There was little evidence of a notable ramp up in U.S. economic activity in January based on freight volume trends as rail shipments of major industrial commodities were growing at a lackluster pace, according to Fitch Ratings.
Association of American Railroads data through Jan. 21 shows generally sluggish demand growth across most commodity groups, Fitch Ratings officials said in a prepared statement.
Class I management teams have painted a picture of relatively restrained volume growth for 2012 after carload growth slowed in 2011’s second half, they said.
“Relatively strong operating fundamentals for Class I rail operators such as CSX Corp. and Union Pacific Corp. continue to be driven more by pricing than volume,” Fitch Ratings officials said. “Revenue-per-carload growth rates again outpaced volume growth in the fourth quarter, reflecting the strength of the rail pricing environment and higher fuel surcharges.”
Early indicators of rail activity in 2012 support the view that the U.S. economy continues to grow slowly, following a fourth quarter in which growth was heavily influenced by inventory restocking and a pick up in auto-related shipments, they said. Shipments of high-volume commodities, such as coal and chemicals, remain flat or declining on a year-over-year basis.
“We note that autos and energy-related freight volumes stand out on the positive side as areas of the economy that are growing briskly,” Fitch Ratings officials said. “All of the major railroads noted in their earnings calls that they expect volume growth in these sectors to deviate from the broader trend of sluggish expansion.”
Auto sales appeared to be growing at a healthy pace in January, “consistent with our view that U.S. light-vehicle sales volume will likely top 13 million units in 2012,” they said. And energy-related activity remained strong primarily from crude oil resources in emerging shale plays, such as the Bakken and Eagle Ford. Energy sector inputs, such as frac sand and steel drilling pipe, were driving growth in carload volumes.
However, the soft markets include grain, chemicals and coal. Weak coal shipments might depress U.S. rail volumes this year as utility coal demand continues to be soft due to low natural gas prices, high stockpiles and mild winter weather across the nation, Fitch Ratings officials said.
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