Lighter Loads Weigh on Railroads
July 15 2019 - 8:31PM
Dow Jones News
By Paul Ziobro
Freight trains are carrying a shrinking amount of cargo as
railroads feel the effects of trade tensions, a cooling global
economy and changes to their own systems that are driving customers
elsewhere.
The number of U.S. railroad carloads shipped fell 2.9% in the
first half of the year, according to the Association of American
Railroads. The slowdown was widespread among industries, with 16 of
20 categories of shipments including food, lumber, auto parts and
metals, posting declines.
Railroad shipping data provides insight into a broad
cross-section of the domestic economy, given that the industry
moves raw materials, finished goods and e-commerce packages.
Executives at CSX Corp., Union Pacific Corp. and other railroads
started the year confident that a strong economy would lead to more
goods for them to move across their network. But since then, North
America's freight railroads have dealt with severe weather and
flooding, escalating trade disputes and cooling pockets of the U.S.
economy.
The railroads, which begin to report second-quarter earnings
this week, may not have enough time in the second half of the year
to hit their earlier projected volume goals, according to
analysts.
"You're going to have a pretty lackluster quarter," independent
railroad industry analyst Anthony Hatch said. The railroads "will
probably have to lower guidance, which will not be a surprise."
CSX, which reports earnings Tuesday, declined to comment. Union
Pacific, which reports earnings on Thursday, didn't immediately
respond to a request for comment. In an interview in June, Union
Pacific Chief Executive Lance Fritz said the railroad's volumes
were down about 4% because of bad weather and customer concerns
over trade uncertainty.
The weak rail shipments are just one sign that the global
movement of goods has been sputtering. FedEx Corp. has warned that
trade disputes have dented demand for international freight
shipments. Trucking companies are also confronting a softening
environment after last year's freight boom. The Cass Freight Index
of North American shipments by truck and rail declined 5.3% in
June, the seventh straight monthly decline, which Cass Information
Systems Inc., a processor of freight payments for companies, says
signals an economic contraction.
On Monday J.B. Hunt Transport Services Inc., one of the largest
carriers in North America, said volumes in its intermodal business
moving freight long distances by truck and rail were down 8% in the
second quarter compared with the same period in 2018.
The railroads may also be losing some traffic from self-imposed
changes to their networks, Mr. Hatch said. Several companies,
including Union Pacific, Norfolk Southern Corp. and Kansas City
Southern, are in the midst of broad operational overhauls that
involve running fewer, longer trains on tighter schedules, a
strategy known as precision-scheduled railroading. Some shippers
are moving their business away from the rails while the changes are
implemented.
One benefit of the weaker volume is that it may be less
challenging for some railroads to overhaul their operating
schedules and procedures without the added pressure of having to
handle more railcars.
"Clearly, the better time to implement such a fundamental change
as a PSR-based operating plan is in a period that is absent volume
pressure," Loop Capital analyst Rick Paterson said, referring to
the precision-scheduled railroading strategy that railroads are
adopting.
--Jennifer Smith contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
July 15, 2019 20:16 ET (00:16 GMT)
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