Economic slump weighs on October rail volumes

U.S. rail traffic tumbled 8.1% in October as weakness in the industrial economy put pressure on rail volumes. 

Freight railroads in the U.S. originated nearly 2.56 million carloads and intermodal units in October, which is an 8.1% drop from October 2018. Of that, U.S. carloads fell 8.4% to 1.22 million carloads, while U.S. intermodal units slipped 7.8% to 1.33 million intermodal containers and trailers. 

For the first 10 months of the year, U.S. railroads originated 22.8 million carloads and intermodal units, down 4.4% from the same period in 2018. Of that, U.S. carloads fell 4.3% to 11.1 million carloads and intermodal units slipped 4.5% to 11.7 million intermodal units. 

“Sluggish growth abroad and trade developments are weighing on business investment, exports and manufacturing. Unfortunately, those are precisely what drive much of the freight carried by U.S. railroads, and their weakness goes a long way in explaining why rail traffic is down right now,” said AAR Senior Vice President John T. Gray.  

“Railroads are hopeful that policymakers here and abroad will take sensible actions aimed at accelerating growth and removing the uncertainty that’s constraining many economic sectors,” he said.

The Class I railroads have been coping with the downturn in volumes by cutting costs, according to their recent third-quarter financial results. For instance, western U.S. railroad BNSF (NYSE: BRK) reported that it cut operational expenses, which helped it to boost third-quarter profits even though rail volumes were down.

The railroads also may be seeking opportunities to raise rail rates, according to FreightWaves market analyst Zach Strickland.