Dive Brief:
- U.S. railroads originated 980,535 carloads in April 2020, a 25% year-over-year (YoY) decline, and 1,095,423 intermodal containers, a 17% YoY drop, according to the latest numbers from the Association of American Railroads.
- "The 25.2% year-over-year decline in total rail carloads was the worst decline for total carloads for any month since our records begin in 1989, and the 17.2% decline in intermodal loadings in April was the worst since the summer of 2009," AAR Senior Vice President John T. Gray said in a statement.
- The drop in volume has led to railroads cutting capacity. CSX, Kansas City Southern, Norfolk Southern and Union Pacific mentioned reducing train starts during April earnings calls. "The reason that we’re reducing train starts is because [customers'] volumes are down and all we need to do is to have an honest dialog with our customers about the fact that we don’t think we can serve them five days a week," CSX CEO Jim Foote told analysts at the end of April.
Dive Insight:
The coronavirus pandemic is affecting multiple components of rail volume. Reduced imports at west coast ports mean fewer intermodal containers moving via rail to the middle of the country, and shuttered auto plants mean major customers aren't moving freight.
The current trucking environment has been "challenging" for Union Pacific and it resulted in lower refrigerated and dry food volume during the first quarter, Union Pacific Executive Vice President of Marketing and Sales, Kenny Rocker said on the company's earnings call last month.
But demand for trucking was also down in April, so it's not necessarily a matter of one freight mode over the other but of declining volume across the board.
Intermodal volume declined early on in the pandemic when factory shutdowns across China led to lower import volume.
"The only place we really felt the impact of COVID early in Q1 in the U.S. was in intermodal," XPO Chief Strategy Officer Matt Fassler said on the company's earnings call this week. "And that business was impacted by the flow of freight in China."
Factories in China are restarting, but have been met with "sharply lower export demand," Tim Denoyer, a senior analyst with ACT Research, said on a call with UBS.
The overall percentage of freight moving out of the Port of Los Angeles on intermodal cars versus trucks is "very normal," Port of Los Angeles Executive Director Gene Seroka said in a Wednesday press briefing. But intermodal carriers should expect lower volume to continue.
The Port of Los Angeles has 28 blank sailings on the books for the second quarter, Seroka said. And ACT Research expects intermodal volume to be down 25% for Q2, according to a research note from UBS.
