Posts Tagged ‘auto traffic by rail’

Computer Chip Shortage has Auto Traffic Lagging

October 10, 2021

If it seems that you are seeing fewer auto rack cars these days it is not your imagination.

U.S. automakers have curtailed production of cars and trucks due to a shortage of computer chips.

That has meant that some assembly plants have been idled. General Motors has temporarily shut down nearly all of its North American assembly plants and Ford temporarily halted output at its Kansas City assembly plant where it builds F-150 pickup trucks.

The microchip shortage is rooted in the effects of the COVID-19 pandemic.

Historically, automakers have ordered microchips on a “just in time” basis.

When the pandemic intensified in March 2020 automakers closed assembly plants for health and safety reasons and stopped buying microchips.

Once production resumed, automakers didn’t have a large supply of chips on hand. At the same time, chip makers had been inundated by the demand for semiconductors used in computers and games consoles.

Chip makers, who are located overseas, have struggled since then to match production with demand.

Looking to the weekly and month freight volume reports released by the Association of American Railroads shows at first glance a seemingly growing auto traffic picture.

Thus far in 2021, railroads have moved 490,870 carloads of motor vehicles and parts, a 5.6 percent increase compared with 2020 volumes during that same time period.

In the second quarter of this year, railroads played up double and even triple digit gains in auto traffic compared with the second quarter of 2020.

But this comparison is misleading because 2020 figures reflect the widespread shutdowns in the auto industry during the depths of the pandemic between March and May.

A closer review of traffic data shows that 2021 figures lag behind those for 2019 in the same time periods.

Of late the weekly AAR statistics are showing auto traffic on the railroads trailing the same weeks in 2020.

For example, in the week ending Sept. 25, railroads handled nearly a third fewer carloads of auto traffic than in the same week in 2020.

U.S. railroads hauled 447,000 GM vehicles in the third quarter but that was down more than 218,000 vehicles compared with the same period last year.

Automakers say their sales have been less in recent weeks than what they had in the same period in 2020.

Nissan said its third quarter sales were down 10 percent to 198,955 from 221,150 vehicles in 2020. Honda reported a near 11 percent decline in car and truck sales.

Class 1 railroads will release third quarter financial reports later this month and those should provide a more accurate gauge of the health of auto traffic by rail.

Semiconductor Shortage to Hinder Rail Auto Traffic

January 12, 2021

Railroads are expected to soon be feeling the effects of a global shortage of semiconductors.

Several auto assembly plants in North America have slowed production due to the semiconductor shortage, which is being linked to the COVID-19 pandemic.

 “It will definitely have an impact,” said industry analyst Todd Tranausky, vice president of rail and intermodal at FTR Transportation Intelligence, a freight forecasting firm, in an interview with Trains magazine.

“There was already starting to be a little bit of a decline before the holidays and this will only make it more pronounced into January. The question will be how long does the disruption last.”

The demand for semiconductors has risen due to rising consumer purchases of electronic devices.

Tranausky said the shortage appears to be a several-week phenomenon. The upshot of it for railroads is that automotive traffic in the first quarter of 2021 is expected to be below projections.

As it is a six-week shutdown of automotive plants last spring during the early stages of the pandemic led to railroads losing up to 90 percent of their automotive business.

Although overall automotive sales for 2020 were down, some automakers reported sales gains in the fourth quarter.

Auto sales this year are projected to be around 16 million vehicles, a 10 percent increase over 2020, said research firm IHS Markit.

Another factor that is expected to hinder rail automotive traffic is a trend among auto dealers to hold less inventory of new vehicles, Tranausky said. 

Auto Plant Reopenings to Boost Rail Traffic

May 13, 2020

Railroad executives speaking this week at an investor’s conference expressed optimism that lagging traffic volume will get a boost from the reopening of North American auto assembly plants this month.

However, they also described it as only likely to be a slight increase and that the longer term outlook for automotive traffic is grim because the economic downturn is expected to result in lower demand for vehicle sales.

