Frankly, it feels easier to discover which pet, recipe or DIY tip is “trending” on social media than to figure out which tariff is going to affect what business. Why? Long-Haired Dachshunds, black tea matcha (after all, why should green tea have all the fun) and using beef tallow as a moisturizer—three topics trending in the month of January—are pretty easy things to investigate and consider. Contrast that against trying to game-plan supply chain and production location disruptions attributable to the government’s whack-a-mole tariff strategy, and one will get flustered pretty quickly.
Is today Tuesday? Aluminum and steel sourced outside the U.S. may be subject to a 25% tariff. Saturday? All imports (except oil) may be subject to 25% tariffs unless coming from China—those are subject to a 10% tariff being piled upon the tariffs already put in place six or seven years ago. Monday? Thirty-day pause on your tariff. Life quickly begins to feel like a game of Chutes & Ladders.
Indecisiveness and volatility leave most people feeling unsettled. The U.S. economy has been consumer driven for some time. So far, the expected or promised economic revolution has instead been a damper on corporate and consumer sentiment and has created a sense that inflation remains grippier than expected.
A YOY increase of 3.2% in the total CPI (including food and energy) has markets thinking that a rate cut from the Fed isn’t more than 50% likely until June. The PMI (Producer’s Manufacturing Index) is suggesting economic contraction and consumer confidence dropped 10% in February.
Rail loadings reflect a tentative economy operating with too much fear and uncertainty. Autos are down and improvements in intermodal loadings YTD seem driven by a pull forward of loads, pre-tariff implementation. Larry Gross, writing in The Journal of Commerce, suggests that U.S. intermodal may have to pay later in 2025 for the “sugar high” of pulled-forward loadings.
The threat of tariffs offered an immediate opportunity for U.S. steelmakers to raise prices in anticipation of the impact of tariffs on foreign steel. The Wall Street Journal filed a report that noted as much as a $50 per ton increase in flat rolled steel as soon as the tariffs were announced.
This doesn’t bode well for the railcar order book, which saw orders of only 4,520 cars in 4Q24. How can a railcar manufacturer be expected to sell a product to a customer when the final price remains unknown? Railcars are long lead time items, so the chance that today’s price and tomorrow’s price are the same in today’s environment seems pretty slim.
How can a customer commit to an order when they don’t know if the price will be $150,000 or $180,000? Match that up with today’s robust interest rates, and the price to lease that car could be 30-40% higher than the price to lease that car a year ago. Try modeling your business on a 25% best case/worst case spread. Ouch. Bidding worst case numbers means losing business; bidding best case numbers could mean a potential loss or require that somewhere along the supply line someone will agree to take that loss.
Talk to finance professionals and they will tell you that managing through the unknown is a full-time job. They are left to source state or federal tax offsets or rejiggering supply lines to try to originate tariff-free parts and materials. They might consider leasing vs. buying a key asset. Many are examining whether projects are really necessary at today’s potentially higher prices (think about all those nearshoring projects). Ultimately, if costs get added to production expenses, they expect to pass it through to their customer. Ultimately, it gets passed onto the consumer. Inflation feels like a brakeless soap box racer. That doesn’t inspire confidence.
Tentativeness and hesitancy do not bode well for any aspect of the rail economy. It is difficult to pivot to growth when no one is certain from where the growth will materialize. Near term, the economy is more likely to see a quiet shrinking of the workforce and weaker consumer demand. That’s not growth. None of this bodes well for increases in loadings or railcar demand. Try not to think about it while you are filling out your weekly “what you got done last week” report.
Got questions? Set them free at dnahass@railfin.com.
