Weekly U.S. rail volumes rose nearly 25% last week, although some commodities may be affected by uneven year-over-year comparisons because the start of the COVID-19 pandemic last year caused widespread shutdowns and affected rail traffic.
U.S. rail volumes totaled 513,724 carloads and intermodal units for the week ending Saturday, which is 24.5% higher than the same period in 2020, according to the Association of American Railroads (AAR).
Carload volumes were up 17.4%, at 233,300 carloads, while intermodal traffic gained 31.2%, totalling 280,424 containers and trailers.
“For some rail traffic categories, percentage changes for the current week compared with the same week in 2020 are inflated because of the widespread shutdowns — and subsequent large reduction in rail volumes — that impacted many economic sectors last year at this time,” AAR said.
On a sequential basis, U.S. rail volumes were down by 0.4% from the prior week. Carloads were 1.5% higher while intermodal traffic was down by 1.9%.
Year-to-date U.S. rail traffic totaled 7.04 million carloads and intermodal units, 6.8% higher than the same period in 2020.
Earnings season begins
The Class I railroads this week kick off the period when they report their earnings for the first quarter of 2021. Kansas City Southern (NYSE: KSU) will be the first Class I railroad to report its financial results on Friday.
For investors, one question may be how the railroads expect to meet their volume and financial targets for this year, considering how February’s severe winter weather impacted volumes. Although industry observers expect some macroeconomic tailwinds to provide support for rail volumes later this year and into the back half of 2021, the railroads may have to convince potential investors that they can make their targets for this year and next year and particularly for the second half of 2022, according to Susquehanna Financial Group transportation analyst Bascome Majors.
“While trucking-related names came out of the gate strong in 2021, most railroads trail industrials (XLI [Industrial Select Sector SPDR Fund] +13% YTD) and the market (S&P +10%), with two exceptions (acquisition target KSU +27%, NSC [Norfolk Southern] +14%),” Majors said. “We’d attribute this lag to rail revenues disproportionately impacted by supply chain issues (port-levered intermodal, gulf petrochemical, automotive), network effects of February’s weather, concerns about rails’ long-term volume growth, and mean reversion from relative outperformance in 2020.”
He continued, “Our sense of investor sentiment toward rails also reveals a lack of enthusiasm that feels notable compared to the 10-plus years we’ve followed the group. That said, we see potential for revenue growth to surprise to the upside and sentiment toward the group to shift favorably, with rails’ exposure to numerous industrial and commodity end markets levered to the “reflation trade” not reversed, but just delayed (e.g., steel, chemicals, energy, auto).”