Tuesday, October 16, 2012

Surging vs. contracting Rail traffic: it's all about coal

- by New Deal democrat

About 1/3 of all goods and materials in the US move by rail. As such, rail traffic is an excellent economic indicator. In fact, before the interstate highway system was built in the 1950's, it was one of the premier coincident economic indicators. There are indications that it is returning to some of that prominence as energy prices improve the efficiency of rail transportation vs. trucking. This is why it is always included in my "Weekly Indicator" columns (particularly as there is no equivalent report by the trucking industry).

Recently, depending on how rail traffic is measured, it has either been modestly improving or sinking into deepening contraction. As it turns out, it's all about coal. Coal hauling generally has made up about 20% of all rail loads, and about 40% of non-intermodal car loads. With utilities switching over to other fuels such as gas, the amount of coal rail carloads has been declining.

To show you how crucial the inclusion or exclusion of coal is to the measure of rail hauling, here are the YoY increases or decreases in the number of rail carloads since July 1, as reported in my "Weekly Indicators" column (note: this chart does not include intermodal freight, which has been consistently positive YoY):

Week endingtotal carloads coal loads carloads ex-coal
7/7 -2500-4200+1700
7/14 +4500-3000+7500
7/21 -5600-2200 -3400
7/28 -4400 -4500+100
8/5 +100 -800 +900
8/12 -3700-7300+3600
8/19 -6800 -11,400+4600
8/26 -2500 -9000+6500
9/1 -10,300 -12,700+2400
9/8 -6300 -11,800 +5500
9/15 -8700-13,100+4400
9/22 -12,500 -16,500+4000
9/29 -16,600-24,300+7700
10/6 -18,100-24,700+6600

Including coal loads, only twice since July 1 have car loads been positive YoY. Worse, the YoY comparisons are becoming more and more negative. But that is entirely due to coal hauling. When we exclude coal, rail carloads have been positive YoY in every week but one. Not only that, but the period of weakness in July has been replaced by increasingly strong YoY positive comparisons since late August. (N.B.: Since generally non-coal carloads average about 180,000, every +1800 improvement is +1% YoY growth.)

So which is the better measure? There are 20 types of loads reported in the weekly AAR car load data. Coal is one. Of the other 19, none is so large as to dominate the data. Without the secular change from coal to gas in utilities, there is every reason to believe that coal would be in a similar trend as to the other 19 types of carloads.

In summary, rail loads ex coal are probably better showing the real economic trend, and that is improvement from a midyear stall to modest growth.