The U.S. rail shippers don’t appear to heeding the warnings of a national economic slowdown.
Intermodal volume in May on the major U.S. railroads hit the highest level in history for that month, according to the Association of American Railroads. Intermodal traffic last month was 3.5 percent higher than the same month a year ago. Although carload volume was down 2.8 percent year-over-year in the same period, the big losses were because of slumps in the major commodities of coal and grain.
Sluggish grain shipments are more cyclical than a reflection of the health of the economy. And poor coal volume isn’t because utilities aren’t powering factories but because of a warmer-than-usual winter and increased federal regulatory pressure to burn natural gas rather than coal.
Besides, most of the business categories tied to manufacturing saw healthy growth on major railroads in May. Petroleum and related products jumped 49.2 percent, reflecting the continued growth of the domestic energy industry. Primary metal products traffic rose 4.3 percent, and shipments of motor vehicles were up 27.7 percent from a year ago. The only worrying decline was an 11.8 percent drop in chemical shipments.
A similar scenario is seen in U.S. short line volume. Volume was nearly flat in the week ending June 2, but overall traffic for the year is up 1.1 percent, according to the RailConnect Index. Like the major U.S. railroads, the short lines have been hit by drops in coal and grain shipments. Other than those declines, most commodities have expanded this year. Intermodal, motor vehicles and equipment, and lumber and forest products volumes so far in 2012 are all up on a double-digit basis.
A recent collection of indices, however, point to a slowdown in manufacturing for the second half of year. Factory production growth in May decelerated but still increased, making the month the 34th straight for manufacturing expansion, according to the Institute of Supply Chain Management. Looking ahead, factory orders for April fell again and this time to the lowest level in six months, according to the Commerce Department.
But manufacturers appear still to be expecting some growth, as factory employment rose in May at a faster face than in April, according to the Bureau of Labor Statistics. Manufacturers added 12,000 jobs in May, compared with 9,000 in April and an average of 41,000 jobs a month in the first quarter of 2012. The addition of 36,000 transportation and warehousing jobs last month also could suggest the sector is expecting demand to stay consistent or even expand in the coming months.
The Class I railroads have balanced capacity and demand well over the last year, and even a surge or decline in volume can be accounted for by adding or pulling railcars. The railroads appear to hedging a bit for the latter, as the number of railcars in storage rose 1.6 percent in April to equal about one-fifth of the North American fleet. Still, manufacturers’ steady demand for materials, which are ordered often months before the end products are shipped out, suggests the overall economic slowdown will be more a penny or quarter dollar than a boulder on the tracks.