United States Freight Transport Report Q1 2010

US railroads registered the highest bulk car loadings in five months during the week ending August 15 2009. In the same week, the Association of American Railroads (AAR) recorded 276,488 railcar loads for Class I railroads and a few regional rail lines, compared with 274,633 car loads the previous week. The increase in scrap and metal ores volumes and the strongest rail shipments of finished vehicles contributed to the increase in rail freight. The downturn looked to be easing in the US rail freight sector as the number of cars loaded reached its highest level since April 2009. The US recession has had a marked impact on rail transportation after record years for cargo volumes in 2006 and 2007. However, recent indicators from the economy depict that the downturn is beginning to ease and this has been reflected in promising signs from the rail freight sector. The industry is made up of a small number of large operators with strong capital reserves, as opposed to the trucking sector which is highly fragmented and oversupplied with large numbers of small firms competing for business. Whereas some observers note that the US trucking industry has been in a downturn since 2006, when freight volumes first began to fall, the downturn in the rail sector is much more closely linked to the economy as a whole and BMI expects a steady if moderate recovery to begin in 2010.

Since our last report we have been reducing the estimated intensity of the drop in 2009 US economic activity, although we remain less than bullish on the strength of the recovery from 2010 onwards. We now see GDP falling by 2.7% in 2009 – our latest figure which updates the preceding section and last quarter’s projection of -3.3%. Looking ahead we now expect a recovery with 1.9% growth in 210 (was 1.2%), followed by 2.3% in 2011 (was 3.0%). For the new five-year forecast period of 2010-2014 we now forecast annual GDP growth to average 2.1%, a low figure but still above the 1.1% average achieved in 2005-2009 (which of course reflected the impact of the 2009 fall). While better, the operating environment for the freight transport industry will remain tough. Traditionally, in developed countries like the US, freight traffic, measured in tonnes-km, tends to grow a little slower than GDP. Overall, we see this pattern continuing during the forecast period, and are predicting that total freight traffic growth will average 1.7% per annum, around 0.4pp slower than the expansion of the economy as a whole.

According to our latest estimates, transport and communications GDP fell by 2.0% in 2009, 0.7pps less sharply than overall GDP, which we estimate to have slumped by 2.7%. For the 2010-2014 forecast period we expect the transport and communications sector to outpace the economy as a whole in value terms, although by a narrow margin (note that this measure includes communications as well as freight businesses). It will achieve average annual growth of 2.3%, versus 2.1% for overall GDP. The total value of transport and communications GDP will rise to US$1.166trn in nominal terms by 2013, representing 6.6% of US GDP.

Road haulage freight traffic grew quite strongly in 2002, and maintained a slightly slower but steady expansion thereafter until 2008. Prior to the economic slowdown, the constraints have been to do with road congestion and a lack of haulage capacity, but although environmental standards will become more demanding, we do not envisage federal action to impose major new road taxes. We expect truck cargo traffic to grow at a 1.5% annual average to 2014. In some ways, the most dramatic performance story concerns airfreight. Air travel in general was hit very hard by the 9/11 terrorist attacks, and many of the big airliners have not fully shaken off major financial difficulties. In 2001, airfreight traffic fell by a dramatic 16.0%. Domestic air freight recovered in 2002 and subsequent years but contracted in 2005.

Although the financial health of the main companies was fragile, profitability improved up until 2007: in 2008 a new round of losses materialised and intensified in 2009. Across the forecast period, airfreight should grow at an annual average of 2.2%, broadly on a par with GDP expansion. We forecast average growth in rail freight traffic of 2.4%, ahead of truck freight, reflecting a small modal shift away from excessive reliance on the roads. Maritime freight will expand by 1.3% a year. Finally, pipeline throughput will grow at an annual average of 1.1%. These numbers show a relatively gradual emergence from the impact of the current recession.