Timing is everything. Just a couple of weeks ago I wrote an article stating full truckload rates would likely continue having downward pressure, in my opinion, for the rest of the year. I also stated I thought the American Trucking Association (ATA) was off target stating a 7% tonnage increase for Fenurary2016. The spike didn’t make sense and I wasn’t seeing or feeling the ‘tonnage love’ from the market place.
As it turns out the rail community wasn’t feeling the tonnage love either. CSX, KCS, and G&W all just reported tonnage losses of 5% or greater for the first quarter of 2016 as compared to the first quarter of 2015. Some of the reduction in volume can be explained by coal being tagged the ‘demon rock’ by the Obama administration. Coal has been a staple commodity for railroads for many years and like other segments of the energy sector has seen better days. Less coal, less loaded rail cars, less loaded rail cars, less revenue. Although not all of the reduction can be attributed to the demon rock. The market was just plain flat as compared to last year same time, or as CSX CEO Michael J. Ward put it, “the continued coal decline and other market forces”.
Not only do the first quarter flat rail numbers mirror the flat numbers from the truckload market, the demise of the demon carbon nuggets and “other market forces” for rail will help keep the downward pressure on trucking rates as a byproduct. That is of course unless we all become super consumers and change the momentum of the economy.
As pressure builds for rail to combat tonnage reductions from the war on demon rock, railroads will start looking to other sources of tonnage. Rail and truckload carriers have long worked together railing some trailers across the country, sometimes with the shipper not even being aware of it. Although in an effort to maintain tonnage the railroads will become downright aggressive at marketing intermodal trailers. It doesn’t take a network news expert on ‘all things trucking’ to figure out every load that flips to rail trailer is one less loaded truck rolling on rubber.
Truckers and 3PL’s are already feeling the pinch in the form of reduced margins. For their part large truckers are taking notice and will act. Look for big truckers to begin thinning fleets to help balance the budget. This move will not only help bring short term money back to the trucker P&L’s on operational expense, it will also help to stabilize, and eventually help raise rates, heading into 2017 as the reduced fleets help tighten capacity.
Even though trucking gurus see rising tonnage for trucking continuing through the end of time, I have a feeling the railroads efforts to flourish will include enhancing intermodal services to move freight from rubber to rail. This may mute the expected trucking index growth by diverting more longer haul and hub to hub fright to rail instead of truck.
Will this be a bad thing? I can’t say it will. Evolution of industries happen and there will still be plenty of freight that just can’t go rail. But we very well may see a day in the not too distant in the future all big trucking will also be in the rail business as some already are. It may just be a matter of what industry takes over what industry on the road to becoming one.
If you would like to research this subject or others, have a read at the below links. It’s hard to tell what to do inside of your house if you have no clue as to what’s happening outside of your house. Tom O’Malley – TJO Cargo