Moody’s Investors Service has lowered its outlook for the North American freight rail industry to negative from stable amid expectations that overall freight volumes could fall by 1.75% to 3% over the next 12 to 18 months.
The credit ratings firm also expects rail industry revenue to be relatively flat during the same period.
“Heightened competition from truck carriers for intermodal and certain other freight continues to weigh on the North American railroad sector,” said Rene Lipsch, vice president-senior credit officer at Moody’s. “The excess in trucking capacity has been a primary driver of softening pricing gains in the industry.”
Moody’s downgraded the freight rail industry on expectations that coal and intermodal shipments will decline next year, according to its Oct. 31 outlook. Intermodal shipments could be flat or they could fall by up to 2.5% in 2020 amid continued loose truck capacity, high inventories and lane rationalizations that some of the Class I railroads have adopted as a result of precision scheduled railroading.
Meanwhile, declines in coal shipments could “accelerate” next year, with the rate of decline reaching the low teens. In the last three months, coal shipments have fallen 9%, Moody’s said. Coal volumes are expected to drop because of falling thermal coal demand from U.S. utilities, with declines averaging at about 7% per year over the next 10 years.
But other commodities also could post declines in 2020, Moody’s said. Ongoing uncertainty in grain export markets, headwinds in the steel sector and falling frac sand shipments could put pressure on rail volumes in 2020, although there could some volume growth for petroleum products and chemicals, Moody’s said.
Moody’s adjustments to its freight rail outlook for next year come as rail volumes have trended lower in the last three months compared with a similar period in 2018. Economic indicators such as the ISM Purchasing Managers Index have also revealed contracted economic activity in the manufacturing sector during this timeframe, according to Moody’s.
