Weekly U.S. rail traffic continued to tumble as sheltering-in-place mandates and structural declines for U.S. coal consumption dragged volumes lower.
U.S. rail volumes slipped 22.4% to 414,123 carloads and intermodal units for the week ending April 25, according to the Association of American Railroads (AAR). Of that, U.S. carloads tumbled 28.2% to 192,210 carloads, while U.S. intermodal units slipped 16.5% to 22,013 intermodal containers and trailers. The percentage changes compare last week’s figures to the same weekly period in 2019.
On a year-to-date basis, U.S. rail traffic fell 10.7% to 7.83 million carloads and intermodal units.
“With most of the country still firmly locked down, rail volumes are predictably down,” said AAR Senior Vice President John T. Gray.
He continued, “For most other commodities seeing big carload declines — including motor vehicles, steel, ethanol, petroleum products and more — the coronavirus clearly bears substantial blame during the last few weeks. It’s reasonable to expect rail carload losses derived directly from the virus to begin their return after the crisis passes and as the economy gradually recovers.”
Of the weekly decline in U.S. carloads, coal tumbled 40.6% last week to 48,128 carloads, and they’re down 21.4% year-to-date to 1 million carloads. Coal represents roughly 27% of overall carload volumes.
“Coal’s decline is due to long-term structural shifts in electricity markets made worse by the coronavirus,” Gray said.
Rail volumes for U.S. thermal coal are exposed to natural gas prices because cheaper natural gas prices encourage utilities to use natural gas over coal to generate electricity. Power plants also decreased their coal consumption to comply with environmental regulations.
This trend of using natural gas over coal as a feedstock for power plants has caused the systemic decline of U.S. coal consumption. Meanwhile, other countries, such those in Europe, have also started to opt for natural gas to generate electricity, which in turn has put a strain on U.S. coal exports.
Furthermore, the decline in crude oil prices has exacerbated the drop in natural gas prices, with the benchmark Henry Hub falling to just under $2 per mmBtu. That price decline, coupled with a mild winter and the spring shoulder season, has dented U.S. volumes for coal even further.
“With total coal accounting for ~31% of originated tonnage and ~16% of total rail revenue (based on 2018 numbers) for the U.S. rails, and exports a bigger (and more volatile) piece as domestic utility has fallen substantially over the last ten years, changes in global coal pricing dynamics play a significant role in the rail’s performance,” said transportation analyst Bascome Majors in a Wednesday research note from investment firm Susquehanna Financial Group. He added that investors will be looking to see how U.S. export coal pricing fares in 2020 amid export declines related to the global COVID-19 pandemic.
