If the US economy were a train, the latest rail freight data suggests its engine is showing signs of weakening, with uneven performance across different sectors. The Association of American Railroads (AAR) recently released data revealing a complex picture for the week ending January 21: growth in carload freight coupled with declining intermodal volumes. What do these figures reveal about the underlying economic conditions?
Carload Freight: Coal and Nonmetallic Minerals Surge While Chemicals and Grains Decline
US rail carloads reached 230,545 units during the reporting week, marking a 3.3% year-over-year increase. While this figure surpassed the 212,962 carloads recorded in the week ending January 7, it fell short of the 244,171 units reported for the week ending January 14. Over the first three weeks of 2023, total US rail carloads reached 687,678 units, representing a 3% increase compared to the same period last year, indicating moderate growth in freight demand.
A closer examination of the 10 major commodity categories tracked by AAR reveals significant sectoral variations:
Growth Leaders:
- Nonmetallic minerals surged by 5,895 carloads to 31,264 units, likely reflecting seasonal construction demand and infrastructure project momentum.
- Coal shipments increased by 2,454 carloads to 68,675 units, suggesting heightened winter electricity demand and coal's strategic energy value.
- Motor vehicles and parts rose by 2,321 carloads to 13,166 units, signaling automotive industry recovery.
Declining Sectors:
- Chemical products decreased by 2,891 carloads to 31,038 units, potentially indicating manufacturing slowdown and global chemical market competition.
- Grain shipments fell by 1,262 carloads to 22,015 units, possibly affected by weather conditions, export fluctuations, and transportation bottlenecks.
- Forest products declined by 799 carloads to 9,065 units, reflecting cooling housing markets and related supply chain adjustments.
Intermodal: Persistent Weakness Amid Multiple Challenges
In contrast to carload growth, intermodal container and trailer volumes declined to 236,940 units, representing a 6.7% year-over-year decrease. While this exceeded the 203,257 units recorded in the week ending January 7, it remained below the 241,829 units reported for the week ending January 14. Cumulative intermodal volume for the first three weeks of 2023 reached 682,296 units, showing an 8.4% decline compared to the same period last year.
Several factors may be contributing to intermodal weakness:
- Cooling consumer demand: High inflation and rising interest rates may be reducing retail inventories and subsequent intermodal needs.
- Port congestion easing: Improved supply chain conditions might be shifting some freight from intermodal to trucking alternatives.
- Increased competition: Trucking companies may be gaining market share through price competition.
North American Rail Performance: Marginal Decline
Expanding the analysis to include 12 major railroads across the US, Canada, and Mexico, North American rail carloads totaled 336,113 units for the week (up 6.8% year-over-year), while intermodal volume reached 309,502 units (down 6.7%). Combined North American rail traffic stood at 645,615 units, showing a 0.1% decline. Cumulative volume for the first three weeks reached 1,893,180 units, representing a 0.5% decrease.
Economic Implications and Future Outlook
The rail freight data presents a nuanced economic picture: carload growth demonstrates resilience in certain industries, while intermodal weakness suggests consumer demand softening and ongoing supply chain adjustments. The North American figures confirm this pattern of slowing freight market growth.
Key factors likely to influence future rail freight performance include:
- Macroeconomic conditions: Inflation, interest rates, and employment trends will continue affecting consumer spending and business investment patterns.
- Supply chain robustness: Port operations, labor availability, and geopolitical risks may impact freight efficiency.
- Energy transition: Renewable energy adoption may gradually reduce coal shipments while creating new freight opportunities.
- Technological innovation: Automation, digitalization, and AI applications could enhance operational efficiency and customer service.
For businesses and investors, careful monitoring of rail freight trends provides valuable insights into economic activity and commodity flows. These indicators serve as important references for strategic decision-making in an evolving market environment.