Railroads - The Economy and Trade National Coal Transportation Association Denver, Colorado September 19, 2017

Transcription

1 Railroads - The Economy and Trade 2017 National Coal Transportation Association Denver, Colorado September 19, 2017

2 Railroads and the Economy 2017 SLIDE 2

3 Coal: 365,806 (14.1%) Railroads Help Keep Coal- Based Electricity Crushed stone, gravel, sand: 98,663 (13.0%) Grain: 18,660 (2.5%) Primary metal products: 14,355 (4.7%) Iron & steel scrap: 6,368 (5.1%) Nonmetallic minerals: 5,391 (3.5%) Coke: 3,942 (2.7%) Metallic ores: 2,020 (1.1%) Waste & nonferrous scrap: 1,874 (1.4%) Chemicals: 846 (0.1%) Farm products excl. grain: 345 (1.2%) Lumber & wood products: -152 (-0.1%) Pulp & paper products: -2,162 (-1.1%) Grain mill products: -2,816 (-0.9%) Stone, clay & glass prod.: -2,961 (-1.1%) Primary forest products: -4,175 (-9.3%) Food products: -5,028 (-2.3%) Carloads n.e.c.: -6,533 (-3.1%) Motor veh. & parts: -44,452 (-7.1%) Petrol. & petr. products: -56,563 (-14.5%) Change in U.S. Rail Carloads: Jan.-Aug vs. Jan.-Aug Total carloads: 393,428 (4.5%) Note: intermodal is not included in this chart. Source: AAR SLIDE 3

4 U.S. Rail Carloads of Coal 140, , , , ,000 90,000 80,000 70,000 60,000 50,000 (average weekly originations) Data are average weekly originations for each month, are not seasonally adjusted, do not include intermodal, and do not include the U.S. operations of CN and CP. Source: AAR Weekly Railroad Traffic SLIDE 4

5 $8 C = personal consumption Railroads GDP = C + I Help + G + (X-M) Keep Coal- Based (trillions of Electricity 2009 $) 2016 total = $16.7 trillion $6 $4 $2 I = investment "Investment" (machinery, housing, locomotives, etc.) ~21% of GDP G = govt.* X-M = net exports (exports minus imports) $0 -$2 -$4 Goods Services "Personal consumption expenditures" ~69% of GDP Fixed nonresid. investment Fixed residential investment Source: BEA Intel. property (software, R&D, etc.) Federal State & local "Government"* ~17% of GDP Exports Imports *Excludes interest & social service programs SLIDE 5

6 Railroads Help Keep Coal- Based Electricity SLIDE 6

7 Q4 '49 - Q2 '53 Q2 '54 - Q3 '57 Q2 '58 - Q2 '60 Q1 '61 - Q4 '69 Q4 '70 - Q4 '73 Q1 '75 - Q1 '80 Q3 '80 - Q3 '81 Q4 '82 - Q3 '90 Q1 '91 - Q1 '01 Q4 '01 - Q4 '07 Q2 '09 - Q2 '17 Railroads Help Keep Coal- Average Based Annual Electricity Growth U.S. Economic Expansions Since 1949: 2.1% 2.8% 3.6% 4.0% 4.3% 4.4% 4.3% 4.9% 5.1% 5.6% Source: National Bureau of Economic Research 7.6% SLIDE 7

8 Weak Correlation Between Growth in Rail Traffic and Services-Related GDP 16% 12% 8% 4% 0% -4% -8% -12% -16% -20% (% change over previous year) Services-related GDP* Rail traffic** correlation = 25% '00 '02 '04 '06 '08 '10 '12 '14 '16 *Includes imports, exports, and personal consumption of services; intellectual property; and government consumption expenditures. **U.S. carloads excluding coal and grain, plus intermodal units. Rail traffic is originations and does not include the U.S. operations of Canadian railroads. Source: BEA, AAR SLIDE 8

9 Strong Correlation Between Growth in Rail Traffic and Goods-Related GDP 24% 18% 12% 6% 0% -6% -12% -18% -24% -30% (% change over previous period) Goods-related GDP* Rail traffic** GDP sectors that generate freight were essentially in recession in 2016 correlation = 96% *Imports, exports, and personal consumption of goods; fixed residential investment; business investment in equipment & structures; government gross investment; and change in inventories. **U.S. carloads excluding coal and grain, plus intermodal units. Rail traffic is originations and does not include the U.S. operations of Canadian railroads. Source: BEA, AAR SLIDE 9

10 Industrial Output Matters to Railroads Rail carloads excl. coal and grain (right scale) 170, , , , Total industrial output (left scale, 2012=100) 130, , , Rail carloads are weekly averages. Data are seasonally adjusted. Source: Federal Reserve, AAR SLIDE 10

11 Slight Recent Uptick in Manufacturing Output (2012 = 100) Source: Federal Reserve SLIDE 11

12 Very High Purchasing Managers Index (PMI) > 50 = manuf. growing < 50 = manuf. shrinking Source: Institute for Supply Management SLIDE 12

