A 7.7% increase in weekly intermodal traffic gave U.S. rail traffic its smallest year-over-year decline in months.
U.S. rail traffic for the week ending July Fourth totaled 437,989 carloads and intermodal units, a 2.4% drop from the same period in 2019, according to the Association of American Railroads (AAR).
Of that total, U.S. carloads were 12.7% lower, at 192,767, while U.S. intermodal units were up 7.7%, to 245,222 containers and trailers.
But on a sequential basis, weekly traffic was lower amid the Independence Day holiday. Compared with the week ending June 27, weekly U.S. carloads were down 4.3% while intermodal units were off by 4.9%.
On a year-to-date basis, U.S. rail volumes totaled 12.1 million carloads and intermodal units, a 12.8% decrease from the same period in 2019. U.S. rail traffic represents about 72% of overall North American traffic.
Year-to-date North American rail volumes were nearly 16.8 million carloads and intermodal units, an 11.8% drop from the same period in 2019.
Economic conditions uncertain amid coronavirus spike
The Class I railroads will report their second-quarter financial results soon, with Kansas City Southern (NYSE: KSU) kicking off earnings season on July 17. Railcar manufacturer Greenbrier (NYSE: GBX) will report its quarterly results this Friday.
Some factors that influence market conditions are what some would deem as positive, such as the long-awaited implementation of the trade agreement among the U.S., Canada and Mexico and a 2.2% drop in the U.S. unemployment rate in June to 11.1% as some states eased social distancing restrictions. Meanwhile, stock market indicators such as the Dow Jones Industrial Average and the S&P Index have been trending higher in recent days after seeing lows in March.
But the recent surge in coronavirus infections, particularly in states such as California, Arizona, Texas and Florida, have caused some to question whether states eased restrictions too soon. The sheltering-in-place mandates were blamed for steep declines in consumer activity, which in turn translated to sharply lower carload volumes for motor vehicles and parts, for instance. However, the uncertainty over when the pandemic might begin to abate — let alone about when a vaccine might be available — also doesn’t comfort manufacturers and retailers wanting more direction for the second half of 2020.
“Before we prematurely celebrate the return of the consumer, the wave of new coronavirus outbreaks spreading throughout the country are a major threat to the recovery. These outbreaks are alarming, and if they accelerate will certainly sway consumer and business confidence, taking a toll on output and employment and prolonging the time it takes to achieve a true economic recovery,” National Retail Federation Chief Economist Jack Kleinhenz said on July 1.
One way to hedge against the future is to look at present data, such as railcars in storage. Railcars in storage in June rose by 1% from May, according to a note Monday from Susquehanna Financial Group, which in turn used AAR data to form its estimates. Although June’s percentage increase wasn’t as dramatic as May’s numbers, the trend of how many railcars are in storage is still moving upward.
“We expect railcar oversupply to continue to weigh on lease rates and new car demand into 2021, as the number of idle railcars set a new all-time high in June,” the note said.