By BRIAN BASKIN AND ALISON SIDER at The Wall Street Journal
Rail traffic fell in July from a year ago as an increase in container volumes couldn’t offset a steep decline in oil and coal shipments, the Association of American Railroads said in its monthly report Friday.
The number of carloads carrying oil and petroleum products dropped 13.6% from a year ago to 67,909 last month, while coal volumes sank 12.5%. Container shipments rose 3.8% to 1.2 million. Traffic overall fell 1.8% to 2.7 million, the association said.
Oil-train shipments have tumbled this year, hurt by plunging prices for crude and concerns about the safety of transporting petroleum by rail. That, plus declining demand for coal from power plants and overseas buyers, has hit railroad operators’ earnings. Norfolk Southern Corp., CSX Corp. and Union Pacific Corp. are among the major operators to attribute declining revenue to waning energy-related business.
“Railroads are overexposed, relative to the economy in general, to the energy sector,” analysts with the AAR said in the traffic report.
The intermodal transport of containers and trailers was a bright spot for the railroads in July, reflecting an expanding economy. Still, the AAR report cautioned that growth is slow and the recovery could be threatened by an interest-rate increase by the Federal Reserve, which is widely expected this fall.
The impact of declining oil prices also was evident in falling industrial sand shipping. Carloads of industrial sand, a category that includes sand used in hydraulic fracturing, were 18% lower in the second quarter compared with the second quarter of 2014. The fracking of a single shale well can involve millions of pounds of sand.
Last year, sand producers worried that demand for sand was so frenzied that there wouldn’t be enough railcars to carry it all from mines in places like Wisconsin and Illinois. Today, companies are trying to get rid of the railcars they ordered at the height of the boom.
U.S. Silica Holdings Inc., one of the country’s largest sand mining companies, said recently that it had deferred delivery of more than 2,500 new railcars to 2017 and 2018 to put off incurring costs. The company has more than 1,400 railcars in storage.
“My hope is that we’ll be able to get some cars out of storage just from getting more volume flowing through the network,” said Chief Executive Bryan Shinn during an earnings conference call last month. He added that the company is “looking for ways to delay, defer, push those railcars off to others, and we’ve been pretty successful so far in finding people to sublease some of our cars.”