Industry analysts dissect falling rail and truck volumes

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BURLINGTON, Vt. — Although 2019 is shaping up as a disappointing year for railroad volume, it’s been a downright disastrous year in trucking, Cowen & Co. transportation analyst Jason Seidl told a rail shipper conference on Wednesday.

“Things are bad,” Seidl says.

More trucking companies filed for bankruptcy in the first half of 2019 than in all of 2018. And more truckers are likely to close up shop this year, Seidl says, with a rising number of delinquent fuel payments serving as a red flag for additional bankruptcies.

Meanwhile, truckers are canceling orders for new rigs and scrambling for loads by lowering their rates, Seidl told the North East Association of Rail Shippers.

Independent analyst Anthony B. Hatch says this year’s railroad volumes “are terrible.”

In the first quarter, Class I railroads blamed the slowdown on a spate of bad weather, particularly in the West and Midwest, Hatch says. But by the end of the second quarter, it was clear the economy was slowing, truck competition was heating up, and railroads weren’t going to hit their original volume targets this year, he says.

Five factors are behind this year’s rail volume declines, Hatch says. They include, in descending order of importance: an economic slowdown, overcapacity in the trucking industry, the impact of the U.S.-China trade dispute on the agricultural and manufacturing sectors, railroads intentionally shedding volume under transitions to Precision Scheduled Railroading operating models, and weather that has hurt crop production in the Midwest.

It’s unusual for intermodal volume to decline in a growing economy, Hatch notes. But it’s still the second-highest intermodal volume year ever, he says.

There’s healthy skepticism about Precision Scheduled Railroading, Hatch says, with many viewing E. Hunter Harrison’s operating model as a short-term, Wall Street-driven effort to boost profits.

While there are some elements of that early on, Canadian National and Canadian Pacific have shown that, over the longer term, they can grow traffic volumes, Hatch says. Both railroads are spending the most on capital expenses, are growing faster than the four big U.S. Class I railroads, have lower operating ratios, and a better return on invested capital, he says.

“In the long run, PSR will be a very positive thing for the industry,” Hatch says.

Hatch and Seidl disagreed about whether BNSF Railway would adopt PSR as the other Class I railroads have done.

Seidl says BNSF can’t stand by while rival Union Pacific gains a significant cost advantage.

“If your main competitor in a duopoly is lowering its cost structure, you have to do something,” he says.

BNSF won’t jump on the PSR bandwagon, Hatch says, because its network is fundamentally imbalanced by eastbound intermodal loads running from the West Coast to destinations in Texas and the Midwest.

BNSF Executive Chairman Matt Rose was highly critical of PSR before he retired earlier this year, Hatch notes, and CEO Carl Ice told a shipper conference in May that the railroad always strives to improve its efficiency.

NEWSWIRETrains News Wire

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