Rail Freight 2020 Outlook Not Promising

Railroad industry observers said during a webinar on Thursday that they expect rail traffic to remain depressed for at least the first half of this year.

They based that on the facts that manufacturing has slowed, retail inventories remain high, and railroads are facing tough competition from truckers who have plenty of capacity to move freight.

The webinar was sponsored by FTR Transportation Intelligence.

Eric Starks, FTR’s chairman and CEO, said during the conference that the U.S. economy should grown by 2 percent this year but from a railroad perspective that is offset by manufacturing having contracted for the last five months.

This past December manufacturing was at its lowest level since the Great Recession of 2008.

That doesn’t mean the economy is headed for a recession, he said.

Starks noted that manufacturing drives railroad carload traffic.

Bright spots for the economic outlook include strong consumer spending and unemployment figures that are at a 50-year low.

Housing starts and construction look strong, but retail inventories remain higher than sales, which suggests consumer-related freight is not growing.

Truckers are also being pinched by that fact. Avery Vise of FTR said truck freight volume is expected to increase by just 1 percent in 2020.

That might seem mediocre but is better than the prospects for rail freight said FTR’s Todd Tranausk. He sees no evidence that carload traffic will recover this year after falling in 2019.

He cited trade tensions, a sharp falloff in coal traffic and the slowing of industrial production.

Although consumer spending rose last year, intermodal traffic volumes failed to reflect that and Tranausky expects 2020 to continue to see rail intermodal traffic remain below the five-year average.

Railroads have made improvements in their service, Tranausky said, but that will only gain them increased traffic when and if capacity becomes tight in the trucking industry.

For now that seems unlikely because trucking companies have ample capacity.

Other challenges for intermodal include trade disputes, the shift of international traffic from West Coast ports to the East Coast, and operational changes related to the adoption of the precision scheduled railroading operating model.

Railroads have scaled back their intermodal interchanges in Chicago and shut down many intermodal service lanes.

“All of those factors have created a sort of perfect storm that have been a headwind to intermodal growth, not just on a year-over-year basis but on a five year average comparison as well,” Tranausky said.

As for the growth of East Coast ports in handling international containers, Tranausky said those are more likely to move from port to destination by truck than containers arriving at West Coast ports.

That is because inland destinations from East Coast and even Gulf Coast ports are a day’s drive away.

What could change these trends is something unforeseen such as a sharp increase in oil prices.

If that were to happen that could be to the advantage of railroads because when diesel fuel prices skyrocket shippers tend to begin moving more freight by rail.

Higher oil prices could also stimulate more exploration for oil, which would benefit railroads by increasing the market to move such commodities as frac sand, crude oil and steel pipe.

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