Higher intermodal and grain volumes boosted U.S. rail traffic last week, with weekly volumes rising nearly 6% compared with the same period last year.
U.S. rail volumes totaled 528,547 carloads and intermodal units, up 5.8% for the week ending Saturday, according to data from the Association of American Railroads.
Carloads slipped 2% to 232,550 carloads amid an 18% drop in coal volumes. Coal traffic represents roughly 25% of overall carload volumes. But grain carloads climbed 42.6% year-over-year to 27,613 carloads. Grain has represented just under 12% of U.S. carload volume in 2021.
Meanwhile, U.S. intermodal traffic grew 12.8% to 295,997 containers and trailers.
On a sequential basis, U.S. rail traffic was 0.6% higher from the prior week, with carloads down 1.2% and intermodal volumes up 6.8%.
Higher grain and intermodal volumes’ impact on 2021
The Class I railroads and rail equipment lessors and manufacturers are kicking off earnings season Thursday. Union Pacific (NYSE: UNP) and CSX (NASDAQ: CSX) will announce their fourth-quarter results on Thursday, while Kansas City Southern (NYSE: KSU) will release fourth-quarter results on Friday.
Rail stakeholders and investors expect the railroads to benefit from higher intermodal and grain volumes, which is anticipated to provide some upside to the railroads’ financial figures in 2021.
“We see railroads’ fundamental recovery continuing into 2021, with 2H20’s consumer-led snap-back from lockdown (intermodal, autos) giving way to broader-based gains in rail traffic, spurred by numerous industrial and commodity end markets levered to the ‘reflation trade’ (e.g., steel, chemicals, energy),” said transportation analyst Bascome Majors in a Wednesday research note for Susquehanna Financial Group.
Majors continued, “Yes, the 2Q Y/Y comparisons are easy, but there’s more going on here than ‘easy comps’… . [T]his broader-based volume growth will skew heavily toward the rails’ carload merchandise networks, which typically carry rising volume at low incremental cost and high incremental margins by adding more cars to existing train starts.”
One question is how long volume growth can be sustained for intermodal and grain carloads. But given that an unusually high number of vessels were waiting to dock at the ports of Los Angeles and Long Beach last week, market strength for intermodal is likely to continue well into the first quarter of this year.
“Restocking efforts fueled U.S. intermodal traffic in the second half of the year, while export demand is driving grain volumes,” Majors said. “On the intermodal side, 4Q volumes were up 10.9% Y/Y vs. 3Q’s +2.6% as increased restocking demand drove up both volumes at the ports as well as inland moves to warehouses, distribution centers, and retail locations. Given the surge of volumes still flowing into West Coast ports and easy, COVID-driven comps, we expect Y/Y strength in intermodal volumes to continue at least through the first half of 2021.”
As rail volumes rose in the second half of 2020, rail service slipped, with Class I train velocity down 8.9% in the fourth quarter compared with the same period in 2019 and terminal dwell rising by 3.5% over that same period, according to Majors.
“While this slip in service is somewhat expected given the rapid return of volumes to the rails, we are not discouraged by these trends as profitability does not appear to be negatively impacted by the service levels as evidenced by UNP’s preannounce (adjusted 4Q OR expected to be 55.6% vs. 3Q’s 58.7%),” Majors said.
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