Which Are The Areas Of Rail Shipment Growth In A Year Of Declining Overall Shipments ?
The year 2016 will be one of depressed top lines for U.S. rail companies, with most rail commodity shipment groups registering year-over-year declines. As per American Association of Railroads (AAR) data, year to date total rail shipment traffic fell 7.3% year-over-year, with shipments of coal and petroleum-related commodities leading the decline. [1]
However, grain, auto, and chemical shipments have been areas of growth amid the general decline in rail shipments, as illustrated by the table shown below.
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Rail shipments of grain are expected to remain elevated for the full year 2016, driven by higher demand for corn from both domestic livestock feeders and export markets. [2] Lower than expected Brazilian corn production, as a result of drought conditions in the country, has boosted the demand for U.S. corn exports in international markets, which is expected to support rail shipments of grain for the rest of the year. [2]
Firm U.S. automobile demand, driven by the demand for light-duty trucks, is expected to keep rail auto shipments elevated for the rest of the year. Steady U.S. economic growth has driven the demand for commercial vehicles, whereas soft gasoline prices and improved economic conditions have boosted non-commercial consumer demand for SUVs and crossovers. [3] The strength in automobile production in conjunction with a resurgent housing market has translated into higher demand for industrial chemicals, as indicated by the increase in rail chemical shipments. [4]
Thus, grain, auto, and chemicals are likely to be the only areas of muted to moderate growth in a year otherwise characterized by declining rail shipments, with Q3 and full year results expected to mirror these trends. With top line pressure expected to prevail over the whole year, cost reduction is the most important area of focus for U.S. rail companies this year.
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Notes:
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Notes:- Rail Traffic Data for Week Ended August 13, AAR Website [↩]
- Corn Rises as U.S. Export Demand Gets a Boost From Brazil’s Woes, Bloomberg [↩] [↩]
- Auto Sales, Market Data Center, Wall Street Journal [↩]
- U.S. New-Home Sales Unexpectedly Surge to Almost Nine-Year High, Bloomberg [↩]