Market Overview

Freight Recession Unlikely, Says Freight Rail Group Executive

Freight Recession Unlikely, Says Freight Rail Group Executive

Year-to-date U.S. rail volumes have been trending lower in 2019, but calling it an indicator of a freight recession would be incorrect, a senior executive with the Association of American Railroads' (AAR) said on Dec. 4.

"You've got too many positive things going on in this economy," said John Gray, AAR senior vice president, at a media briefing yesterday. 

Gray said while trade uncertainty and the tariff situation between the U.S. and China has put pressure on the U.S. industrial economy, the consumer economy is still doing well in contrast. Similar patterns between rail and the U.S. manufacturing sector occurred in 2015 and 2016, but those patterns failed to serve as a precursor to a recession, he said.

Trade issues and international events are influencing the U.S. industrial economy, rather than  pressures from the domestic economy, Gray said. He also said rail has a smaller share of domestic freight moves, and so changes it rail volumes might not be as accurate an indicator of a recession than years ago.

The AAR said U.S. rail traffic for the first 11 months of 2019 fell 4.7% from the same period in 2018 to nearly 24.8 million carloads and intermodal units. Of that, U.S. carloads were down 4.6% to 12 million carloads, and intermodal units slipped 4.7% to 12.7 containers and trailers.

Meanwhile, November traffic totaled nearly 2 million U.S. carloads and intermodal units, a 7.4% drop from November 2018.

Caption: U.S. carloads have been trending lower in 2019. Source: SONAR Surf

Gray said yesterday that a number of factors figure into the year-over-year comparisons.

Trade uncertainty was one factor that caused 2018 to be "quite an anomaly year," he said, with some rail customers increasing their inventories ahead of U.S. tariffs on Chinese goods. 

In 2019, trade uncertainty also contributed to lower grain and fertilizer volumes. The uncertainty also halted private corporate investments, which in turn affected rail volumes for manufacturing-oriented commodities, said Luisa Fernandez-Willey, AAR senior economist, during yesterday's media briefing.

Meanwhile, coal carloads, which represent the dominant share of U.S. rail volumes, have continued to fall amid a systemic decline due to cheap prices for natural gas, a competing generating fuel for electricity, she said.

Gray's comments come as Class I executives also said yesterday at an investor conference that they continue to expect lower rail volumes in the fourth quarter of 2019 and possibly into the first part of 2020.

Image Sourced from Pixabay

Posted-In: Freight Freightwaves Logistics Railroads IndustryEarnings News Markets General


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