Amid the great pivot that’s bringing so much U.S. commerce to our doorsteps, is railroad traffic a harbinger of economic recovery?
Yes, U.S. freight volumes are down, but they’re rebounding off of their lows and are nearly back to last year’s levels. The Association of American Railroads reported this week that railroads carried some 522,000 carloads and intermodal units of freight in the week ended Sept. 19. That’s 1.3 percent lower than the same week last year, but nuance is in the numbers — and some positive trends are in sight.
As trade publication FreightWaves reported earlier this month, the spot rates for intermodal shipments have surged 58 percent since June. And the latest AAR data show that intermodal carloads are up 6.3 percent year over year.
Part of the reason for such gains is that freight volumes have been recovering in general, especially at U.S. ports. As PYMNTS has previously reported, retail spending is rebounding, yet inventories are low. That imbalance normally leads to increased demand on various supply chains, including the railroads, trucks and ships that get goods where they need to go.
Generally speaking, intermodal transportation is what gets goods from a shipper to a “consignee,” the entity that receives the shipment (a retailer or a warehouse).
The rise in intermodal transport could point to industries getting goods to distribution centers rather than store shelves. That illustrates how the eCommerce age is fully upon us. Once goods get to a distribution center, trucks and delivery services can then go the last mile from a warehouse to consumers’ front doors.
The boost in intermodal spot rates, the rebound in intermodal traffic and news of an import surge all point toward the impact that eCommerce is having heading into the all-important holiday shopping season.
“I have never seen a market like this,” Phillip Yeager, president and chief operating officer of Hub Group (the nation’s second-largest intermodal-services provider), recently told DC Velocity. He said consumers “are putting their government subsidies into home improvement and other discretionary items, whereas before they’d be spending on going out to restaurants and travel.”
The bright spot of rising intermodal data stands in contrast to other economic trends that show how pressures from the ongoing pandemic remain in place. After all, railroads are heavily depending on demand for resources and commodities like coal and agricultural products.
Drilling down into the latest freight data, we see that carloads of grain were up 16 percent year over year in the latest period, while shipments of farm products excluding grain and food rose 5 percent.
Conversely, carloads of petroleum and derivative products fell by about 8.5 percent, while chemicals were down more than 7 percent. Those declines speak to a manufacturing sector that’s still struggling.
But even there, business investment has been rebounding, as shown by the latest core capital goods orders. The Commerce Department reported Friday that orders for non-defense capital goods excluding aircraft rose 1.8 percent, whereas economists had only expected a 50-basis-point gain.
As businesses feel more confident in ordering capital goods, the inputs to make them will increase — and so will demand for ferrying raw materials to make those goods.
In other words, the pick-up in railroad traffic might be laying the tracks for a U.S. economic rebound.