“Things are bad,” Seidl says.
More trucking companies filed for bankruptcy in the first half of 2019 than in all of 2018. And more truckers are likely to close up shop this year, Seidl says, with a rising number of delinquent fuel payments serving as a red flag for additional bankruptcies.
Meanwhile, truckers are canceling orders for new rigs and scrambling for loads by lowering their rates, Seidl told the North East Association of Rail Shippers.
Independent analyst Anthony B. Hatch says this year’s railroad volumes “are terrible.”
In the first quarter, Class I railroads blamed the slowdown on a spate of bad weather, particularly in the West and Midwest, Hatch says. But by the end of the second quarter, it was clear the economy was slowing, truck competition was heating up, and railroads weren’t going to hit their original volume targets this year, he says.
Five factors are behind this year’s rail volume declines, Hatch says. They include, in descending order of importance: an economic slowdown, overcapacity in the trucking industry, the impact of the U.S.-China trade dispute on the agricultural and manufacturing sectors, railroads intentionally shedding volume under transitions to Precision Scheduled Railroading operating models, and weather that has hurt crop production in the Midwest.
It’s unusual for intermodal volume to decline in a growing economy, Hatch notes. But it’s still the second-highest intermodal volume year ever, he says.
There’s healthy skepticism about Precision Scheduled Railroading, Hatch says, with many viewing E. Hunter Harrison’s operating model as a short-term, Wall Street-driven effort to boost profits.
While there are some elements of that early on, Canadian National and Canadian Pacific have shown that, over the longer term, they can grow traffic volumes, Hatch says. Both railroads are spending the most on capital expenses, are growing faster than the four big U.S. Class I railroads, have lower operating ratios, and a better return on invested capital, he says.
“In the long run, PSR will be a very positive thing for the industry,” Hatch says.
Hatch and Seidl disagreed about whether BNSF Railway would adopt PSR as the other Class I railroads have done.
Seidl says BNSF can’t stand by while rival Union Pacific gains a significant cost advantage.
“If your main competitor in a duopoly is lowering its cost structure, you have to do something,” he says.
BNSF won’t jump on the PSR bandwagon, Hatch says, because its network is fundamentally imbalanced by eastbound intermodal loads running from the West Coast to destinations in Texas and the Midwest.
BNSF Executive Chairman Matt Rose was highly critical of PSR before he retired earlier this year, Hatch notes, and CEO Carl Ice told a shipper conference in May that the railroad always strives to improve its efficiency.
A recession is 2 quarters of negative growth. You don’t know for certain until it’s done. Or until it’s been going on for a while…
Is this 2019 or 1984? We’re not in a recession or anything close, but Democrats (actually, fascistic socialists) insist we’re in a recession.
BTW I’m not predicting the future. Not my key competence. We might be in a recession next year but we’re not in one now.
I thought all the rail users were flocking to trucks due to poor service following PSR implementation.
UP may be lowering their cost structure but; until such time as they actually decide to start growing rather than shrinking, why should BNSF be concerned?
And, based on comments by UP’s incoming new CFO; there likely isn’t a snowflakes chance in hell that UP intends to grow business anytime in the foreseeable future.
Attention Ms. Harding and Mr. Jeffries: Mr. Winter is correct. There are several news outlets who are actively hoping for a recession, in a The-Sky-Is-Falling manner, but the numbers do not bear that out. We may be slowing, but going from 3% to 2% growth is by no means a recession.
We are not in a recession. A economic slow down, maybe. To have a recession we need 2 consecutive quarters of negative economic growth. 1st quarter of 2019 we had +3.1%. 2nd quarter +2.1%. 3rd quarter projected to be +1.9%. All positive growth. Projections for 4th quarter are +1.8 to +2.0%. Those are booming numbers in Obama’s mind. Remember when he said the new normal for GDP would be less than 2%.
Want to help that trade issue. Pass the USCAM trade agreement. Canada, Mexico & farmers are all for it. But the House will not take a vote on it. If passed it would be a huge economic gain for the USA & farmers in particular. But Pelosi sits on it. Better to hurt our farmers & economy than give Trump a win.
Spot rates are slowly creeping up in key lanes i.e. LAX-Dallas, but this could just be a side effect of the upcoming season. The pricing differential between Truck and IM has shrunk to within cents of each other.. There is the possibility of a small shift for this holiday shipping season to IM..
Maybe,just maybe their might be a slot or two for increased passenger traffic? Like daily Cardinal, and Sunset to start with. Did I read today “wonder of wonders” that Amtrak has added baggage service to the Pennsylvanian????
Unfortunately, I have to agree with Dennis. It looks to be the beginning of an economic slow down and people are getting more cautious with their spending. Thus, less demand for merchandise traffic. The so called “trade-war” isn’t helping either.
I agree with Anna…we are in a recession folks. Might have been headed there anyway, but the tariff/trade war disaster made sure of it. Nothing to do now but grab the tail of the tiger and hold on tight.
Have to agree with Curt’s assessment. Just because your neighbor does it is not a good reason to do yourself.
The goal should be to grow your business while trying to improve safety, improve efficiencies, maximize equipment utilization and reduce your cost. Do the first three and you will get your forth, cost reduction. Simply reducing cost is not a good long term business model. Its a short term, quarterly driven Wall Street earning reports business model.. I hope for the sake of railroading future that BNSF remains privately held and keep its sanity
Wasn’t bringing back coal a campaign platform? Pretty sure a lot of Appalachia cast votes for that candidate. Has he reneged or was he writing checks that he knew that he had no way of covering? Lots of miners still out of work. Just sayin’ . . . . . . . .
Read the descending order of importance – starting with economic slowdown. We’re in a recession, folks. The governing power structure simply doesn’t want to admit it. We’re going into the Christmas buying season. If it is as bad as some of the predictions I have been seeing, hang on to your hat.
As for trucking, it’s a quick way to go bust. Crime doesn’t pay – neither does trucking. Not anymore.
The above comments are generic in nature and do not form the basis for an attorney/client relationship. They do not constitute legal advice. I am not your attorney. Find your own damn steering wheel holder.