The pent-up demand for rail freight and the movement of goods is incredibly high right now. All around the country, North America and really around the globe demand for freight and goods is excessively high. Commodities such as intermodal, grain, coal, minerals, scrap metal, chemicals and a host of other commodities are not meeting the current demand requirements.
Is COVID-19 Really to Blame?
The reaction to current COVID-19 news doesn’t (even with its new variation) seem to carry the same weight as the initial reaction to COVID-19. I’m not sure why. Maybe it’s because we have a lot of folks that are vaccinated. Maybe it’s because those who have gotten COVID-19 and have the antibodies built up and aren’t concerned? Or could it be because people are simply not going to let it control their lives? When COVID-19 hit, it’s as if the world paused for a bit. Then people remembered they need to replenish their stores. The push for the movement of goods around the world is putting extreme pressure on the rail infrastructure and generating a demand for rail freight. Many countries have factories or processing plants that make a variety of products. From tires and automobiles to processing soybeans into oils and feed for cows, pigs and chickens, we see the demand for rail freight. Transportation of grain and corn for human consumption and other food grade products has also suffered. We’ve seen raw materials that feed the supply chain halt. Materials such as minerals; scrap metal; copper and aluminum; coal to generate electricity; chemicals to enhance processes and products or to control weeds and pests; etc.
It’s hard to get a true measure of this pent-up demand.
Simply taking the current movements by rail and characterizing them as demand for rail freight sells short the idea that the railroad may not have provided sufficient service or system railcar availability to supply a customer railcars in a timely manner necessary to meet that customers – customer demand criteria. Thus the customer used a different transportation provider to haul their goods to their customer. We’ve heard stories of companies hauling product from California to Utah by truck that have a freight differential of 1.5 times less if hauled by rail but we hear that the rail service schedule isn’t reliable enough for the supplier to guarantee delivery timing. We’ve also run into the situation where the base commodity itself is facing a strong export demand and strong domestic demand at the same time. Domestic requirements compete against export surge and the price of the commodity goes up and supply goes down while committed domestic deliveries suffer due to competing demand points for transportation providers.The commodities delivered by rail play a role in everything we touch so a disruption in the supply chain essentially has an impact on individual lives.
What do the stats show
The Association of American Railroads publishes an electronic publication on a monthly basis called Rail Time Indicators. RTI is a good measure of past rail movements and a general outlook on what the economy looks like from a rail perspective. RTI publishes rail car loads originated and trends for a group of 20 commodities. Rail transportation demand shown in RTI is subject to capacity constraints throughout the supply network be it ships available to haul containers, bulk commodities or liquid commodities, port capacity in the US, Canada and foreign locations. Looking back in October 2021, we see coal leading the increase in traffic at roughly 13% increase. A long hot summer put demands on green energy (solar/wind) and a robust export market has this commodity in high demand. Albeit with long term legislation coal powered generation continues to be significantly reduced and it seems that demand will follow significant peaks and valleys. Grain recently declined on reduced exports. The long hot summer in many growing areas have impacted the volumes of grain available and local demands are sourcing their requirements before the export market has sufficient pricing to draw it to that market. The entire metals supply chain from iron and steel scrap metal to primary metal products lacks sufficient railcar supply and service parameters to service its’ demand. Lumber and lumber products have surged as demand for housing has increased partly as an offshoot effect to COVID-19 re-officing of office personal to home on a full or part-time basis with a good number of those employees making the home office permanent. Other commodity groups are generally in the same situation.
So, where’s the good news?
The economy is trying gallantly to re-cert its position as healthy and growing. A high demand for transportation of goods is a good thing. It means we as Americans are reconnecting, buying in the market, adding to the dollar multiplier effect and trying to bring some stability to the financial situation. Rail traffic generally leads up and lags down economic indicators and the forthwith results. If the current traffic levels are any indication we’ve got brighter days ahead, if only we could move our railcars today!