That combined with social distancing measures that auto makers will impose among plant workers will result in muted auto production once it resumes.

“It’s going to be a slow ramp,” Kevin Boone, CSX Transportation’s chief financial officer said at the Bank of America 2020 Transportation and Industrials Conference.

“But certainly going from zero to something is helpful and there’s a lot of other markets that that impacts, from our metals business across to our plastics business.”

Union Pacific Chief Financial Officer Jennifer Hamann said the railroads will be watching to see how much consumer demand for vehicles there will be.

Massive job layoffs occurring during the COVID-19 pandemic and a rocky economy have battered consumer confidence.

IHS Markit has predicted that demand for auto sales will fall 27 percent this year to 12.5 million vehicles.

The automakers shut down their plants in March in an effort to restrain the spread of the coronavirus.

That led to a 90 percent plunge in North American rail shipments of vehicles and auto parts the Association of American Railroads reported.

The auto industry has signaled that it will be reopening its plants on a gradual basis starting May 18.

Canadian National CEO J.J. Ruest said at the conference that he expects May to be CN’s worst month of the quarter although he sees June traffic as being higher than that handled in April due to the resumption of auto production.

Kansas City Southern Chief Financial Officer Mike Upchurch said the shipment of auto parks from upper Midwest factories is expected to begin rising as auto plants in Mexico resume production.

CN Cutting Workforce, Trains During Pandemic

April 3, 2020

Canadian National CEO J.J. Ruest provided a glimpse of how Class 1 railroads are scaling back operations in the wake of a falloff of freight traffic during the COVID-19 pandemic.

CN has furloughed more than a thousand workers and has reduced the number of trains that it operates.

It has closed its yard in Battle Creek, Michigan, because finished vehicle volume has dropped by 50 percent after major automakers closed their plants to prevent the spread of coronavirus.

Speaking during a webcast hosted by Citibank analyst Christian Wetherbee, Ruest said CN carload traffic fell 13 percent with automotive traffic, crude oil shipments, and frac sand in particular showing declines.

CN continues to enjoy strong volumes of Canadian grain, Canadian export coal, propane, and domestic intermodal traffic.

Ruest said overall volume will continue to diminish in the coming weeks as factories close or reduce production and consumers cut their spending.

At the same time, Ruest said CN wants to be ready when traffic returns although he said there is much uncertainty over when that will occur.

CN plans to open a sixth dispatching office, which it calls a rail traffic control center, in order to minimize the risk of COVID-19 affecting operations.

The Montreal-based carrier has had some difficulty purchasing disinfecting products, Ruest said and has turned to making its own disinfectants in shops as well as having employees of its freight forwarding business in China buy disinfectants and send them to North America via air freight.

Chief Financial Officer Ghislain Houle said during the webcast that CN is likely to reduce capital spending this year but will continue with capacity expansion projects scheduled for its main lines to Vancouver and Prince Rupert, British Columbia, where intermodal and coal traffic are expected to rise.

Ford Action Not Expected to Affect Railroads

April 28, 2018

A decision by Ford Motor Company to end production of most sedans in North America is not expected to have a major affect on Class 1 railroads Trains magazine reported.

Ford plans to stop making  the Fusion, Fiesta, Taurus, and C-Max at assembly plants in the United States and Mexico, but will make other vehicles at those factories.

The automaker based in Dearborn, Michigan, said the models being ended sold  315,400 vehicles last year of the 2.03 million vehicles it sold in North America.

Ford plans to focus more on its more profitable sport-utility vehicles and pickup trucks, most notably those in the F series.

Trains said the Taurus is built at the Chicago Assembly Plant served by Norfolk Southern. Ford will begin building the 2020 Lincoln Aviator SUV at the plant.

The C-Max is built at the Michigan Assembly Plant in Wayne, jointly served by NS and CSX Transportation. Ford also produces the Focus at the Michigan plant.

