How's the rail business

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How's the rail business?

Simply stated, rail is down while intermodal is up. As might be expected, railroad traffic follows general economic conditions, so through the second quarter of this year (2Q03), volume has been down.

In looking at specific commodities having the greatest impact on railroad traffic, analyst firm Morgan Stanley (www.morganstanley.com) has these general observations:

• Coal volumes, which represent 32% of all U.S. traffic, showed a slight upturn in the 2Q03, climbing 1.6%. One factor in the increase is that natural gas prices continue to climb, creating the opportunity for lower cost coal fueled plants to increase output. The analysts expect continued increase in shipments.

• Grain comprises 5% of U.S. traffic and loadings were down 3.0% in 2Q03. Weather conditions played havoc with grain production, though projections are now calling for large volume increases through the remainder of the year and into 2004.

• Chemical shipments are 7% of U.S. rail traffic and declined 2.4% in 2Q03. Morgan Stanley says reasons for lowered shipping levels include high natural gas prices — needed for chemical production — chemical price increases and slowed auto production demands.

• Automotive traffic was down 4.8% in the quarter. It represents 6% of all rail volumes. The industry decreased production by 9.2%, holding inventories at 65 days, which is fairly high on average.

• Intermodal volumes, which are 23% of U.S. traffic, increased 4.4% for the period. Morgan Stanley anticipates continued growth, though a bit slower, in the third quarter, but data will be skewed October through December because year-over-year will compare this year’s volumes with those influenced by the West Coast dock strike in 2002.

Meanwhile, the Intermodal Association of North America (www.intermodal.org) (IANA) notes in its statistical analysis that through the first two quarters of 2003, traffic is up overall 6.9%. Intermodal traffic has been up, now, for five straight quarters. As with some other modes — particularly airfreight — domestic traffic has declined while international shows strong growth.

When intermodal traffic for 2Q03 is analyzed by corridor, only the Southeast-Midwest shows a decline. IANA notes that the three corridors showing double-digit increases — South Central-Southwest, East Central-West Central and Midwest- Northwest — all showed significant jumps in international traffic.
The industry will watch for ramifications from the purchase of Roadway by Yellow Freight. Along with ABF, these are major intermodal customers.

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October, 2003

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