Rail Bounces at Bottom

Despite faint signs that parts of the freight industry are bottoming out or even picking up after a long slide, don’t look for bunches of “green shoots” to push through the tracks.

“Times are a little tough right now,” said Michael Ward, chairman, president and CEO of CSX Transportation, one of two giant rail systems in the eastern U.S.

“I’d say we’ve seen the whole second quarter has really been very similar to the first quarter, with the exception that the coal business is down more than it was in the first quarter,” he said in an interview. “The other markets are very similar, so we’re not seeing a deterioration, but we’re not really seeing a recovery at this point.”

Ward said the freight market “appears to be bottoming. How long that bottom will be, how quickly it comes out, I think, is anybody’s guess at this point.”

Overall bulk railcar loadings for major U.S. railroads worsened in the spring. But they have improved in recent weeks, which some economists point to as a sign of optimism because the bulk commodities are a foundation of industrial production.

Carloads of commodities from coal to construction materials and heavy machinery were down 16.7 percent in the first 12 weeks of the year, the Association of American Railroads reported. By June 20, the year-over-year decline stood at 19.4 percent, worse than the first-quarter average but better than many weeks in the spring when traffic was off by 24 percent or more.

The largest declines began to ease in early June.

Some key cargoes have stabilized or strengthened mildly, including chemicals and scrap materials such as metals headed for recycling. Both are early indicators of factory activity because chemicals are needed in every stage of manufacturing and scrap is the cheapest form of raw material.

While chemical demand is hardly surging, new reports on product levels “indicate recovery of activity, and that de-stocking has largely run its course,” said Kevin Swift, chief economist for the American Chemistry Council. “The rail carloadings data confirm this improvement in activity.”

More uncertain is the outlook for retail demand, which translates quickly into intermodal trailers and containers packed with consumer goods, and ultimately drives bulk railcar figures as well.

Rail intermodal traffic is down about 17 percent this year, mainly because of a sharp drop in import loads that usually power the sector.

“Domestic intermodal has actually been more stable,” Ward said.
But recovery, he said, “really depends on consumer confidence. You know, 70 percent of our economy is driven by consumers. Right now they are not spending. So, hopefully, as some of this stimulus money gets out, some positive news in the stock market, people will feel more comfortable buying. But we need people buying things.”

Lacking that, the peak shipping season — the normal summertime buildup in containerized imports as retailers stock their shelves and warehouses for huge year-end holiday sales — will be weak.

This year, Ward said, “I think it’s going to probably be not much of a peak season because, again, it’s all driven by consumer demand. The retailers are not going to stock up if they don’t see that demand coming, and at this point I don’t think they really envision a strong, robust Christmas season.”

Even producers of basic consumer goods are feeling the pinch.
Kimberly-Clark, the Dallas-based manufacturer of household products, said it will cut 1,600 salaried jobs by year-end.
The cuts will come in non-production jobs, but the company also is looking for cost cuts in its “supply chain activities.”

Consumers may get help from the government’s economic stimulus, but it is less clear how much of it they will spend.
The Commerce Department said personal income jumped 1.4 percent in May, the best increase in a year, fueled by the lower personal tax rates that kicked in from the American Recovery and Reinvestment Act as well as extended jobless benefit payments.

Spending edged up 0.3 percent, the first rise since February. But consumers tucked so much away that the savings rate reached the highest level since December 1993.

Contact John Boyd at jboyd@joc.com.