Friday, January 15, 2016

Jumping the Tracks

Rail volume plunges double digits against background of high inventory levels.

U.S. freight rail traffic was down nearly 10 percent year-over-year in the week ending Dec. 26 as a double-digit drop in carload traffic offset a 1.6 percent gain in intermodal volume, the Association of American Railroads reported.

Total carloads for the week were 206,903, down 17.9 percent from a year earlier, mainly because of declines in coal, petroleum and petroleum products, and ores and metals. U.S. intermodal volume totaled 184,204 containers and trailers, up 1.6 percent. Overall weak demand meant that even with moderately higher intermodal volume, revenue was down for rail carriers, causing earnings and profits to plummet. CSX reported fourth quarter profits down five percent year-over-year to $466 million, as revenue fell 13 percent to $2.78 billion in the same period.

High levels of inventory are another factor in lower rail and truck freight volumes at year’s end. Businesses have been slowly chipping away at inventories that swelled in the wake of the West Coast port labor dispute that disrupted supply chains early last year. The inventory-to-sales ratio shot up sharply when that crisis practically shut down West Coast ports from November through February. Lower-than-expected sales in 2015 also boosted inventories, as well as retailer fears of “stock-outs” on store shelves. Retail inventories reportedly are still high in the first weeks of 2016, despite deep discounts on merchandise during the holiday season, as merchants strive to avoid “out of stock” situations for customers, who are continuing a shift to a “clicks and mortar” mode, visiting stores only to pick up goods ordered online.

For the shipper, the takeaway is: have a handle on your inventory, and keep it lean while ensuring supply to meet customer demand. Have you tested your warehouse management system lately?  

Kirk Shearer
TOTALogistix <>
800-989-0054 x103

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