May carload and intermodal volumes see another decline, reports AAR

United States rail carload and intermodal volumes were down again for the month of May, according to data released this week by the Association of American Railroads (AAR).

May carloads saw a 10.3 percent annual decline, or 110,678, at 962,571. And ten of the 20 carload commodity categories tracked by the AAR saw annual gains, with miscellaneous carloads up 30.8 percent or 5,854 carloads, crushed stone, sand, gravel, and sand up 5.3 percent or 4,670 carloads, and chemicals up 3.8 percent or 4,514 carloads. Coal continued its steep declines, falling 29.6 percent, or 109.276 carloads, and petroleum and petroleum products were off 20.3 percent, or 11,988 carloads.

The AAR said that when subtracting coal from the monthly carload total, carloads were only off 0.2 percent, or 1,402 carloads, annually.

Intermodal containers and trailers dropped 3.3 percent, or 36,365 units, to 1,049,631.

“Most economists think the economy has picked up in the second quarter from the dismal 0.8 percent growth in the first quarter, but so far railroads aren’t seeing much of it,” said AARSenior Vice President of Policy and Economics John T. Gray in a statement.  “A variety of environmental and market forces continue to punish coal, and high business inventory levels and excess truck capacity, among other things, are pressuring rail intermodal volumes.  Railroads are focusing on what they can control - providing safe, reliable service - while looking forward to the forces they can’t control turning their way.”

For the week ending May 28, carloads decreased 4.1 percent at 246,881, and intermodal containers and trailers rose 8 percent to 267,036 trailers and containers.

On a year-to-date basis through the first 21 weeks of 2016, U.S. carloads were off 13.6 percent, or 792,892, at 5,050,191, and intermodal containers and trailers were off 1.3 percent, or 70,136 trailers and containers, at 5,417,763.

Tony Hatch, principal of New York-based ABH Consulting, noted that a lot of the carload declines are due to what he called terrible energy and mediocre industrial numbers.

“Over the last several years, we thought that as energy prices came down, there would be gains in consumer numbers, but intermodal is only doing OK at the moment and that shows in the growth rates,” he said.

Hatch stressed that these lower volumes are not the byproduct of railroads doing something wrong. Instead, he cited how some Class I railroads have very good earnings results amid the market challenges in the first quarter, which is reflective of the carriers ability to manage variable costs and more productive service levels, too.

On the service side, service-related issues on the rails are not as prevalent like they were a little more than a year ago.

FTR Senior Analyst Larry Gross explained that current service levels are at relatively high standards compared to recent performance.

“Within the universe of the rail carload sector, things are running pretty smoothly, and on the pricing side, it is a question of how aggressive railroads are with low volumes while trying to maintain still strong operating ratios,” explained Gross.  “There are still opportunities for the railroads to cut costs, and one thing they are definitely doing is running longer trains, coupled with new technologies related to distributed power. But this does not improve service as longer trains means less frequent trains. It is not entirely helpful, but trains are managing that reasonably well. There is a limit to how much costs railroads can pull out as they want to continue to raise rates but there is a lot of resistance to that.”