Supply Chain | Battling Back

09.06.17 | Lawrence J. Gross, Supply Chain

Carload volumes are stronger than they were last year but remain well below 2015's numbers. Intermodal shipments, meanwhile, are up considerably over last year.

After an extremely difficult 2016, things have improved significantly thus far in 2017 for the nation's railroads. But the popular perception of the strength of the current carload recovery may be overstated, and caution is indicated. Now the question is, where to from here? And what are the implications of the new Trump administration and its policies? Will they help Make Carload Great Again?

Carload: Steady but stagnant
The rail headlines certainly look favorable. According to Association of American Railroads (AAR) data, North American carloads excluding intermodal units were up a very solid 7.6 percent in the first half of 2017 versus the same period in the prior year. But that doesn't necessarily indicate that we're seeing current growth.

In the near term, we see little catalyst for improvement. Despite its recent losses, coal still remains the single most important commodity in terms of carloads, accounting for one in four originations in the second quarter. The Trump administration has made rejuvenating the coal industry a top priority and has rolled back some federal regulations affecting that industry. Our view is that such actions will have only a very limited effect, because the problem with coal is primarily economic, not regulatory. Well-priced natural gas is displacing coal as the primary fuel for electric-power generation. With the Trump administration also rolling back regulations on fossil fuels in general and fracking in particular, we don't see the fundamental problem for coal changing much. The decline in coal shipments may slow for a while, but any rebound will be short-lived, in our view.

One positive for rail is the elevated demand for the movement of frack sand. More wells are being drilled and more frack sand is being used per well, causing shipments to rise. This dynamic should continue, although a threat is posed by drillers who continue to experiment with the use of cheaper, locally sourced "brown sand" as a lower-cost replacement for the prized, sharp-edged "white sand" that currently is often moved long distances by rail to reach the wellheads.

Intermodal: Volume on the upswing
Last year was also a tough one for intermodal, with total North American volume declining 2.1 percent versus the prior year, according to data from the Intermodal Association of North America (IANA) - the first such decline since the Great Recession. But the current intermodal picture is brighter.

FTR Transportation Intelligence is forecasting a continuing acceleration for domestic intermodal over the balance of 2017. While we don't expect an increase in the pace of growth in the economy, we are projecting that truck capacity will tighten as the implementation date for the electronic logging device mandate in December approaches. How tight things will get and how fast the process will unfold are difficult questions to answer. We believe that capacity will get quite tight but not critically so, with the biggest effects to be felt in 2018. But intermodal should stand to benefit as we roll into the 2017 peak season, as shippers will use the intermodal option to ensure access to well-priced capacity.

Read the full article by clicking here >

For more information about the work of FTR, follow on Twitter @ftrintel, sign up to receive the State of Freight TODAY monthly eNewsletter, or call Helen Lile at (888) 988-1699, ext. 1.