Carloads on the railroads remained under water in the first week of the fourth quarter 2019, which ended on October 5. Total traffic on U.S. railroads declined 7.1% to 515,061 carloads compared to the same week in 2018 according to the Association of American Railroads (AAR).
A weaker industrial economy, loose truckload (TL) capacity and lower bulk loadings have been the primary culprits.
Week 40’s declines in U.S. carloads continued across all modes except for this year’s top performers – chemicals (+4%) year-over-year in the week and petroleum and petroleum products (+0.5%). Double-digit declines were seen in metallic ores and metals (-14.8%), coal (-13.6%), grain (-13.2%) and motor vehicles and parts (-10.8%). Intermodal (-5.8%) remained in its depressed state.
The 5.8% decline in intermodal carloads was the same level these loadings declined for all of the third quarter 2019. Excess TL capacity is keeping spot market rates depressed, narrowing the traditional gap between the cost for truck and rail service. As third quarter 2019 earnings get under way (J.B. Hunt Transport Services, Inc. NASDAQ: JBHT reports after market close on October 15), anyone with intermodal exposure likely saw a bit of a revenue headwind in the quarter.
For J.B. Hunt the intermodal declines may not be as deep as what some of its competitors saw. In the third quarter, the company’s main eastern rail partner, Norfolk Southern Corporation (NYSE: NSC), reported a 3.2% year-over-year decline in container volumes while the company’s western partner BNSF Railway (Berkshire Hathaway, Inc. NYSE: BRK.A) reported a modest improvement (+0.6%). However, J.B. Hunt’s intermodal results will be impacted by ongoing arbitration costs over its intermodal agreement with BNSF.
Those intermodal providers with exposure to CSX Corp. (NASDAQ: CSX), where container volumes were down 8.7%, or Union Pacific Corp. (NYSE: UNP) that saw an 11% decline in container volumes, may have had a tougher go in the quarter. Schneider National, Inc. (NYSE: SNDR) partners with CSX in the East and BNSF in the West. Hub Group, Inc. (NASDAQ: HUBG) relies on UNP for western intermodal rail service.
In any event, the railroads clearly have a demand/revenue headwind in front of them as third quarter earnings season approaches. The group has cost and precision scheduled railroading (PSR) initiatives in place to mitigate some of the volume softness. The U.S. Class I railroads reported improvement in network fluidity in the quarter as velocity improved 5.9% and dwell times improved 14.6%.
In week 40, total North American traffic declined 6.3% year-over-year with Canadian traffic declining 4.8%. Year-to-date, North American traffic is down 2.9% with U.S. traffic 4% lower.