State of the Rails: Fourth of July Effect, Part 1
Terminal dwell at some of CPKC’s key facilities remains terrible, with the key southern U.S. hub at Shreveport, La., continuing to struggle to materially correct from a two-year high set in the first week of June. During Fourth of July week it was still running at 27 hours (58 excluding run-through trains) versus its historical norm of approximately 18. Below the border, Sanchez Yard in northern Mexico downticked but remains only 2% below a five-year high, Monterrey sequentially deteriorated for a third week to a 10-month high, and San Luis Potosi deteriorated for a fifth week to an 18-month high. These are all the key stepping stones on the U.S.-Mexico trade conga line. On the positive side of the ledger, Laredo Yard in Texas sequentially improved from 12.2 to 8.4 hours through Fourth of July.
Whether the deterioration in the Mexican yards is a direct domino effect from the U.S. cutover or an independent, co-incident, issue we don’t know or, in fact, care, as long as its fixed a soon as possible.
Fourth of July Effect
The most recently released operating data runs through the July 4th U.S. public holiday. During prime summer vacation season, rail customers materially reduce activity levels during Fourth of July week in particular, with the four U.S. Class I’s hauling 8% fewer loads than the week prior, and the two Canadians 6% less.
These volume-light weeks generally allow the networks to accelerate (higher velocity), but can also cause a little sloppiness in operating car inventory and dwell-related metrics (terminal dwell, 48-hour delays, etc.)
What did we see this time around?
Sequential velocity gains were unusually modest this year. Compared to the week prior, Union Pacific actually ran 1.7% slower, BNSF and CN was dead flat, CSX gained 1.7%, CPKC gained 2.2%, and Norfolk Southern was the only network to see a material gain: 4.3%. Changes in terminal dwell were similarly unremarkable.
Our interpretation of this lack of network acceleration, which might be counter-intuitive, is actually positive. If you look at our State of the Rails chart below, you’ll see that three of the six networks: UP, BNSF and CSX, are currently running materially better than their historical averages (since the 2009 recession). NS and CN aren’t far away, and we all know why CPKC is bringing up the rear (plus it has a higher bar because it’s usually had superior ops in the past).
In other words, the industry is in relatively good shape, and these volume-light weeks are most helpful to networks that are struggling. In the past, chronic crew shortages have triggered significant accelerations when volume pressure has come off around Memorial Day, 7/4, Labor Day, and Thanksgiving, but this time around it’s a tailwind that most of the networks don’t really need. It’s a transient operating solution in search of a problem.
Having said that, long-time readers will know we’re only touching on the first half of the holiday effect. The other half will show up in next week’s data, when the ability to clear yard backlogs and reposition power and crews through the slower July 4th week typically allows for a further network acceleration the following week. Will that be similarly underwhelming and, again, arguably a good thing? We’ll soon find out.
