloads were down 6.6% to 2.82 million carloads, while carloads of non-metallic minerals were down 4.7% to 1.25 million carloads. Chemical carloads were flat, falling only 0.1% to 1.16 million carloads.

On a weekly basis, U.S. rail volumes were down 6.6% to 469,285 carloads and intermodal units compared with the same week in 2018. U.S. carloads fell 5.6% to 238,988 carloads, while intermodal units fell 7.5% to 230,297 intermodal containers and trailers.

Source: Association of American Railroads

Short-haul rail intermodal versus truck in the eastern U.S.

With U.S. coal volumes facing a systemic decline, the Class I railroads have been turning to intermodal to fill in the gap.

But rail intermodal, and short-haul intermodal in particular, can be vulnerable to competition from trucks. If shippers need a shipment to go about 500 miles, they might opt to use a truck instead because trucks can have a reputation of being more reliable for point-to-point deliveries. 

Furthermore, as almost all of the Class I railroads have adopted precision scheduled railroading, an operating strategy that seeks to streamline operations and schedules, railroads such as CSX (NYSE: CSX) and Norfolk Southern (NYSE: NSC) have shed some of their intermodal lanes because those lanes didn't fit as neatly into their new operating models. The railroads also looked at what traffic levels justify the costs of maintaining these short-haul intermodal lanes, particularly in the eastern U.S. where shorter-haul lanes are more prevalent.

However, removing lanes from the network can result in ripple effects across the wider rail network. Reports surfaced in late August that CSX and Union Pacific (NYSE: UNP) were talking with shippers and logistics providers about whether to restore intermodal service to Philadelphia, Cincinnati and Columbus, Ohio. 

UNP did not return a call seeking a request for comment. CSX said it routinely speaks with customers about growth and service opportunities. 

CSX CEO Jim Foote also said at a Sept. 11 investor conference that much of CSX's intermodal business is "locked up" in the long term with channel partners, which shields CSX from the competitive spot truck market.

Whether shippers would return to the railroads should lanes reopen remains to be seen. "Truck volumes and rates are weaker compared with last year and shippers view trucks as the more reliable option and so I don't see shippers running back to the railroads with open arms," said Todd Tranausky, vice president of rail and intermodal services at consulting firm FTR.

Meanwhile, NSC, which had cut some shorter-haul lanes from its network as the company implemented PSR, didn't say that it wouldn't reopen lanes when it presented at an investor conference last week.

"As we reduce the assets…it creates a capacity dividend, and so you can look for opportunities to grow at a lower cost structure. We're looking for things that drive value to our customers and shareholders," NSC chief marketing officer Alan Shaw said at Cowen's transportation conference on Sept. 4. 

If CSX, NSC and UNP were to revive intermodal lanes in the eastern U.S., companies ought to consider how it manages the timing for drays, sources said. Drayage occurs when a shipment of goods reaches a warehouse or an intermodal facility and gets separated from the train it was on, and then it travels a short distance – via truck – to another facility where it is loaded onto another train bound to the shipment's destination.

"Intermodal, particularly domestic intermodal, has faced a number of large headwinds this year, one of which is the carrier's PSR-induced lane reductions, so time will tell what carriers think of the offering if it is indeed revived," Tranausky said. "The single biggest thing carriers can do is eliminate long drays on either end and the cross-town drays at interchange. That is what I hear most about from shippers in a post-PSR  intermodal world." 

As for restoring intermodal service to Cincinnati and Columbus, competition from the truck market might be too stiff for the railroads, a transportation consultant said.

"It makes sense for UNP that CSX restore service at Cincinnati and Columbus because access to those markets gives them more volume to Chicago," the consultant said. "But for CSX, those markets are a short haul and some volume can be trucked from Chicago to those markets. CSX has to compete with those truck rates. Tough to make money. The two carriers might be better off doing some sort of through rates or haulage rights for UNP to those markets."

Union Pacific waives accessorial fees for trucks 

Although UNP doesn't grapple with the same short-haul intermodal lanes as CSX and NSC do in the eastern U.S., the railroad also still faces pressure to provide reliable intermodal service.

UNP said last month that it would be "indefinitely suspending" the implementation of accessorial charges related to its new intermodal terminal reservations (ITR) system. The new ITR system, which UNP hopes will allow for better planning of drays and ingates, replaces the Gate Reservation System at six West Coast terminals: East Coast Los Angeles, LATC, City of Industry, Lathrop, Brooklyn and TacSim. UNP has plans to roll out the technology at additional domestic terminals in the future.

UNP had planned on applying accessorial fees for reservation no-shows and for reservations cancelled less than 24 hours prior to the gate cutoff, but now instead of the charges, UNP will "proactively monitor and provide visibility into each customer's reservation utilization and will work with them to ensure reservations meet actual demand," UNP vice president of sales and marketing Kenny Rocker said in an Aug. 19 customer notification announcement.

"We will continue to monitor the need to implement an accessorial system for ITR, but we would prefer to have customers take advantage of the visibility it provides," the announcement said.

More News Briefs

OmniTRAX finalizes acquisition of Mid-Atlantic shortline

Shortline operator OmniTRAX said on Sept. 11 that it has finalized its acquisition of the Winchester & Western Railroad (WW) from Covia Holdings. OmniTRAX announced its plan to acquire WW in late July. WW has operations in Maryland, New Jersey, Virginia and West Virginia.

OmniTRAX said the acquisition will expand its portfolio to serve new distribution locations in multiple East Coast markets.

"We are pleased to finalize this strategic transaction and appreciate the extensive work and due diligence invested to reach this moment," said OmniTRAX chief executive officer Kevin Shuba. "Our initial outreach with the Winchester & Western team, existing customers and local partners reaffirms our belief in the opportunity this acquisition represents."

GATX announces leadership changes

Railcar manufacturer GATX (NYSE: GATX) has promoted Jennifer M. McManus to senior vice president, controller and chief accounting officer following the retirement of William M. Muckian, who currently serves in that role.

McManus presently serves as senior director of investor relations and accounting research, policy and planning. Muckian's retirement will be effective on Dec. 31, 2019.

McManus has been with GATX since 2015, serving as director of accounting research, policy and planning before GATX added the role of senior director of investor relations to her positions in May 2017. McManus has previously held positions at Hyatt Hotels and the Tribune Company, and she started her career in audit at Deloitte & Touche LLP. She has a bachelor's degree in economics and a master's in accounting from the University of Michigan and an MBA from the University of Chicago, Booth School of Business.

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