Heavy Duty Trucking, April 2019

Hotline TRUCKINGS MOST RESPECTED BUSINESS REPORT First quarter Winter doldrums As is typically the case weather events happen during winter In some years they have a modest impact almost immeasurable However in years like this one the impact has been more material and in our opinion may be distorting the trends in January February economic data We bring this up because following somewhat weaker than expected retail traffic in February and a meaningful pullback in railroad carloads questions have been increasing in terms of economic growth slowdown or weather impact Lets investigate the railroad impact In our graphic below we note that there has been a turn downward in three month moving averages in truck tonnage as shown by the American Trucking Associations non seasonally adjusted index which has pulled back from 80 growth in October and 64 growth in November to only 28 growth in December and 60 growth in January As we use a three month moving average in our chart the figure appears to have turned downward and we expect a weaker figure in February as the intermodal carload data from the American Association of Railroads has slowed from 6 growth in the Fall to 28 at yearend which bounced back to 50 growth in January but fell to 1 in February Combined with slowing housing data which has gone from 29 growth in starts in 4Q 2019 to 8 quarter to date and there could be cause for concern Hence the questions we have been receiving this past month While we can understand the slowdown in housing on higher interest rates and we believe that some moderation in freight volumes is occurring during 1Q 2019 because of pre shipping ahead of potential tariff deadlines we note that unemployment remains at a healthy 39 rate meaning many Americans have jobs and as such we expect continued consumption So why the weak February and why the extraordinary slowdown in railroad carload data We believe that some of the retail weakness can be explained by the Polar Vortex we have seen in the Midwest the rain on the West Coast and heavy snowstorms we have seen in the Midwest as well Back in 2014 we had somewhat worse but similar weather and it slowed commerce in 1Q negative GDP which snapped back in 2Q and 3Q with consecutive 4 GDP figures Where we are seeing similar metrics is on the service side of the railroads with increases in terminal dwell and average train speed that are not as bad as in 2014 but much worse that we were seeing last year This leads us to believe the slowdown in rail traffic we have seen in February and early March is more weather related than commerce related Looking at the publicly available data on the Union Pacific website we see that average train speed has declined since January 12th from 257 mph to 224 mph while at the same time terminal dwell has risen from 237 hours to 274 hours These changes a 13 decline in average train speed and a 15 increase in terminal dwell are significant This could explain the decline in intermodal traffic from a 68 growth rate in mid January to a 2 3 decline in February but a recovery to a 1 decline in early March Management confirmed at a recent investor conference that weather had slowed the fluidity of the railroad system meaningfully and it could take into second quarter to recover So we recommend waiting to see the March data before coming to any conclusion about the magnitude of any slowdown in economic data in the first quarter Jeff has been a recognized trucking and transportation authority for almost 30 years most notably heading freight transportation research for Merrill Lynch and today runs transportation consulting firm Tahoe Ventures He can be reached at jkauffman@ truckinginfo com Numbers behind the Jeffrey Kauffman Contributing Economic Analyst jkauffman@ truckinginfo com HDT APRIL 2019 20 WWW TRUCKINGINFO COM SOURCE ASSOCIATION OF AMERICAN RAILROADS AND AMERICAN TRUCKING ASSOCIATION