Rail Service Drops in Weekly Reports – Suggest Weakness for Economy?

Commentary:

There are a couple of disturbing (or interesting) things that came out of the latest rail reports for the week ending 7/16. First, intermodal activity is much higher than we saw in 2009. Year-over-year comparisons are much easier during this period because of an unusually weak 2009 period. And, intermodal seems to be one of the modes of choice for inbound cargo hitting the coasts at this point – and tells us a trend story. That story is one of caution. Shippers are moving smaller than full loads to the coast – making intermodal and break-bulk service activity highly in demand.

Second, overall rail activity is well off of the trend patterns it was on prerecession and there is evidence that the freight volumes for the latter part of the fall will be much weaker than expected at the beginning of the year. More evidence is surfacing regarding conservative inventory practices seeding into the marketplace.

Some aggressive inventory rebuilding activity is now being offset by worry that demand might not be there to move the merchandise off the shelf. This brings back liquidity worries of January of 2009 – and financial managers are starting to shut things down. Rail segments will benefit from what is expected to be a bumper year for grains. Chemicals (fuel and other compounds) will also continue to be strong going into the winter. There should be some benefit from export activity to growing markets in Canada and the east and west coasts in the fall for export to Europe and Asia. The housing, automotive, and lumber markets are hurting volumes at this stage.

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