Total carloads were down 8.9% in March while carloads for the first quarter were down 3.1%.  Year-to-date coal is down 8.1%, grain down 5.2%, chemicals down 1.2%, and intermodal down 1.8%.  Excluding coal and grain U.S. carloads were down 2.8% in March 2019 (from March 2018). The U.S. Energy Information Administration (EIA) reported 12.9 gigawatts of coal-fired utility scale electricity generating capacity was retired in 2018 (Texas, Ohio, Florida, and Wisconsin).   Grain traffic has softened, but China imported 180.8 million bushels of soybeans in March, up 10.5% from their February totals.  Much of that grain was sourced from the U.S. and Brazil (China is the world’s No. 1 soybean importer).  

With softening traffic and with the Roads focused on improving network operations, equipment and locomotives are being taken out of service.  Fewer, longer trains are running in scheduled service.  Customer loads are spending less time in classification yards.  Less congestion improves on-time delivery and less equipment improves operating ratios and shareholder value.  If ‘economic uncertainties’ continue and if the Roads are successful in implementing ‘scheduled’ railroading, expect an overall reduced demand for equipment. Yet cars in storage have remained essentially unchanged from a year ago. There were 313,456 cars in storage this April 1 compared to 315,188 railcars in storage a year ago (approximately 19% of the total fleet).  

Why?  Shippers still demand equipment be available to respond to changing market conditions in their markets.  In order to ensure equipment is available for loads when needed Shippers will adjust by increasing investment in railcars.  Rail Portfolio Managers will assist by maintaining their focus on keeping existing fleets in service.  

With the global economy weakening and the Trump Administration and China locked in trade negotiations many analysts were concerned growth was stalling.  The Fed’s reaction was to leave interest rates alone as inflation is near their 2% goal. The Wall Street Journal forecasts the probability of a recession at 25% in the next 12 months, rising to 49% in 2020.  But the purchasing manager index doesn’t indicate any current signs of contraction (having risen to 55.3 in March from 54.2 in February).  Job growth rebounded last month after a February slowdown. Unemployment is historically low. While traffic has been affected by trade disputes, slower growth in Europe, and weaker consumer spending, most analysts predict continued moderate growth during 2019.  Economic uncertainties?  

A recession does not appear on the horizon and the U.S. economy remains resilient in its 10th year of expansion.  Softening traffic, stored equipment, improving network operations, Shipper demands, and the need to keep equipment in service will change how the Industry manages investment. Returns accrue to those with experience, diligence and integrity.

Successful portfolio management is a difficult thing to imitate.  For air and rail alternatives call RESIDCO.

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