Flooding impacts, cheap natural gas prices, and trade and economic uncertainty could be factors contributing to a significant slump in weekly U.S. rail volume.
U.S. rail volumes fell 8.5 percent to 513,099 carloands and intermodal units for the week that ended on June 8, according to the Association of American Railroads.
Of that U.S. rail operations originated 9.1 percent fewer carloads compared with the same week in 2018, with volume at 246,758 carloads. U.S. rail operations also originated 266,341 intermodal containers and trailers, down 8 percent from the same period a year ago.
The biggest losers in carload volume for the week include coal, which slumped 15.9 percent, non-metallic minerals, which dropped 13.9 percent, and motor vehicles and parts, which fell 12.9 percent.
Coal, non-metallic minerals and motor vehicles and parts represented 29 percent, 14 percent and 6.4 percent, respectively, of total U.S. carload volume for the week.
On a year-to-date basis, U.S. rail volumes fell 2.7 percent to 11.9 million carloads and intermodal units. Of that, U.S. carloads and U.S. intermodal units were also both down 2.7 percent. U.S. carloads totaled 5.8 million carloads while U.S. intermodal units totaled 6.1 million containers and trailers.
The drop in U.S. rail volumes could be a result of several factors. Continued flooding in the Midwest is resulting not only in submerged rail track but is also causing barges to stall on the Mississippi River. Norfolk Southern (NYSE: NSC) said in a June 8 service notice that it expects the route to Kansas City to be out of service through at least the middle of June because of flooding on the Mississippi and Grand rivers. Union Pacific (NYSE: UNP) said conditions have improved in the Midwest, but it is still facing outages in Missouri. The railroad is also monitoring river conditions along the Missouri River in Missouri and Kansas and the Arkansas River near Pine Bluff, Arkansas.
“Mother Nature struck her heavy hand again, this time to our Heartland Service Unit in our Southern Region – bringing severe flooding throughout Kansas, Missouri, Oklahoma and Arkansas and impacting one of our key North-South corridors,” said Kenny Rocker, UP senior vice president of sales and marketing, in a June 12 customer note. “At any given time during the last week of May, we had up to eight subdivisions impacted by flooding.”
Meanwhile, natural gas prices have fallen, with Henry Hub spot prices hovering around $2.40/mmBtu, and that drop puts pressure on coal demand. When gas prices are low, utilities opt to utilize their gas-fired plants to produce the electricity that helps power air conditioners.
And then, there’s the economy and trade uncertainty. Although the U.S. President Donald Trump stepped away from imposing an import tariff on goods from Mexico, the U.S. and China still haven’t resolved their trade war. As for the U.S. economy, analyses of the latest jobs figures and construction and lumber demand indicate conditions that could hasten a slowdown in freight movements for some sectors.