US RAIL FREIGHT FALLS AS INDUSTRIAL ECONOMY STRUGGLES- Kemp

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03-Nov-2015 12:19:40

 

(John Kemp is a Reuters market analyst. The views expressed are

his own)

    * Rail freight (ton-miles): http://tmsnrt.rs/1GJfz87

    * Rail freight (percent chg): http://tmsnrt.rs/1GJfz89

 

    By John Kemp

    LONDON, Nov 3 (Reuters) - Freight carried by major U.S.

railroads fell by 7 percent in the second quarter of 2015

compared with the same period in 2014, confirming that large

parts of the industrial economy are in recession.

    The major Class 1 railroads carried 431 billion ton-miles of

freight in the three months ending June, down from 463 billion

ton-miles in 2014, according to the U.S. Surface Transportation

Board (http://tmsnrt.rs/1GJfz87).

    Changes in freight volumes reflect broader difficulties in

the industrial economy.

    Rail operators have been struck by a perfect storm which has

hit both their traditional and new business lines

(http://tmsnrt.rs/1GJfz89).

    Coal shipments to power plants, the biggest commodity on the

network, accounting for about one-third of total tonnage, have

been hit by a combination of environmental regulations and low

gas prices.

    Coal shipments were down by 27 million tonnes, around 15

percent, in the second quarter compared with same 2014 period.

    Petroleum shipments, one of the fastest growing sources of

new business during the oil boom, fell more than 650,000 tonnes,

5 percent, as production began to peak and new pipelines

diverted crude from the rails.

    And shipments of sand and gravel, a key ingredient in

fracking, plunged by more than 2 million tonnes, nearly 14

percent, as the number of new wells drilled and fracked tumbled.

    Shipments of a range of other items from chemicals to

fertilisers and other industrial supplies were also lower as the

industrial economy ran into stiff headwinds from a stronger

dollar and sluggish capital spending.

   

    INDUSTRIAL SLOWDOWN

    The slowdown in industrial-related freight has continued

into the second half of the year according to data from a range

of other sources.

    Total traffic on U.S. railroads in the 42 weeks ending on

Oct. 24 was down 1.3 percent compared with 2014, according to

weekly carload statistics published by the Association of

American Railroads (AAR).

    Shipments of intermodal shipping containers, which mostly

handle manufactured products, were up 2.2 percent but shipments

using box cars, tank cars, hoppers and gondolas, which handle

farm and industrial products, were down 4.5 percent.

    Shipments were down in five of the 10 freight categories

including coal (10 percent), forest products (3 percent),

metallic ores and minerals (10 percent), nonmetallic minerals (2

percent) and petroleum (7 percent).

    The downturn has deepened and spread to more sectors as the

year has progressed, according to AAR data.

    The number of cars carrying coal is down 10 percent so far

this year but almost 13 percent in the most recent week.

    The number of cars carrying petroleum and petroleum products

is down 7 percent year-to-date but almost 22 percent in the most

recent week.

   

    VOLUMES FALL ON ALL RAILROADS

    In its third quarter earnings presentation on Oct. 22, Union

Pacific <UNP.N>, the largest publicly owned railroad,

acknowledged freight had shrink in five of six categories during

the quarter compared with 2014.

    Union Pacific carried lower volumes of farm products (3

percent), chemicals (3 percent), containers (4 percent),

industrial products (12 percent) and coal (15 percent). The only

sector to increase was automotive (5 percent).

    Other publicly owned railroads all reported falling volumes

during the third quarter compared with 2014.

    Norfolk Southern <NSC.N> blamed a "decline in metals and

construction traffic due to softer steel production" and

reported a 16 percent in coal volumes.

    Kansas City Southern <KSU.N> reported that its volumes were

down 2 percent including a 24 percent decline in frac sand.

    CSX <CSX.N> reported volumes fell 3 percent including a 15

percent drop in metals traffic and an 18 percent drop in coal.

   

    INDUSTRIAL PRODUCTION FLAT

    According to the U.S. Federal Reserve, total industrial

output was 0.4 percent higher in September 2015 than September

2014.

    But while production of consumer goods was up 2.6 percent

and business equipment 1.8 percent, industrial supplies were up

just 0.2 percent and production of raw materials was actually

down 0.2 percent.

    The struggling industrial economy explains some of the

weakness in demand for distillate fuel oil compared with

gasoline this year in the United States.

    Two-thirds of diesel is consumed by vehicles, mostly heavy

trucks, on the highways, with another 5 percent on farms, 6

percent on railroads and around 4 percent in construction.   

    But the expansion of the consumer-facing economy, coupled

with employment gains and cheap fuel prices, has pushed gasoline

demand to its highest since 2007.

    

 

John Kemp

 

Senior Market Analyst

Reuters