This year's railroad slump is getting worse as a slowdown in the manufacturing sector threatens the general weakness of the US economy.
A low is not in sight as the decline in truckloads for major US railroads increased to 5.5% in the third quarter According to weekly reports from the Association of American Railroads, this is the biggest drop in three years. Deliveries of cars, coal, grain, chemicals and consumer goods are in decline, with crude oil the only bright spot.
The rail downturn underscores the damage caused by the US-China trade war, which makes shippers more cautious and reduces freight – confirming earlier warnings from railway managers. Companies that were in storage last year in the face of President Donald Trump's customs threats are now working on it. In addition to the drop in cargo, a short increase in coal exports has increased, and bad weather has delayed the harvest and brought down grain.
"What is very clear is that we are not yet at a low point – trains do not have it yet" We need clarity in trade policy, "said Ben Hartford, an analyst with Robert W. Baird & Co.
, A railroad recession may not necessarily mean a major slump, but a dramatic turnaround a year ago when rising shipments of cars, coal, lumber, chemicals, and other commodities boosted US rail freight cargoes in 2018 by 3.6%. The hot freight market last year increased truck prices and transportation costs rose for companies such as General Mills Inc. and Procter & Gamble Co.
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Well, "there are no growth pockets," Bloomberg told intelligence analyst Lee Klaskow, who sounded the alarm about a "railroad recession" in a recent report. "There's really nothing that pats my shoulder and says," Hey, look at me. I will be your next growth engine.
A rail recession is not necessarily the harbinger of a general economic downturn, Klaskov said. The US economy continued to expand as cargoes fell by 2.1% in 2015 and 4.5% in 2016 after a boom in the crude oil sector broke out.
Investors are partially isolated from the recent decline as gains in the four major stocks persist in US listed railways, which have adopted an efficiency strategy developed by Hunter Harrison. The industry guru died in 2017 after joining CSX Corp. had revised with his approach of "Precision Scheduled Railroading".
CSX is the only major US railway company to expect earnings to decline in the third quarter compared to the previous year. Growth is reported at Union Pacific Corp., Norfolk Southern Corp. and Kansas City Southern, who have taken the efficiency techniques after the CSX and are still bearing the fruit.
This strengthens the shares of the railways, although only Kansas City Southern outperformed a Standard & Poor's index of US industrial companies. The S & P 500 Railroads Index has risen by about 13% this year.
Freight volume at Canadian Pacific Railway Ltd. and Canadian National Railway Co. has improved as more ocean freight has been shifted from Asia to Canadian ports. However, sinking freight shipments are taking a toll in the US.
The Institute for Supply Management's factory index fell to 47.8 in September, the lowest since June 2009. It was also the second month in a row in which the index was below 50 contraction.
Even truckers feel the pain. Less than truck load, which is usually tied to industrial production, fell in August by 12% over the previous year. Long-distance freight transport continues to increase in view of continued consumer spending. However, prices for trucking have fallen.
Cheaper truck prices are pulling some of the freight off the rail. But even if this trend slows down next year and the decline in wagon utilization slows down, there is no guarantee for growth – especially if factory weakness pushes consumer spending.
"At this time, that's the risk that consumers are starting to show effects from the pain we see on the manufacturing side," Hartford said. As for rail freight, "when will he turn? I honestly have no idea. "