Cooling Trend Slows Rail Freight

Cooling Trend Slows Rail Freight

Railroads are hoping winter storms are the main reason freight traffic has slowed since November, but there are growing concerns that a new chill may have taken hold of the broader recovery.

Those concerns show up across a range of reports, from a recent Federal Reserve survey indicating tepid freight shipping activity as 2010 began, to a mild decline in December manufacturing output and a sharp fall in that month’s home sales.

The signs in rail traffic figures in January don’t provide much solace. Bulk carloadings by major U.S. railroads — which include commodities, construction materials, automobiles, metal products and equipment — have remained below their Nov. 21 peak of 287,987 every week since then despite recent pickups in a few key industrial cargoes, including chemicals.

Their intermodal loadings on Nov. 21 reached 213,382 containers and trailers. But the five U.S.-owned Class I carriers and a few regionals that report traffic to the Association of American Railroads have not seen box shipments come near that level in the last seven weeks. Carloads for the major U.S. railroads were down 6.7 percent in the first two weeks of the year, including a 21 percent drop in coal loadings.

“The volume picture is still uncertain,” James R. Young, Union Pacific’s chairman, president and CEO, told analysts on Jan. 21. But he noted most economists are calling for “some growth” this year.

Although freight shipments have slowed from last autumn’s mild but steady gains, U.S. rail lines also have battled a series of powerful winter storms for most of the past two months.

After socking the Midwest early in December, storms hit the Eastern Seaboard with record snowfalls that depressed business the week before Christmas. Later storms hit the Midwest, the Southeast, the Rocky Mountain region and most recently the Southwest, each time with enough force to disrupt rail operations for days at a time.

Meanwhile, freight handled by railroads in Mexico and Canada, including substantial U.S. rail operations owned by Canadian carriers, showed a much stronger trend in recent weeks. That suggests the unusual weather problems this winter have been a bigger problem for U.S. carriers than for railroads to the north or south.

For instance, while carloadings for the week ending Jan. 16 stayed below the depressed level of early 2009 at major U.S. rail lines, their counterparts in the rest of North America reported year-over-year gains of more than 20 percent.

U.S. carriers eked out a mild 1.3 percent gain for intermodal traffic from the same week last year. But intermodal for Canadian carriers grew 5.7 percent from a year earlier, while box loadings for Mexican lines reporting to the AAR rocketed 41.7 percent higher. There was good news for the U.S. carriers, with categories such as grain, chemicals, metals and motor vehicles up by double digits.

For now, U.S. rail executives remain cautious about traffic growth, and are still holding down their active capacity in equipment and personnel.

Michael Ward, chairman, president and CEO of CSX Transportation, said his company still has more than 560 locomotives parked because of lack of freight demand.

The seven Class I railroads told the Surface Transportation Board their U.S. operations trimmed another 372 jobs between mid-November and mid-December, bringing employment by those largest railroads to the lowest level yet as they wait for demand to recover.

The Class I carriers said they cut 14,464 jobs in 2009, bringing their total employment to 146,725.

That cost-cutting is helping the railroads’ bottom line, even if traffic trends are uncertain. The first three Class I railroads to report fourth-quarter earnings all had sizable declines in freight revenue and net income, but cut expenses enough to maintain double-digit profits relative to receipts.

CSX turned in a quarterly profit margin of 13.2 percent on its earnings of $305 million and revenue of $2.32 billion, even though its net shrank 16 percent from a year earlier.

UP’s net fell 17 percent, but its $551 million profit was still 14.7 percent of its revenue of $3.8 billion.

BNSF Railway generated a 14.6 percent profit margin on earnings of $536 million and $3.7 billion in receipts, even though net income fell 12.8 percent from the 2008 final quarter. Chairman, President and CEO Matthew K. Rose said the BNSF results were aided by traffic gains in the second half of 2009, and he looks for “this gradual improvement to continue” this year.

But echoing a common refrain among rail executives, Rose said, “BNSF will continue to position itself to meet demand consistent with the pace of the economic recovery.”

Contact John D. Boyd at jboyd@joc.com.