Railroads Eye Traffic Gains As Auto Plants Restart

With North American automotive production plants restarting operations in the past week, Class 1 railroads are hoping for a boost in freight traffic.

Aside from carrying finished automobiles and trucks, railroads hope to cash in on carrying automotive parts and supplies.

However, railroad executives say the wild card is whether consumer demand will be enough to prompt growth in automotive traffic volume.

Falling automotive traffic has been a significant contributor to falling freight volume in the past two months.

The Association of American Railroads said North American traffic for motor vehicles and parts fell 36.4 percent year-to-date to 335,839 carloads in data reported at the end of the week ending May 16.

Automotive production also is expected to ramp up slowly. Automotive production in the U.S. and Canada restarted on May 18 while Mexico plants are scheduled to resume work on June 1.

“Our auto plants reopened this week with very limited production,” said Norfolk Southern Chief Marketing Officer Alan Shaw. “The sustainability of that production is going to be highly dependent on consumer demand and consumer confidence to go out there and buy automobiles.”

Shaw said the deliberate pace that auto makers plan to follow would also likely result in “puts and takes” for auto suppliers since some supplies, such as steel, are already at the plants.

He said auto industry suppliers might not see demand recovery until auto production has been up and running for some time.

Mark Wallace, CSX executive vice president of sales and marketing, said the restarting of automotive production might help the railroad gain clarity on merchandise volumes for the remainder of the second quarter and into the third quarter.

CSX Chief Financial Officer Kevin Boone said the carrier was starting to see some “very small car orders” coming through the auto manufacturing plants.

But Boone said it would be a couple of weeks before any sizable volumes appeared.

“This will be a slow ramp-up, and they’re focused on protecting their workforce as well,” Boone said adding that “certainly going zero to something is helpful.”

Canadian Pacific CEO Keith Creel sees volume growth from automotive traffic rising in the third quarter but expects it to be flat in the fourth quarter.

However, he said the return of automotive production will give CP some lift in the second quarter with traffic declines linked to the economic downturn triggered in part by the COVID-19 pandemic bottoming out in May.

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