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Commentary: Let’s watch rail freight recovery differently

By using a normalized year to track 2021

There’s not much statistical sense in using 2020 data as the benchmark when looking ahead to 2021. (Photo: Jim Allen/FreightWaves)

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.

The statistical coverage of railway freight volume changes in Canada, Mexico and the United States is excellent. But after the extreme changes week over week due to the COVID-19 business impacts, maybe it is time to consider a different method.

Here is why: Weekly reports issued by the Association of American Railroads (AAR) employ a year-over-year comparison template. Most news media and investors follow this same template. For about 50 weeks this year, we have collectively been thinking of rail traffic health as a comparison to the previous year’s 2019 week.

Here is the contrary thinking: The disruptive impacts during the second quarter and the recovery pattern during the third and into the fourth quarter are something of an illogical basis for thinking about the railway freight trend lines into 2021.

It might instead be appropriate to examine the weekly 2021 changes and four-week average changes against another standard. Two recommendations are offered.

It took the entirety of 2020 for rail carloads to approach year-ago levels

SONAR: RTOTC.USA; the blue line shows 2020 U.S. rail carload traffic originated while the purple, green and orange lines show rail carload traffic originated in 2019, 2018 and 2017, respectively.

First, for railroad carload traffic, a comparison to the base year 2018 or to 2019 might be more representative of a normalized pre-COVID-19 business environment.

The case for 2019 as the base year is that it was the most recent annual period.

But the case for 2018 is that it represented an overall healthy U.S. economy more so than did 2019, whereas 2019 witnessed a railroad traffic slowdown.

Intermodal container volume has consistently been above 2019 levels since early August

SONAR: RTOIC.USA; the blue line shows 2020 U.S. intermodal container traffic originated while the green, orange and purple lines show intermodal container traffic originated in 2019, 2018 and 2017, respectively.

A second alternative is that for the intermodal sector year , it might be best to start directly comparing rail intermodal against year 2021 truckload freight volumes or a truck index.

These two alternatives are offered for your consideration before we enter 2021. That gives time to consider the pros and the cons.

During 2019

As 2019 closed, this was the rail traffic summary, using a four-week trailing average as the benchmark.

  • Total U.S. rail volumes were down about  9.3% over the trailing four-week period.
  • Merchandise carloads were down 3.7%.
  • Intermodal was trending down by about 9.6%.
  • Railways saw a coal traffic loss as natural gas power plant conversions continued.
  • There was also a lag of expected grain export traffic that is largely handled by rail to the ports.
  • Industrial chemical traffic started to flatten during the year, and there was no upside to construction that uses rail-hauled stone and gravel.

The table that follows is a reference.

Table showing two-year comparison of critical rail freight trends

Four-week year-ending trends and the actual 2019-year-end commodity volume changes versus  2020 recent December four-week commodity trends and year-to-date volume for 2020

Traffic type/4 weeks 2020/4 weeks 2019/Year end 2019/Year-to-date 2020

Trailers 15.9% (17.2%) (13.7%) (3.9%)

Containers 10.6% (8.8%) (4.1%) (2.5%)

Grain 23.1% (7.8%) (5.7%) 3.7%

Coal (13.4%) (18,4%) (9.0%) (25.1)

Motor vehicles (6.3%) (3.4%) (3.0%) (20.2)

Chemicals 6.5% (3.6%) (0.7%) (3.6%)

Forest products (0.8%) (3.6%) (4.5%) (5.2%)

Stone/gravel (10.8%) (8.0%) (8.2%) (17.3%)

Petrol (17.2%) 1.6% 12.2% (13.8%)

BULK TOTAL (4.9%) (16.2%) (8.3%) (18.8%)

Merchandise ALL (3.2%) (3.7%) (2.4%) (9.6%)

Intermodal ALL 11.1% (9.6%) (5.1%) (2.6%)

Total traffic 3.9% (9.3%) (5.0%) (7.7%)

Dec. 12, 2020, AAR Data and SFG tabulations as sources  

The translation for 2019 is that there were signs of a slight growth recession for the railroad freight sector.

During 2020

Here are how the recent four-week trailing averages looked into early December, and for the close of the year 2020.

Grain will likely end up year over year by nearly 4% in 2020.  The ~23% surge in grain export movements during the last four weeks continues to be noticeable.

Simultaneously, the coal traffic year over year for the four-week period has dropped to now only about a negative 13% in recent weeks but still will be down for the year in about the one-quarter range.

Motor vehicle (finished autos and light trucks) recovered largely into the third quarter but will end up probably around a negative 20% range for the entire year.

Total rail volume of all commodity types will likely end up being down by only about 6.5% to 7% if intermodal cargo and grain hold up their recent third- and fourth-quarter year-over-year volume increases.

Trailer intermodal (TOFC) and doublestack container train movement surges over the third and fourth quarters were both unexpected and yet welcomed by the rail industry.  

Measuring 2021 with a different base year

Looking ahead at 2021 as hopefully an economic recovery continues, there is an argument for making weekly and quarterly rail traffic comparisons against a normalized annualized pattern.

There is not much statistical sense in using an anemic or crisis year like 2020 as the benchmark.

Besides choosing between 2018 or 2019 as a benchmark for 2021, there is a second benchmark option. That would be to use a running averaged five-year trend. The period 2015 to 2019 is suggested.

We cannot dismiss 2020. Instead, let’s use 2020 as a footnote. The abnormal year of 2020 cannot be ignored. It simply is less relevant for strategic purposes when tracking rail’s progress.

That’s my contrary opinion. What, please, is yours?

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Jim Blaze

Jim Blaze is a railroad career economist with an engineering background and a strategic analysis outlook. Jim’s career spans 21 years with Consolidated Rail Corporation (CONRAIL), 17 years with the rail engineering firm Zeta Tech Associates, 7 years with the State of Illinois Department of Transportation in Chicago urban goods movement research, and two years studying what to do with the seven bankrupt and unrecognizable Northeast railroads at the federal agency USRA. Now primarily a teacher and writer, Jim likes to focus on contrarian aspects of the railroad industry.