Rail Shipments Plummet to Recessionary Levels

“Weaknesses in energy and manufacturing, as well as world economic softening, had a negative impact on both carload and intermodal traffic in 2015.” Those were the encouraging words of John T. Gray, Senior VP of Policy and Economics at the Association of American Railroads (AAR).

Transportation is a measure of how well the real economy is clicking. Alas rail traffic is getting clobbered.

The deterioration in the second half of 2015 dragged the whole year down from 2014: carloads fell 6.1%, according to the AAR, while intermodal containers and trailers edged up 1.6%, for a total decline of 2.5%. But the deterioration late in the year was a doozie.

In December, total volume dropped 8.9% year over year, with both components down: even intermodal containers and trailers, which had been holding up for much of the year, edged down 0.7%; and carloads (bulk commodities, autos, and the like) plunged 15.6%.

Only four of the 20 carload categories showed gains, and they’re relatively small categories: miscellaneous carloads, up 46.6%; motor vehicles and parts, up 5.2% (that relentlessly booming auto sector); chemicals, up 0.7%; and waste and scrap, up 3.3%.

But the big ones got crushed: carloads of coal, the largest category – done in by the low price of US natural gas emanating from the collapsing natural gas industry – plunged 27.9%; metallic ores, the second-largest category, plunged 39.1%; and petroleum and petroleum products, the third largest category, plunged 20.5%. The commodities rout is tearing into railroads with a vengeance!

And then there was last week’s rail traffic!

Christine Hughes, Chief Investment Strategist at OtterWood Capital, put it this way: “Rail volumes at recessionary levels.”

Last week rail carload data showed volumes fell 10.1% on a year-over-year basis resulting in the longest period of sustained weakness since 2009. Rail carloads have now fallen 5% on a year-over-year basis for the past 11 consecutive weeks. Over the last 30 years this has only happened five times and each occurrence either overlapped or preceded a recession by a few quarters.

And she added this nerve-wracking chart. Note the steep plunge to -10% at the right edge. The last three times this occurred, the economy was either entering a recession or was already deep into a recession:

Miracles do happen, and rail traffic could turn around on a dime and recover somehow, but it would take a major miracle to get that done, and not an ordinary run-of-the-mill miracle. And those have become exceedingly rare.

For our over-indebted, junk-rated retailers, our favorite LBO queens, it’s going to get very tough. Read…  Defaults and Restructuring Next for Retailers

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  13 comments for “Rail Shipments Plummet to Recessionary Levels

  1. GatoHead
    Jan 7, 2016 at 9:22 pm

    it’s no coincidence that Buffett was so against Keystone.

    • matt
      Jan 8, 2016 at 6:07 am

      wow. another clueless one. You really do not get what is going on do you? The entire economic collapse is world wide not just here and if you have been following crude by rail it has been collapsed by over 60 pct this year. Heavy Canadian crude is now under 20 a barrel . PBF refinery in Delaware City DE is the largest refinery of it and they have dropped rail shipments the past 6 months. they use to get 2 or more unity trains a day. now they get 1 maybe 2. most is now shipped in by freighter from South America. Cheaper, cleaner. less waste product. Every railroad in the country has abandoned short lines where coal was king. Laid off hundreds if not thousands of workers and is paying short lines to store the tankers cars they own . N S just laid off 37 conductors in Roanoke VA this week and temp abandoned hundreds of miles of no longer used tracks for coal shipments. Thousands of freight cars sitting in storage. Hundreds of engines in storage. Excess older ones being rebuilt to save $ or sold off. 50 year old box cars or freight cars by law must be taken out of service so now we may have a shortage of them coming up since most where built post WW2 and not enough are being built to replace them right now. Again some people have no clue as to what is really going on in the rail industry, the rules and regs and how hard they are being hit

  2. BoyfromTottenham
    Jan 7, 2016 at 11:56 pm

    Hi from Oz. This is the third or fourth US economic indicator that I’ve seen in the past 2-3 months that is below (or well below) ‘recession’ levels, but officially the US is still not in a ‘recession’. I’ll watch with interest to see how long it takes for those who identify ‘recessions’ to officially identify this one!

    • Jan 8, 2016 at 12:08 am

      We’re not there yet.

      Layoffs and rising unemployment are big components in an official recession in the US, in addition to at least two quarters in a row of negative GDP growth and some other conditions. So we’re keeping our eyes on the weekly unemployment claims. They seem to be trending up slightly, but they’re volatile and still so low that this is not significant data. But when we see it form a trend, we’ll be writing about it for sure.

      • BoyfromTottenham
        Jan 8, 2016 at 2:28 am

        Thanks, Wolf. However, I know that GDP, PMI and other official figures (but maybe not so your govt’s weekly unemployment claims figure) are frequently subject to subsequent revisions, so (as in Oz) you guys may only find out that the US have been in recession months after the fact. Nevertheless, keep up the excellent work informing me, and all your many readers, about the state of the global economy!

        • Jan 8, 2016 at 9:36 am

          You’re correct. Official recessions are usually declared only after they’re over (and then years later, the data keeps getting revised, but by that time no one cares anymore).

          The Financial Crisis was different in that it was so long and so huge that they declared the beginning of the official recession while we were still in it.

      • Anon
        Jan 8, 2016 at 7:32 am

        My Aerospace company had a layoff this week. Roughly a 6 to 7 percent cut. From speaking with colleagues, we surmised roughly two thirds volunteered since they were close to retirement.

        Of course, there were no reductions at our “global sites” (Mexico and the Czech Republic). Our engineering headcount is now split 60/40 US to Mexico. I’ll bet you can guess which way that ratio will trend.

        We were also told there will be no U.S. merit pay increases. But they will reevaluate that in June.

      • Jan 8, 2016 at 8:37 am

        With so many of today’s jobs part time, temporary or gig, how many even qualify for unemployment benefits and will therefore not be included this time around in ‘new claims’ data?

        • Jan 8, 2016 at 9:12 am

          That’s correct. For example, the oil and gas contractors (engineers and the like) that were let go over the past 12 months never showed up in the weekly unemployment claims. They did show up in the monthly jobs report in terms of jobs lost in the sector.

    • Robert
      Jan 8, 2016 at 10:55 am

      Recession is traditionally defined as two or more quarters with greater than 1% drop in GDP. Since every single dollar of deficit spending is counted as a dollar of GDP, and the U.S. has run consecutive deficits since Clinton was President, the U.S. could practically be in a depression before it would officially register.

  3. Julian the Apostate
    Jan 8, 2016 at 4:38 am

    Report from the road. January is turning out to be slow, as I expected. Up til now nothing but grocery loads, and those have had way too much time on them. I just snagged a retail load to Dallas, which will help. Diesel has dropped below $2 in many places, so the collapsing crude prices are now showing up at the pump. Truck ’em easy.

    • Jan 8, 2016 at 9:18 am

      Thanks, Julian.

      Have you filled up your truck in California recently? You better bring some extra money….

  4. chris Hauser
    Jan 8, 2016 at 6:35 pm

    dow theory, can’t argue with it.

    when you have a sea change, you find out who can sail.

Comments are closed.