US rail freight declines signal economic weakness
Signs of a decelerating US economy are showing up on the nation’s railways, as the carriers of bulk goods from coal to steel report falling freight volumes.
An index of the biggest US railway stocks fell more than 7 per cent on Wednesday after a gloomy business prognosis from CSX, whose 21,000-mile network runs east of the Mississippi river.
The company predicted a 1-2 per cent decline in revenue this year, abandoning a previous forecast for growth, as its boss outlined a “slow, lazy, malaise-type drift down”.
“The present economic backdrop is one of the most puzzling I have experienced in my career,” said Jim Foote, CSX chief executive, during a call to discuss second-quarter results.
His comments came amid mounting uncertainty about the direction of the US economy. Despite strong domestic employment, growth is expected to slow this year. The lengthening trade war with China has added to businesses’ anxiety.
In the year to early July, US rail traffic has declined by 3.2 per cent compared with the same period last year, according to the Association of American Railroads.
The Cass Shipments Index, a measure of North American freight volumes moved by trains and trucks, has declined seven months in a row including a 5.3 per cent drop in June, “signalling an economic contraction”, the index provider said.
Investors were due to receive further news on rail revenues on Thursday, when Union Pacific, the largest publicly owned US railway, reports results. The Omaha, Nebraska, company’s volumes are down by 3 per cent in the year to date.
At CSX, quarterly revenue fell by 11 per cent in its intermodal business, which carries shipping containers by rail. It blamed most of the decline on planned closures of routes used for the service.
Revenue declined 6 per cent in shipping metals and equipment such as sheet steel. US Steel last month said it would idle two blast furnaces in Indiana and Michigan.
The Trump administration imposed steel tariffs last year on importers that boosted domestic production but a subsequent surge in inventories meant that CSX metals volumes “will get a little bit softer, unfortunately”, Mr Foote said.
CSX was also caught up in the fallout from an explosion last month at the largest oil refinery on the US east coast. The refinery owner, Philadelphia Energy Solutions, decided to close and try to sell the refinery, removing about 1 per cent of CSX’s volumes.
CSX shares traded 10.8 per cent lower on Wednesday at $70.96.
Mr Foote said that volumes had got off to a shaky start in 2019 when the US government shut down in a stand-off over President Donald Trump’s demand for funds to build a border wall.
“And now we’re talking about another government shutdown, maybe as early September or October. And so as I said, unfortunately, in this day and age, I’m obligated, we’re obligated to update guidance with the change,” Mr Foote said of the revenue warning.
CSX reported revenue of $3.06bn in the second quarter, a 1 per cent fall from the same period a year before. Net income also fell 1 per cent to $870m, while earnings per share rose by 7 per cent to $1.01, 10 cents below analysts’ expectations.