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Over the past decade, U.S. rail freight carload volume hasn’t met strategic expectations. Railcar traffic appears to be declining as a competitive share of U.S. freight service.
Freight rail traffic grew significantly between 2000 and 2006, but then it plummeted during the Great Recession. And 2009 was a very bad year for the major North American railroads in terms of rail carloads. Coal, which at that time made up nearly half the railroads’ carloads, was down 11.1%, and the second-largest category, chemicals, fell 11.2%.
Railcars sit on track. (Photo credit: Shutterstock)
Carload freight recovery started as the overall economy slowly recovered – but then coal led two declines in 2012 and again around 2015 and 2016.
Railroad data graph courtesy of the AAR.
Intermodal – which is not covered in this column – is the sort of glamorous rail mode to follow. However, hands down, carload traffic typically has higher traffic margins than intermodal. Here are the best yield carload units to watch:
Traffic like coal might continue to decline in annual volume. But the last coal shipments are decades from now. There is still a large mass being moved each year.
(Photo credit: Jim Allen/FreightWaves)
The history of past rail traffic shows, importantly, that railroad traffic can often be sustained profitably even as the volume and market shares drop. The real danger is that occasional unplanned and badly overlooked events like the Great Recession can result in significant downturns that last for several years.
A strategic volume decline can actually be sustained over perhaps a two- to three-decade period. In part, this is because even as traffic drops the track structure has a long physical life if prudent maintenance is performed.
(Photo credit: railpictures.net/Joe Blackwell)
Few railroad economists see a repeat like the very sudden collapse of the mighty Penn Central five decades ago. Yet, considering logistics changes in our nation’s economy, it is prudent to consider the outlook for rail carload traffic.
Evidence suggests that carload freight doesn’t serve a lot of the changing economy.
That includes general merchandise products like:
This type of freight grew typically by more than one-third over the past decade. Carloads are not the usual mode.
On the bulk commodities level, recent volume losses included:
(Photo credit: canadianshipper.com)
Some of these carload groups lost between 25% and almost 40% of volume. On the plus side, crude oil moved by rail tank cars increased significantly beginning a little over a decade ago.
Environmentalists and some public policy planners still ask – “Could there be a coming massive expansion away from trucking into carload rail?”
Physically, and financially, that might be impractical. Why? There are just too many places where industrial and heavy commercial land development has occurred over the past 50+ years that are not serviced by rail tracks.
Furthermore, few railroads or governments are currently funding capital expenditure projects to build out those tracks. Such building runs about $4 million per track mile for what is often viewed as a speculative carload benefit.
Someone must sign the checks for such a track connectivity program.
(Photo credit: Union Pacific Railroad)
Have they? The environmental benefits for society have been documented. Yes, some projects like Chicago CREATE and the Alameda Corridor have been built. But other proposed large-scale projects from the Houston urban rail restructuring at more than $3 billion to the I-95 Corridor recommended rail freight projects are not funded.
Table 1 shows both actual historical traffic volume changes (as ton-miles) and growth prospects for several projections out towards 2025. The growth rates are very small.
Table 1 – Comparison using 10-year growth outlooks for rail freight expressed in ton-miles
Actual or Forecast
Ton-Mile % Change
Class 1 RR data
1990 – 2000
Class 1 RR data
2000 – 2010
FAF US government (no Intermodal)
2015 – 2025
AEO (NEWS) Scenario
2015 – 2025
Despite some positive 2025 outlooks, the reality is that between 2003 and 2007, most rail industry outlooks expected rail ton-miles in the U.S. market to significantly expand; expand much more so than the 2015-2025 outlooks in Table 1.
The most recent evidence shows that actual ton-miles are dropping.
Table 2 – Selected years – changes in railroad U.S. freight in trillions of ton-miles
Source: U.S. government BTS data tables
Without returni+ng coal traffic, the outlook for rail ton-miles is a continuing gradual decline in ton-miles instead of the decade-ago increasing pattern above two trillion ton-miles.
The economic challenges of intermodal growth via short-haul distances between traffic markets less than 500 miles apart were previously covered: https://www.freightwaves.com/news/commentary-will-short-haul-intermodal-rail-ever-work and are not repeated here.
Wrap up market view and challenges/opportunities
Given the carload uncertainty, it is possible that between 2025 and 2030 that all-in intermodal market forms might reach near 60% or better of total revenues as well as units.
The impact on ton-miles is harder to calculate. Overall rail ton-miles are expected to decline. Environmental goals that expect rail ton-miles to reach towards 2.5 to 3 trillion ton-miles are not realistic without breakthrough traffic change.
Railcars and tank cars sit in a railyard. (Photo credit: Dreamstime)
However, there are still some in public agencies that have an outlook for rail ton-mile growth (shown in the following graph):
Figure 2 – Actual and projected long-range freight ton-miles by mode and selected rail commodities. The outlook needs to be reassessed.
Source: TRB report – 2015. See references at end of this commentary
Figure 2 shows that railroad freight ton-miles were projected to increase at a rate of just 1.3%. In contrast, truck ton-miles were expected to increase at a rate of 2.6%. Hybrid intermodal, or transloading, was projected to grow at a rate of 2.9%.
Regardless of which outlook one favors, at these rates rail carloads will lag badly compared with trucking growth.
(Photo credit: FreightWaves/Jim Allen)
Of strategic importance, we are not seeing evidence of a large enough traffic drop to suggest a “going out of business” pattern for rail carload volume. Railroads still move a lot of cargo.
Table 3 – Year-to-date as of December units moved in U.S. market (in millions) & % changes
2019% versus 2015
Carloads excluding coal
Total carloads & intermodal
Source: AAR January 10th Rail Indicators
Fred Frailey, a retired Trains Magazine investigative reporter, pointed out recently what a critical step function traffic loss might look like. He selected Union Pacific routes for his comparison.
Table 4 – Estimated changes on selected UP main line routes – not all corridors shown here
Previous Daily Trains High
Reduced Daily Trains
% Market Demand Change
Chicago – Clinton, Iowa
Nebraska 3-track coal region
LA – El Paso, Texas
Denver – Salt Lake via Moffat
Source: Trains Magazine Rail Blog in 2019
This data speaks in an easier to understand business language of trains per day changes. If there is to be rail growth, track capacity isn’t as big of a hurdle as once thought.
Carloads are still good business, but only selectively growth-prone. Be observant about the challenges please.
As always, what is your rail carload outlook?
Railcars pass through a rail crossing. (Photo credit: Russ Ward/Unsplash)
This article first appeared on www.freightwaves.com
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