Multiple Factors Are Behind Rail Freight Slump

Sagging rail freight traffic volumes this year have widely been attributed to a slowing economy and the effects of an ongoing trade war, but an independent railroad analyst recently wrote in Progressive Railroading that other factors are behind the slow down as well.

Anthony Hatch said those other factors include unusually wet weather this year in the Midwest, competition from trucks, the effects of the switch to the precision scheduled railroading operating model, and economic factors that boosted traffic in 2018 that are no longer benefiting the railroads this year.

The latter includes the benefit of a tax cut that went into effect in 2018 that boosted freight traffic by mid single digits in the second and third quarters of 2018.

But the effects of that tax cut are fading and no longer giving freight traffic the boost it enjoyed last year.

As for the economy, Hatch wrote that it is sending mixed signals. Although there has been weakness in manufacturing, employment has remained strong.

The effects of the trade war have been widely documented, most notably how China has stopped buying U.S. farm products.

Hatch wrote that the trade picture overall continues to be worrisome for railroads because more than half of the rail business is trade dependent or related.

As for weather, Hatch noted that flooding disrupted rail freight traffic in the second quarter of this year and that the outlook for corn production this year is down due to the effects of the flowing.

PSR received a lot of headlines for its promise of more efficient and less costly operations, but Hatch said it has affected freight traffic in two stages.

He said the first stage is difficult to quantify but some shippers may have avoided rail in the early days of PSR implementation.

However, Hatch said that historically business returns to the rails as performance improves.

Hatch wrote that little has been written about how PSR has led to what he termed “planned  volume loss.”

For example, CSX programmed a 7 percent intermodal volume reduction this year.

In implementing PSR, railroads are eliminating some service lanes, using assessorial charges to “change customer behavior” and reducing their marketing and operating staffs.

Railroads contend, Hatch said, that once they’ve worked out the kings from their PSR operations they will pivot to growing traffic.

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