Staring into the 2021 abyss, the outlook for rail-hauled chemical traffic looks like a mixed weather forecast: “Early morning fog, changing to overcast skies, with a high-pressure system moving in later for sunny skies.” The fundamental assumption is that the COVID-19 pandemic will gradually abate as immunization shots take hold.
There’s not much statistical sense in using 2020 data as the benchmark when looking ahead to 2021. The statistical coverage of railway freight volume changes in Canada, Mexico and the United States is excellent. But after the extreme changes week-over-week due to the COVID-19 business impacts, maybe it is time to consider a different method.
The six Class I railroads that practice the marketing-term model called Precision Scheduled Railroading (PSR)—all of the “Big 7” except BNSF—are now reporting third-quarter financial results in the remaining days of October. There is, however, an opportunity for a more holistic quarterly briefing. There is an argument for a new checklist of service metrics that would be of interest mostly to customers and, perhaps, public policy groups. However, instead of a balanced scorecard from the carriers, we are mostly seeing accounting reports that cater exclusively to analysts.
There has been lots of surging intermodal volume reported since August. So, intermodal is coming back, correct? All is right with the intermodal world? It is sunny skies and good news ahead? Hold that thought. Ask one simple question. What is your actual level of confidence about that optimistic projection? Is it sustainable? Is there 100% certainty? No, a perfect outlook about the future is unreasonable, given the complexity of intermodal supply chain lengths and the number of players involved. Somewhere better than 50-50 and perhaps 75% probable might be a reasonable upside projection.
Railroads are fundamentally directly involved in heavy manufacturing, resource commodities, energy and industrial production. Not so much e-commerce—at least not as direct movers and organizers. With that in mind, let’s examine how the railroad merchandise carload traffic pattern looks more than halfway through the third quarter of 2020.
When trying to comprehend what’s going on in complex markets, it’s best to consider multiple expert opinions. It is also prudent to consider different ways to sort the data sets available and then display them against other matched datasets. The more views, the better the comprehension. In the digital age, there are a lot more sources.
Mexico has a freight railway system owned by the national government. However, the trains and the network are operated and managed by various private entities under concessions (charters) granted by the national government. Today, Mexico has service from eight concessionaire railway companies. Beyond Kansas City Southern de México, and Ferromex, are the smaller, but important Ferrosur, Ferrovalle, Coahuila-Durango, Ferrocarril Chiapas Mayab, Ferrocarril del Istmo and Ferrocarril Tijuana-Tecate.
The search for modal share growth is still fundamentally the real strategic challenge for the seven Class I North American railroads. Profitability remains excellent. Net cash flow? Down a bit during the second quarter of 2020 as the COVID-19 pandemic economic shock hit. We will find out by how much less over the next few weeks as second-quarter earnings are released. The railroads’ executives will use their processes for managing financial results during the second half of 2020’s “recovery” pace (assuming such an event occurs). But at some point a railroad analyst is going to ask, “Where is the beef for the promised longer term competitive customer growth positioning?”
Over the next few days and then amplified by mid-month investor reporting, we will learn more about how U.S. rail freight is trending. Association of American Railroads six-month data is out. In the interim, Susquehanna Financial Group (SFG) data scientists have circulated their freight market view. As well, we’ve added some FreightWaves SONAR intermodal data to the mix.
Watco Companies LLC announced it will acquire for more than $310 million Dow Inc.’s rail infrastructure assets and equipment at six North American locations.