June 01, 2016

Rails - Railroaders Cast Somber Tone at NARS

By Jon Gates
Demand is slipping across railroads as major commodity markets languish, trucks take some share, and questions emerge about the sustainability of current construction and automotive demand cycles, according to participants at the North American Rail Shippers annual meeting.

Despite a few upbeat presentations by select shippers, the NARS (North American Rail Shippers) 2016 Annual Meeting was fairly muted as railroad executives set a more somber tone on the state of the industry, which is experiencing hundreds of parked locomotives, easing intermodal demand, high commodity inventories and share loss to trucking. The 10-ton gorilla in the room was the falloff of coal demand from utilities due to the shift to natural gas. A couple Class-I rail executives noted coal volumes off 25% so far in 2016, with CSX Corp. expecting further coal tonnage declines into 2017.  

Housing market materials demand and automotive were cited as two of the stronger verticals, but conversations on the conference floor suggested some nervousness around those sectors with housing demand being more moderate than booming and the concern that automotive may be reaching the end of its strong cycle. A couple industrial shippers said their conversations on the floor with peers suggested a growing uncertainty looming over demand signals, and they didn’t share the view of an expanding economy. A few sources said rising interest rates could slow both housing and automotive.

Conference Notes:

  • CSX trains are running 14%-15% longer now as the number of trains diminish, leaving a lot of open track, especially in the triple track coal corridor.
  • Grain car loadings were the worst in 1Q16, but Q2 and Q3 bookings are ticking up as farmers release grain from storage.
  • Intermodal loadings are trending toward the East Coast and away from the West Coast, so long-haul intermodal shipments (1,200+ miles) are edging down while lane shipments in corridors shorter than 1,200 miles are growing.
  • Several major petrochemical ethane crackers are soon to come online in the Gulf Coast region, with more in the works. Polyethylene pellet manufacturing was expanding as well. An industry presenter said, “There will be too many pellets and not enough buyers. At least five million tons must be exported.” The presenting consultant estimated the five million tons could represent 40% of pellet production.
  • A Union Pacific Corp. executive said trucks are taking share as distribution centers are moving into the proximity of major hubs and “it’s a moment in time when trucks are less expensive.”

What: NARS 2016 Annual Meeting
Where: Washington D.C.
When: May 25-26
Who: 500 industry shippers, railroad leaders, leasing groups and consultants