North American Rail Industry Trends:Week 20,The Short Report
The Big Picture: Total Class I traffic fell 10.1% y/yover the most recent fou weeks (below the -6.5% from 1Q). Coal traffic fell 32% y/y (in line with the -33% from 1Q), while merchandise traffic fell 2.9% y/y (below 1Q’s -2.2%). Last, four-week Intermodal traffic fell 7.2% y/y, well below the +1.8% in 1Q - p.
Network Performance: Average Class I train speed through the 2Q16-TD is up 10.1% y/y, a slight moderation vs. the 12.1% gains seen during 1Q, but in line with the +10.6% from 4Q. By terminal dwell, average Class I dwell time through 2QTD is down 6.3% y/y, below the 8.1% improvement during 1Q16 and the 10.6% improvement from 4Q15. Ranking carriers by velocity through 2QTD, BNSF leads with train speed up 19.2% y/y, followed by NSC (+15.3%), CP (+9.9%), UNP (+9.0%), KSU (+7.3%), CNI (+5.5%), and CSX (+5.4%). By terminal dwell, NSC leads dwell time 11.4% below year-ago levels, followed by KSU (-10.4%), CNI (-5.7%), UNP (-5.0%), BNSF (-3.7%) CP (-3.0%), and CSX (-2.7%) - p.
Fuel Prices: Average diesel fuel prices continue to march higher, rising 2.6% sequentially over the most recent week to $2.36/gal (as of Monday, May 23). Despite remaining nearly 20% below year-ago levels, prices have now risen ~20% since mid-February, and given the 0.96 RSQ with Brent crude oil on a weekly basis since 2000, we expect diesel will continue moving higher (crude prices have risen a steeper 50% since mid-Feb). While we expect the rise in diesel prices will cut into Class I margins in 2Q and 2H16 given the math of higher fuel as well as the fuel lag impact, we will be closely watching the interplay between TL and rail intermodal, with higher diesel acting as a “net positive” for H2R conversion - p.
Coal Watch: Natural gas prices of $2.06/mmBTU over the most recent week continue to rest nearly ~30% below year-ago levels and well below the coal-to-gas switching threshold among utilities. Based on the current futures curve, nat gas is expected to remain below $3/mmBTU through 2016. While the futures curve implies average prices for the full-year 2017 will rise a nearly 30% y/y to ~$2.90/mmBTU, this level is likely still too low to spur a rebound in coal shipments for the Class Is. On a global front, oversupplied seaborne markets continue to weigh on exports despite a modest decline in the USD recently, with April’s 2.9mm tons of exports among the major East Coast terminals 50% below the 5-year average (see here) - p. 6. Comparisons by Carrier: Ranking carriers by four week volumes, KSU leads the pack with traffic off 2.3% y/y, followed by CSX (-8.8%), NSC (-8.9%), CP (-9.6%), BNSF (-10.6%), CNI (-12.4%), and UNP (-12.7%) - p. 7-11.