U.S. rail volumes fell 5 percent in August amid weaker demand for rail services in the domestic manufacturing sector.
U.S. freight railroads originated 2.15 million carloads and intermodal units in August, a 5 percent dip from August 2018, according to the Association of American Railroads (AAR). Of that, U.S railroads originated 4.6 percent fewer carloads, at 1.06 million carloads, while intermodal originations were down 5.4 percent to 1.09 million intermodal containers and trailers.
"While the strength of the overall economy remains unclear, in the last quarter it has become much more evident that the portion of the economy which generates freight – manufacturing and goods trading – has weakened significantly," said AAR senior vice president John T. Gray.
On a year-to-date basis, U.S. rail operations originated 3.6 percent fewer carloads and intermodal units for the first eight months of 2019, at 18.2 million carloads and intermodal units. Of that, U.S. carload volumes fell 3.4 percent to 8.87 million carloads while U.S. intermodal volumes dipped 3.9 percent lower, at 9.33 million intermodal containers and trailers.
"Total U.S. freight carloads have fallen on a year-over-year basis for seven straight months, and that's true even after excluding coal and grain, the major rail commodities least sensitive to overall economic health," Gray said. "Year-over-year intermodal volumes, typically a reliable indicator of consumer spending and intermediate manufacturing demand, have fallen for seven straight months. We had a similar pattern in 2016, when rail traffic was weak and the overall economy wobbled but didn't fall down."
He continued, "Railroads are hopeful that the uncertainty plaguing economies here and abroad will dissipate soon and solid economic and industrial growth will return."
While economic uncertainty is pulling U.S. rail volumes lower, other factors are also contributing to the dip in rail volumes in 2019, railroad executives said this week at an investors' conference. Among them are trade uncertainty between the U.S. and China, which has resulted in lower grain volumes, lower natural gas prices, which is denting demand for coal, and a competitive truck market.
"We're expecting a very compressed peak season, but we're still expecting one and so we'll see how that plays out," said Union Pacific (NYSE: UNP) senior vice president for sales and marketing Kenny Rocker. UNP lowered its volume guidance for the second half of 2019 amid anticipated lower volumes in the third quarter.
Railcar lessors and manufacturers at the September 4 conference also talked about lower demand for railcars this year amid the dip in rail volumes and efforts by the Class I railroads to deploy precision scheduled railroading, an operating model that seeks to streamline operations and schedules.
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