Deep “Freight Recession” Hits Railroads, Trucking, Air Freight
“Consumers just don’t seem to be showing up….”
As much as we would have liked to, the Dow Transportation Average wasn’t kidding. It has plunged 27% since its high on December 5, 2014. Nearly two-thirds of that plunge came over the past two months. Transportation companies are singing the blues. Railroads, trucking, air freight….
Union Pacific, the largest US railroad, reported awful fourth-quarter earnings Thursday evening. Operating revenues plummeted 15% year over year, and net income dropped 22%.
It was broad-based: The only category where revenues rose was automotive (+1%). Otherwise, revenues fell: Chemicals (-7%), Agricultural Products (-12%), Intermodal containers (-14%), Industrial Products (-23%), and Coal (-31%). Shipment of crude plunged 42%.
So Union Pacific did what American companies do best: it laid off 3,900 people last year.
This is what CEO Lance Fritz told Reuters about the American consumer: “What’s causing us some concern is it’s hard to figure out where the consumer is at.”
Consumers were sending mixed signals. Spending is shifting from retail of goods toward services. People were buying automobiles, and auto shipments rose in the quarter. And unemployment numbers looked good, he said, but labor participation “is lackluster and consumers just don’t seem to be showing up to purchase goods and services.”
And another disappointment about consumer behavior, according to Fritz: “There was a widespread belief that consumers would turn the savings from low fuel into spending, and we haven’t seen that so much.”
Canadian Pacific, which is trying to buy US rival Norfolk Southern in a deal that is vigorously contested by other railroads, reported a 4% drop in fourth-quarter revenues and a 29% drop in net income. Among its biggest decliners: crude-oil shipments (-17%) and consumer-products shipments (-24%). It garnished the report with an announcement of up to 1,000 layoffs.
CSX, in its earnings release earlier in January, reported a revenue decline of 7% for the year.
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