Monday, February 14, 2011

Investopedia: Rail Traffic Data Still Largely Good News

Another month has gone by, but the data concerning rail traffic in the U.S. is still positive. That, in turn, is another positive read for the economy overall, as well as industrial and material companies. And of course, let us not forget the rail companies - so long as rail traffic continues to climb, that is a tailwind for the sector as well. 

January's Data Mostly Positive 
For January of 2011, the Association of American Railroads reported that U.S. train carload traffic rose 8% from the year-ago level. The level of traffic seen in January also represented a 1.5% sequential increase from December's levels. Of the 20 categories tracked by the AAR, 15 saw carload growth in the month, with coal (always the biggest commodity for railroads) posting above-average growth of 8.8%. Grain traffic was also notably higher (up 10%), while sand, gravel, and aggregate shipments climbed 16%. The biggest laggards, waste/nonferrous scrap and nonmetallic minerals, were both down by double digits, but represent less than 3% of normal rail traffic anyway. (For more, see Rail Traffic Points To An Ongoing Recovery.)

Investors may want to pay attention to the "mostly positive" part of this news, though. For although U.S. rail traffic was again strong, U.S. intermodal traffic may be softening up. For January, intermodal traffic was up 7.4% on a year-on-year basis and 1.8% on a sequential basis. That is still quite good, but I believe this is the first quarter in quite some time where the year-on-year increase in rail traffic exceeded the increase in intermodal. It may mean nothing at all, or it may be a sign that international trade activity is lightening up a bit.

Also of note is the performance in Canada: Canadian traffic was down in January on an annual (-1.6%) and sequential (-5.9%) basis and although intermodal volumes were positive, they were not terribly strong. Seeing as how a lot of Canada's rail traffic is part of the "stuff trade" - mostly moving commodities to shipyards for export - this is worth watching as it pertains to commodity demand growth. If China and India are cutting down on the coal, lumber and metal they buy from Canada, that would not be positive for Canadian Pacific (NYSE:CPI) or Canadian National (NYSE:CNI), though both also have operators in the United States.

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