June U.S. Rail Traffic Data Shows Ongoing Economic Growth

by: Mark J. Perry

Some highlights from Thursday's monthly report from the American Association of Railroads (AAR):

Intermodal: U.S. railroads originated 996,022 intermodal containers and trailers in June 2012, up 5.2% (49,168 units) over June 2011 and an average of 249,006 units per week. That's the highest average for any June in history and the third highest average for any month in history (behind August 2006 and October 2006, see chart below and click to enlarge).

In the second quarter of 2012, intermodal loadings were up 4.0% (121,369 units) over the second quarter of 2011. For the first six months of 2012, intermodal originations were up 3.3% (193,541 containers and trailers) over the first six months of 2011.

Through June, year-to-date 2012 U.S. intermodal originations were slightly ahead of 2006, setting up the very real possibility that 2012 will be the highest-volume intermodal year ever for U.S. railroads. The recovery since 2009 has been remarkable. In the first six months of 2009, average weekly intermodal loadings were 185,075 containers and trailers. In the first six months of 2012, the average was up to 232,682 containers and trailers, a 25.7% increase. Assuming 240 intermodal units per train, the improvement in 2012 over 2009 is equal to nearly 200 additional full-size intermodal trains per week.

Carloads: U.S. rail carload traffic in June 2012 wasn't as encouraging as intermodal traffic, but it was better than it's been lately. U.S. freight railroads originated 1,140,271 carloads in June, an average of 285,068 carloads per month and down 1.3% from June 2011.

That's the lowest percentage decline in five months, mainly because coal carloads weren't as lousy as they have been. Coal carloads in June 2012 averaged 114,485 per week, the highest weekly average in four months and down just 6.2% from June 2011.

Excluding coal, U.S. rail carloads were up 2.2% (14,979 carloads) in June 2012 over June 2011. That's their lowest year-over-year monthly increase in six months, though the weekly average in June 2012 (170,583) was the second highest (just behind April 2012) since October 2008 (see chart below and click to enlarge).

Excluding coal and grain, U.S. carloads in June 2012 averaged 151,363 per week in June 2012, up 4.2% (24,138 carloads) over June 2011 and their highest weekly average since August 2008.

U.S. carloads of petroleum and petroleum products continued their startling growth in June 2012, rising 51.0% (14,177 carloads) over June 2011.

Carloads of motor vehicles and parts continued to grow rapidly in June 2012 as well, with U.S. carloads up 24.5% (12,957 carloads) and U.S. plus Canadian carloads up 22.5% (16,545 carloads) compared with June 2011.

Seasonally adjusted total U.S. rail carloads were up 2.9% in June 2012 over May 2012. Seasonally adjusted U.S. rail intermodal traffic was up 3.8% in June 2012 over May 2012.

Bottom Line: The AAR points out that rail freight is a "derived demand" industry, meaning that the demand for rail delivery occurs as a result of demand elsewhere in the economy for the products that railroads haul (inputs, raw materials, parts, lumber, chemicals, autos, etc.). Therefore, weekly and monthly rail traffic activity is a useful gauge of broader economic activity, especially of the "tangible" economy.

Except for a decline in coal and grain deliveries this year, most other products delivered by rail have been increasing, and overall intermodal rail traffic was the highest ever for the month of June, and on track to set a new annual record in 2012. Rail car traffic excluding coal was the highest for the month of June since 2008, and rail car loadings have been at 4-years highs in each month this year. Overall, the June report from the AAR on U.S. rail activity suggests that the economy is continuing to make gradual improvements, and there is nothing in the report that would suggest that the economy is heading towards a recessionary cliff.