Rail volumes could rebound in the second half of the year, but the pace of a rebound will depend largely on consumer confidence, executives from several Class I railroads cautioned at recent investor conferences.
There is still little visibility “in terms of how the consumer is going to reengage,” said Jennifer Hamann, chief financial officer for Union Pacific (NYSE: UNP) at a conference sponsored by investment firm Deutsche Bank on Tuesday. Hamann also spoke at an investor conference sponsored by investment firm UBS on June 2.
Although international intermodal volumes have fallen by about 16% quarter-to-date amid canceled vessel sailings to U.S. West Coast ports, the railroad is “feeling just a tad more optimistic” amid expectations that volumes might have bottomed out in April and May, Hamann said on June 2.
However, “it’s hard to call the bottom” because it’s hard to gauge how U.S. consumers will respond to the easing of shelter-in-place mandates, and so “a lot of question marks out there still need to be answered,” she said at UBS.
Commodity categories more exposed to consumer activity include motor vehicles and parts as well as lumber. If housing starts rise, then Union Pacific (UP) might see demand growth for centerbeam cars. Plastics and soda ash are other types of materials down the supply chain that might also see growth if the automotive and housing sectors see increased consumer activity.
“Certainly there’s a hesitancy … with making those big kinds of purchases,” Hamann said at the Deutsche Bank conference.
It will be interesting to see what the economy is going to look like and how consumer confidence will take shape three to six months from now, Velani said.
Velani estimates that June volumes will be “less bad” than May volumes and third-quarter volumes higher than second-quarter volumes, even though third-quarter volumes will still likely be lower than the same period in 2019.
CSX (NASDAQ: CSX) CEO Jim Foote thinks rail volumes are “inching up week after week” as May has moved into June, and even though the increases are slight, “the trend line is promising,” he said at the Deutsche Bank conference.
“I think overall, I’m comfortable, but you have to look at it from a realistic standpoint. In many of our markets…we’re seeing sequentially we see improvement. We still have business segments like auto that are down in the 80%-some range on a year-over-year basis,” Foote said. “So, we have a ways to go, but I’m more confident today clearly than I was a month ago.”
North American rail volumes up sequentially week-over-week
Rail volume figures from the Association of American Railroads showed totals increasing from last week to this week.
North American weekly rail traffic totaled 598,301 carloads and intermodal units for the week that ended Saturday, a 15.4% decrease from the same period in 2019 but a 7.2% increase from the week ending May 30.
Year-to-date North American volumes totaled 14.3 million carloads and intermodal units, which is 11.7% lower than the same period a year ago.
Meanwhile, U.S. weekly rail volumes totaled 433,171 carloads and intermodal units, a 16.5% decrease from the same period in 2019 but 9.5% higher than the week ending May 30.
Year-to-date U.S. rail traffic totaled 10.3 million carloads and intermodal units, a 13.1% decline from the same period last year.