The reopening of auto assembly plants across North America this month will give rail traffic a slight boost, railroad executives said at investor conferences today.
Automakers are gradually reopening assembly plants that have been shut down since March due to the COVID-19 pandemic, with many plants expected to resume limited operations on May 18.
Auto-related traffic has virtually disappeared from railroads amid the pandemic shutdowns. North American rail shipments of finished vehicles and auto parts were down 90% in the week ending May 2, according to the Association of American Railroads.
The rise in unemployment and decline in consumer spending makes it likely that auto sales will fall this year. A forecast by IHS Markit projects a 27% decline in auto sales, to 12.5 million vehicles.
As a result of lower demand and social distancing steps automakers are taking to protect their employees, railroads expect the traffic bump from resumed auto production to be relatively muted.
“It’s going to be a slow ramp,” says Kevin Boone, CSX Transportation’s chief financial officer. “But certainly going from zero to something is helpful and there’s a lot of other markets that that impacts, from our metals business across to our plastics business.”
“That will obviously be a lift for us,” says Union Pacific Chief Financial Officer Jennifer Hamann. “Although the question then is, what is consumer demand going to be?”
Canadian National CEO JJ Ruest expects May to be the railway’s worst month of the quarter, with June better than April partly due to the resumption of auto production this month. CN’s revenue fell 16% in April and is down 25% to date in May.
Kansas City Southern expects to see its cross-border intermodal traffic volume pick up this week and through the rest of the month as auto parts begin moving from the Upper Midwest to assembly plants that are poised to reopen in Mexico, Chief Financial Officer Mike Upchurch says.
Nearly three quarters of southbound intermodal traffic the railway handles through the Laredo, Texas, gateway is auto parts. Mexican auto assembly plants have been shut down for the past 30 to 45 days due to the coronavirus pandemic.
The executives spoke at the Bank of America 2020 Transportation and Industrials Conference, which was held in a virtual format.
It is spring and hope spring eternal… railroad executives are praying Mr. Market will put all those stock options back into the money. But we are at the cusp of a depression, not a recession. Behaviors will change even if we are fortunate enough to get a vaccine. With 33 million unemployed and used car prices crashing, new car sales will crater. We’ll see if the railroads’ guarded optimism is correct. I don’t think so.