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Although U.S. rail traffic is still sharply lower compared with the same period in 2019, rail volumes for intermodal and commodities such as motor vehicles and grain are higher sequentially on a weekly basis, according to the Association of American Railroads (AAR).
U.S. grain volumes totaled 21,977 carloads for the week that ended Saturday, which is a 2.3% decrease compared with the same period in 2019 but 5.7% higher than 20,790 carloads for the week ending May 16. Meanwhile, weekly carloads for motor vehicles and parts were up 70.1% on a sequential basis to 4,874 carloads (but down 71.4% year-over-year), while weekly intermodal volumes rose 2.8% to 238,076 intermodal units (down 11.2% year-over-year).
Meanwhile, total weekly U.S. carloads rose 3.4% sequentially, although they’re 27.5% lower year-over-year.
“Of the 20 carload categories we track, 15 had modestly higher loadings last week than the week before, led by motor vehicles and grain. Meanwhile, intermodal originations were higher last week than in any of the previous 11 weeks. While we can’t yet say whether rail traffic and, by extension, the economy, have turned a corner, these are all encouraging signs,” said AAR Senior Vice President John T. Gray.
He continued, “As areas across the country begin to reopen over the next several weeks, perhaps we can start looking for light at the end of what has become a rather long tunnel. Whatever the outcome, railroads will do their part to get us out of the tunnel safely and reliably.”
On a year-to-date basis, U.S. rail traffic totaled 9.5 million carloads and intermodal units, down 12.8% from the same period in 2019, while North American rail volumes totaled 13.1 million carloads and intermodal units, which is 11.4% lower than the same period a year ago.
UP eyes opportunities in intermodal, grain
At a virtual investor conference on Wednesday hosted by investment firm Bernstein, Union Pacific (NYSE: UNP) CEO Lance Fritz echoed AAR’s observations about rising carloads for motor vehicles and grain products.
Phase one of the trade deal between the U.S. and China has helped China get back into the export market, resulting in higher grain volumes for wheat and soybeans in particular, Fritz said.
Fritz described how to look at economic growth and opportunities to increase rail volumes over the next year or two by focusing on three segments: trade, industrial production and consumer activity. The trade segment shows promise if the trade deal so far between the U.S. and China is allowed to mature even as a global recession remains a potential headwind. Meanwhile, U.S. and North American industrial production is “well positioned” to take advantage of global demand even as some customers consider onshoring or nearshoring opportunities in the long-term, Fritz said.
But consumer confidence and activity are harder to pinpoint because of the wide range in consumers’ responses to reopening businesses during and after the coronavirus pandemic, Fritz said. However, the housing market “hasn’t completely cratered” and automobile plants are starting to open up, which could bode well for rail volumes.
“It’s a pretty balanced mix in terms of what I see with headwinds and tailwinds,” Fritz said.
How Union Pacific (UP) benefits from onshoring or nearshoring will depend on where companies build their facilities, Fritz said. If the facilities fall on UP’s franchise, then UP can compete for inbound or outbound business. If facilities land in Mexico or Canada, “it gets a little more tenuous but it depends on the books” or customers’ supply chain needs, he said. But facilities near ports might prove more challenging because UP will have to compete with alternative rail carriers, other coastal ports and transloaders, Fritz said.
Nonetheless, in the near term, improved, truck-like service as a result of precision scheduled railroading is helping UP see new opportunities for intermodal, such as in e-commerce and through partnerships to put domestic intermodal ramps in new locations, Fritz said.
To counter an anticipated 25% drop in rail volumes for the second quarter, UP has taken measures such as furloughing employees in the engineering, mechanical, and train and engine divisions, asking managing staff to go unpaid for one week on a monthly basis and reducing executive pay by 25%, Fritz said. UP has also temporarily closed its Jenks facility in Arkansas, its DeSoto facility in Missouri and an engineering shop in Denver.
This article first appeared on s29755.pcdn.co
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