The Fusion, which is the best-selling model being discontinued, is built at an assembly and stamping plant in Hermosillo, Mexico, which is served by Kansas City Southern.

KCS also serves the Cuautitlan Stamping and Assembly Plant in Mexico, which churns out the Fiesta.

After phasing out these models, Ford will build just two cars, the Mustang and the Focus, which will debut as a new crossover dubbed the Focus Active.

Ford Idles Assembly Plants in Michigan, Kentucky

October 27, 2016

Five assembly plants operated by Ford Motor Company will be idled this month, affecting traffic of Norfolk Southern, CSX and Kansas City Southern.

train image2One of the plants is located in Louisville, Kentucky, and is served by CSX. The other plants are located in Michigan; Claycomo, Missouri, (near Kansas City); and in Mexico.

Ford said that due to falling sales it was pausing production at plants that build the F-150 pickup, Escape and Lincoln MKC sport utility vehicles, and the Fusion and Fiesta cars.
The Louisville plant builds the Escape and was shut down this week.

Last week Ford temporary closed its Mustang assembly line at its Flat Rock, Michigan, plant. CN serves that facility while NS handles Ford traffic from its nearby Melvindale auto loading ramp.

U.S. Railroads Expect to Benefit From Increase in Auto Maker Manufacturing Capacity in Mexico

March 10, 2016

With U.S. auto makers seen as likely to increase vehicle production in Mexico and that is likely to be good news for U.S. railroads.

Although many of those vehicles will be built for export markets that do not include the United States and Canada, analysts expect U.S. railroads to see increased traffic in parts used to make vehicles as well as the finished vehicles.

Larry Gross, who is president of his own consulting business, told Trains magazine that a substantial number of the vehicles being built in Mexico are expected to move north by rail.

train image2Railroads also could benefit from hauling parts destined for the Mexican assembly plants.

Although this might seem to be a boost for railroad intermodal business, Gross said the complication is that moving the parts would involve two railroads working together which often do not work well together.

Nonetheless, some agreements have been worked out, including one involving BNSF and Ferromex (Ferrocarril Mexicano, FXE) to move auto parts in containers between Chicago via El Paso, Texas, to an assembly plants near Mexico City at which Volkswagen builds engines and General Motors assembles engines, transmissions and Chevrolet and GMC pickup trucks.

The latest figures, which are from 2014, show that $73.5 billion in exports and imports moved by rail from Mexico to the United States.

Most of this traffic – more than half of which was vehicles and parts – was interchanged at gateways in Nogales, Arizona; Lardeo, Texas; and El Paso.

The statistics show that trucks handled about six times the business handled by railroads.

Trucks are not the only competitor for the railroads. “There is potential competition from ocean movement of vehicles, particularly into the East Coast,” Gross said. “How smoothly rail can flow across the border will be a key factor.”

Mexico is the third largest U.S. trading partner behind China and Canada. Auto production in Mexico began to accelerate after the 1992 adoption of the North American Free Trade Agreement.

Auto analyst Jim Gillette said that auto production in Mexico is expected to soon reach three million vehicles per year.

Auto makers are eyeing markets in South American and Europe for the vehicles they build in Mexico.

The Wall Street Journal recently reported that Ford Motor Company plans to open a new assembly plant in the Mexican state of San Luís Potosí in 2018 that combined with an existing factory near Mexico City would have a production capacity for 500,000 more vehicles annually.

The WSJ report said that three-quarters of Ford’s production would still be in the United States. More than a year ago General Motors said it would double its manufacturing capacity in Mexico.

A wide range of brands, including Fiat, Lincoln and BMW, are built in central Mexico.

Lower labor costs are often cited for moving production south of the border, but U.S. companies have also said that the quality of the work of the Mexican assembly plants has met and sometimes exceeded domestic U.S. quality standards.

A Detroit Free Press report said that despite the increase in production in Mexico about two-thirds of new vehicles built in North America will be assembled in the United States.

The report said that the rise in production in Mexico is expected to come at the expense of auto manufacturing in Canada.