Rail Flashes Mixed Signals

• U.S. rail traffic slowed reflecting subdued demand for raw, intermediate, and finished goods
• Petroleum and petroleum products were the only good with positive volume growth compared to the previous month while food products recovered to pre-pandemic norms
• Persistent bottlenecks across freight transportation systems caused intermodal units to fall

Rail offers mixed signals as speculations swirl on the path of the U.S. economy. Total U.S. rail traffic slowed (-5% MoM/ -3% YoY/ -4% YoY3), reflecting subdued demand for raw, intermediate, and finished goods. Both carloads and intermodal units were affected, with the progressive shift towards intermodal over the past two decades presenting new problems.

Carload units – exclusively transported by railroads – declined (-3% MoM/ -2% YoY/ -9% YoY3), with most types of goods, except for petroleum and petroleum products, subdued compared to the previous month. Food products, such as fresh fruits and vegetables, meat, poultry, and canned items shone bright lights, recovering to pre-pandemic norms.

While railway companies’ hiring efforts continued, progress was measured, resulting in flat employment growth (0% MoM/ -1% YoY). Compared to pre-pandemic levels, the industry contended with severe labor shortages (-17% YoY3), exacerbated by a decade of layoffs in response to automation and President Trump’s trade war. Companies struggle to fill roles, particularly for engineers, conductors, and engine service positions.

Delays with carloads apply more pressure on the intermodal sector to deliver goods. Intermodal involves multiple modes of transport, i.e., train, ship, and truck. It represents over half of rail traffic, growing from one-third at the start of the century. Persistent bottlenecks across freight transportation systems caused intermodal units to fall (-6% MoM/ -5% YoY/ 0% YoY3). Shipping containers and truck trailers transported by trains decreased as ports and trucking networks were overwhelmed.

As rail battles these challenges, it lost ground as a transport modality to road, which provides more predictable and reliable alternatives. Some customers switched to long-haul trucking on highways for inland journeys, avoiding rail’s extended wait times and limited infrastructure. It could be a bumpy ride moving forward as rail’s key markets, like housing, construction, and cars are rate-sensitive.

1YoY3 = compared to June 2019

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