Rail Companies Stuck in Traffic

On Tuesday, we looked at the latest trucking industry data to gauge the tone of the economy coming out of the March quarter. If you missed it, you can read it here, but the quick take is that contracting truck tonnage and falling orders in April and May do not support a sharp snap-back in the manufacturing economy and largely confirms the month-over-month declines recorded in industrial production. Of course, there are other forms of transportation, including rail, barge and ship. And luckily for us, the Association of American Railroads (AAR) reports weekly traffic data. So, let's take a look. I always say context is key and that means we need a starting point. The impact of the severe winter weather and port closures came to a close, more or less, in March, so let's use combined U.S. carload and intermodal originations for that month as our starting point. This past March, combined U.S. carload and intermodal originations were 2,201,165, a 0.8% increase, year over year. With similar weather disruptions last year, this means the improvement reflected true year-over-year growth, not just a month-over-month spike. For those wondering, March 2015 carloads and originations rose 9% sequentially. Moving on to April, total rail carloads and intermodal originations surged 26% month over month. Now that sounds great, but let's look at the year-over-year comparisons. In doing so, we find April 2015 carloads and originations fell 0.4%. What this tells us is that even though rail traffic snapped back sequentially it still lagged year over year -- another sign the industrial economy is not humming as strong as hoped. Commenting on the April figures, AAR Senior Vice President John T. Gray said, ...rail volumes for a number of other commodities are down due to general economic weakness. We hope that turns around. Not in May. Combined U.S. carload and intermodal originations were 2,160,253 for the month, down 3.2% year over year, and 22.5% month over month. More disturbing, the May figures were almost 2% lower than those recorded for February 2015. Ruh-roh! But wait. It gets worse. Peering into the weekly data reported thus far for June we find total U.S. weekly rail traffic for the week ending June 6, 2015, was 550,037, down 2.2% compared with the same week last year and a slight decline compared with the first full week in May. The rail data indicate the expected second-quarter 2015 economic snap-back happened in April but that the economy has returned to its sluggish speed. That means rolling up one's sleeves and examining 2Q 2015 expectations for CSX (CSX), Union Pacific (UNP), Kansas City Southern (KSU) and other freight companies. Weaker rail traffic also means a dip in rail fleet capacity utilization. More than likely, this means the aforementioned companies as well as railcar leasers, such as GATX (GMT), will remain in a holding pattern when it comes to ordering new railcars from Trinity Industries (TRN), Greenbrier Companies (GBX) and FreightCar America (RAIL). One bright spot will be the coming Department of Transportation mandate for new rail tank cars built after Oct. 1, 2015, to have thicker steel walls, more protection at the ends, and thermal blankets designed to reduce the risk of explosion. That's a positive for American Railcar Industries (ARII) and subscribers should use any weakness in the shares to build to your ARII position.

Rail Companies Stuck in Traffic

After a spike, recent rail data indicate an economy not yet on track.

Columnist Conversation

QQQ

Tuesday Morning Fibocall for 9/28/2021

Huge Insider Buying in Designer Brands (DBI)

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.