Railroad executives expect the rails around Pittsburgh this fall to carry much less coal, crude oil and frack sand as low oil and gas prices persist.
That’s good news for customers — think farmers shipping their crops and the Amtrak train service moving passengers around the country — who in 2014 saw their shipments stack up in traffic jams caused in part by the U.S. shale boom and a record grain harvest.
“Unexpected and substantial volume growth strained many parts of our network last year,” acknowledged James Squires, president and CEO of Norfolk Southern Railway, in a filing with the U.S. Securities and Exchange Commission last month.
But the profound shift in energy-related traffic — while it’s freed up space for shipments by other customers — is also hitting the carriers’ bottom lines.
Virginia-based Norfolk Southern’s second-quarter coal shipments dropped 21 percent from the year-ago quarter, and the company expects further decline as electric utilities convert to cheap natural gas. Falling commodity prices and a strong U.S. dollar have also made it difficult for coal to compete internationally, Mr. Squires wrote, and low oil prices “will also remain a headwind in our crude oil markets.”
The story was much the same for Jacksonville, Fla.-based CSX Transportation Corp., the other main line operator in the Pittsburgh area. The company expects its third-quarter coal volume to be down 15 percent as electric utilities burn less coal, along with another 15 percent decline for crude oil and shipments of sand used in hydraulic fracturing operations as shale drillers pull back production.
“CSX’s earnings and ability to invest have been diminished by sharp declines in coal,” wrote chairman and CEO Michael Ward.
He noted the company has furloughed 600 employees, most of them engineers and conductors, in areas that have seen a decline in traffic as utilities increasingly shift away from contracts with Appalachian mines in favor of lower-cost coal from the Illinois Basin.
Genesee & Wyoming Inc., a Connecticut-based short line rail operator, in August shaved off 18 percent, or $83 million, of its 2015 income projection due to coal, metal and energy declines.
Norfolk Southern and CSX’s comments came in response to the U.S. Department of Transportation, which regularly sends letters during the summer to the major railroads on how they plan to handle traffic during the “fall peak,” when demand for rail service is usually at its highest levels.
By most measures, the rail lines have been running smoothly after railroads adjusted operations.
“Looking forward, we do not expect to see a true ’fall peak’ in the coming months. Rather, in recent years, the traditional peak has flattened out and spread over a longer time period,” Mr. Squires said in the SEC filing.
Overall, the industry sees the pullback as a small lull during a period of long-term growth.
Last year, traffic neared pre-recession levels, according to the Association of American Railroads, a largely unanticipated spike caused by a boom in crude oil production and a record harvest. Tanker cars carrying North Dakota crude oil bound for refineries and hoppers loaded with coal headed for export terminals along the East Coast jockeyed for position with grain shipments and Amtrak passengers.
Norfolk Southern reported that the average number of hours its cars spent stalled in terminals fell below 25 hours for seven consecutive weeks this summer, down from nearly 35 hours in late 2014. Average train speed in July was up to 22 mph from 19 mph in 2014. CSX reported its shipments have increasingly arrived on time this summer.
Rail service has “dramatically improved across the board,” said Mike Steenhoek, executive director of the Iowa-based Soy Transportation Coalition, one of the most vocal critics of railroads last year. “They invested quite vigorously in their network, and they’re well positioned” to handle the surge in soybean shipments in the coming weeks.
Still, he said, with a smaller harvest on the way and less competitive exports this year, “there's not going be as much thrown at them as you might expect,” he said.
Daniel Moore: email@example.com, 412-263-2743 and Twitter @PGdanielmoore.