Cost-savings in Texas may explain weak November for rail
- "It’s not like the sky is falling or anything, but while U.S. rail traffic numbers were very solid a few months ago, they were less solid in November," the Association of American Railroads wrote in its Rail Time Indicators report for December.
- U.S. railroads originated 1.03 million carloads and 1.1 million intermodal units last month, a 0.2% drop and 2.5% rise from November 2017, respectively. The figures represent the first decline in nine months for carloads and the slowest gain in 19 months for intermodal units.
- "November might just be a temporary correction as rail customers rebalance inventories," AAR Senior Vice President John Gray said in a statement. "However, it would be prudent to keep an eye on forward-looking economic indicators."
Railroads have been having a record year in terms of volumes, but a temporary dip last month raised some eyebrows.
The good news, according to the AAR's monthly analysis of economic indicators, is the carload decline that might otherwise suggest a market correction may be actually the result of dynamics in one commodity group: crushed sand, stone and gravel.
The total year-over-year decline recorded for November 2018 was of 2,418 carloads, or 0.2% of volumes. In that same period of time, units of crushed sand, stone and gravel fell 12,090 units (12.8%). It is not the only commodity that fell — grain mill products, food products and non-ferrous waste all fell too — but the category can account for a significant portion of the blame.
"It seems some oil and gas drillers are deciding to make do with local sand in place of sand railed in from far away," the Rail Time Indicators report reads.
Specifically, sand from the Midwest is being substituted by sand originating at a series of new mines in the Permian Basin of Texas, where oil and gas producers can save on transportation costs by using more local sand, according to the report. Sand from these mines is used for the hydraulic fracturing process, known as fracking, popular in Texas.
The decline in carloads and slightly lower intermodal volumes should not be equated to an alarm for the economy. By contrast, economic indicators and economist predictions continue to suggest growth in the economy going forward. However, the slight dip — if not a temporary correction — should remind shippers that the boom times won't last forever.
- Association of American Railroads Rail Traffic for November and the Week Ending December 1, 2018
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