13 Consumer Confidence Source: Conference Board (1985 = 100) SLIDE 13

14 Savings Rates Still Above Pre- Recession Levels, But Falling 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% (Personal Savings as % of Disposable Income)* *3-month moving average Impacted by income moved forward in anticipation of higher 2013 tax rates Source: Bureau of Economic Analysis Avg : 3.0% Avg : 5.7% July 2017: 3.5% SLIDE 14

15 Strong Correlation Between Rail Intermodal and Retail Sales $490 $480 $470 $460 $450 $440 $430 $420 $410 $400 $390 U.S. Retail Sales vs. Rail Intermodal Traffic Rail intermodal (right scale) correlation = 88% Retail sales (left scale, $ billions) Intermodal is weekly average originations for the month. Data are seasonally adjusted and adjusted for inflation. Source: Census Bureau, AAR 290, , , , , , , , , , ,000 SLIDE 15

16 Some Good, Some Not So Good What s OK? Job growth Consumer confidence Consumer spending Inflation Housing What s Not? Manufacturing Employee earnings Govts. still broke Autos SLIDE 16

17 A few theories, a lot of speculation, some guesses and conflicting facts: Uncertainty Why Has Growth Remained Stifling regulations Lagging technological progress Slow? Globalization Great Recession hangover Reduced entrepreneurial spirit Baby boom retirements (deprive companies of critical experience and knowledge which undermines productivity across entire economy. Plus, means labor force grows more slowly. Could also explain weakness of wages. Replacements earn less. SLIDE 17

18 Slow Growth a New Normal? $18 $17 $16 $15 $14 $13 $12 $11 $10 $9 Recession July '90 - March '91 (trillions of 2009 $ annualized) Recession March '01 - Nov. '01 Recession Dec '07 - June '09 Avg. quarterly growth between recessions: After Mar. 91: 3.8% After Nov. 01: 2.8% Since June 09: 2.1% Source: Bureau of Economic Analysis SLIDE 18

19 Consumer Spending Has Been Main Driver of GDP Growth 6% Personal Consumption Expenditures (% change from previous quarter) 5% 4% 3% 2% 1% 0% Source: BEA SLIDE 19

20 Exports Improved But Still Sluggish - Dollar Still Strong $2.3 (billions of annualized inflation-adjusted 2009 $)* $2.2 $2.1 $2.0 $1.9 $1.8 $1.7 $ *Exports are ~70% goods, ~30% services. Source: BEA SLIDE 20

21 Railroads and Trade SLIDE 21

22 Finding: International Trade is Critical to Railroads Rail Revenue ($ x billions) Tons (millions) Units (millions) Freight Metrics Rail Total Freight Metrics International Percent International $75.1 $ % 1, % % SLIDE 22

23 International Trade is Critical to Railroads, cont. At least 35% of US rail revenue is derived from international trade. However, this measure understates the importance of trade in the railroad portfolio. In 2014, there were at least, 329 million tons of exports handled, 171 million tons of imports moved by rail, and 11 million tons of international transit freight. Involves all major rail commodity types. At least 21 variants of import-export trade patterns found in 2014 data. SLIDE 23

24 Carload Movements are the Larger Component of International Trade Rail Freight Revenue From International Trade Carload Intermodal Total Import $7.2 Billion $5.2 Billion $12.4 Billion Export $9.1 Billion $4.2 Billion $13.3 Billion Transit $0.5 Billion $0.2 Billion $0.7 Billion Total $16.8 Billion $9.6 Billion $26.4 Billion SLIDE 24

25 Major Export Commodities Tons (millions) Largest Export Region Tons To Region Coal East Coast 58.2 Intermodal 64.6 West Coast 37.8 Farm & Food Prod West Coast 42.9 Chemicals & Petrol West Coast 8.1 Ore, Mineral & Prod Great Lakes 6.3 Forest Products 14.3 East Coast 6.3 Other SLIDE 25

26 Major Import Commodities Tons (millions) Largest Source Tons From Source Intermodal 69.8 West Coast 37.5 Chemicals & Petrol Canada 16.2 Forest Products 29.8 Canada 17.6 Farm & Food Prod Canada 7.4 Primary Metal Prod Canada 4.0 Vehicles & Parts 12.1 Mexico 6.7 Other SLIDE 26

27 Key Takeaways International trade is critical to the railroad industry Over 35% of revenue, and Over 41% of units handled. Trade patterns reflect the deep integration of the three North American economies over the last two decades. Trade patterns by rail are complex and becoming more so as innovative customer logistics solutions are developed in the marketplace. Simple import-export models of trade don t reflect the complexities of modern production processes where goods may cross borders several times during production and the final product is distributed worldwide. SLIDE 27

28 Key Takeaways, cont. New production processes have provided new international rail movement opportunities. Canada vs. Mexico varies considerably: Mexico focus = manufactured goods moving both directions. Canada focus = import and export of both resource products and manufactured goods. SLIDE 28

29 And, Finally Data implies - 50,000 rail jobs, worth over $5.5 billion in wages and benefits, depend on international trade. Other significant job impacts include Jobs in ports associated with trade related rail movements, Suppliers to railroads of products needed to support international rail movements, and Secondary job impacts derived from the expenditures of rail and port employees and their suppliers. SLIDE 29

30 Assn. of American Railroads