Warm weather, low prices hit energy rail traffic in 2016

The nation’s rails have been carrying fewer loads recently, led by sharp declines in trains hauling coal, crude oil and other energy products, due to an unusually warm winter season and persistently low oil and gas prices.

Over the last year, shipments of coal and petroleum products on the U.S. freight railroad system are down 36 percent and 19 percent, respectively, according to traffic data collected by Association of American Railroads for the week ending Jan. 23.

Depressing traffic further, shipments of metallic ores and metals — which include coke for steelmaking and materials for pipelines — were down 16 percent from one year ago. Nonmetallic minerals, which include industrial sand used in natural gas drilling, were down 14 percent.

Those declines have weighed down overall U.S. rail traffic by about 11 percent: Of the 12 categories of products that freight railroads carry, those four categories posted the largest declines over the past year. Coal carloads make up about 15 percent of all U.S. rail traffic, while crude oil and related petroleum products account for another 3 percent.  

The steep decline in energy products is nothing new for U.S. rail operators, which forecasted a prolonged decline last summer in reports to the U.S. Department of Transportation. But as warmer weather leads to growing coal stockpiles at power plants — and with oil prices slipping below $30 a barrel this month — railroads are being forced to look at other sources of revenue.

Executives at CSX Corp. and Norfolk Southern Corp., the two major rail carriers through Pittsburgh, have both noted steep losses from coal and said they are trying to shift away from being coal-dependent. CSX took the harder hit, reporting coal revenue nosedived 38 percent in the fourth quarter from one year ago.

The Jacksonville, Fla.-based company also closed two coal facilities in Tennessee and Kentucky — resulting in the loss of hundreds of jobs — to consolidate its network.

“CSX has overcome that loss by significantly diversifying its market mix, improving service and investing in long-term growth opportunities,” CSX Chairman and CEO Michael Ward said in the company’s earnings call Jan 13. “As a result, in 2015, coal represented only 19 percent of CSX’s revenue, down from more than 30 percent in 2011.”

Last week, Virginia-based Norfolk Southern reported it lost 20 percent of coal revenue in the fourth quarter from last year. The company said it would pursue a “reduction of employee levels in areas affected by lower coal traffic” and a “rightsizing of the company’s coal infrastructure.” 

“Warm weather and lower natural gas prices resulted in declines in utility coal shipments,” said Alan Shaw, Norfolk Southern’s executive vice president and chief marketing officer. “Coal volumes will be impacted as utilities work down high stockpiles.”

Both companies said the first quarter should be more of the same but coal shipments could stabilize later this year.

Appalachian coal production during the week ended Jan. 23 was 3.2 million short tons, according to the U.S. Energy Information Administration. That’s a 40 percent drop from one year ago in this region, when production stood at 5.3 million short tons.

Daniel Moore: dmoore@post-gazette.com, 412-263-2743 and Twitter @PGdanielmoore.

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