Intermodal, domestic coal and petroleum products will help propel U.S. rail traffic through year's end, Baird says

The outlook for U.S. railroads' intermodal, domestic coal and petroleum products traffic through the remainder of 2013 is relatively bright, according to Robert W. Baird & Co. Inc.'s "Domestic Truck, Intermodal and Rail Trends" report for August.

Although peak season demand expectations remain muted, there are expectations for a modest intermodal gain in the year's second half, the report states. So far in the third quarter, intermodal volume growth has been constrained by year-over-year declines at two railroads — Canadian Pacific (5 percent) and Union Pacific Railroad (2 percent) — but all the other Class Is have registered gains of at least 5 percent, Baird analysts said in the report.

"A domestic intermodal contact recently noted end-of-July intermodal volumes were solid, consistent with modestly improved rates of growth over the past three weeks for overall intermodal volumes," they said.

In the coal sector, domestic utility "fundamentals" are stabilizing while the export market remains challenged, the report states. The U.S. Energy Information Administration's (EIA) recently published "Short-Term Energy Outlook" projected higher coal consumption and production for the second half. Coal consumption will increase about 7 percent year over year, but most of the increased demand will be met by inventory draws, the EIA predicts.

"That said, they expect production growth in the Appalachian, Interior and Western regions in the second half," Baird analysts said. "Second-half exports are expected to decline 7 percent year over year following an 8 percent decline in the first half."

Meanwhile, petroleum products traffic is growing moderately, primarily because of more difficult year-over-year comparisons in the second half, they said. Basic chemical volumes continue to trend positively.

However, the agricultural products traffic outlook is a bit more tempered. The U.S. Department of Agriculture's recent "World Agricultural Supply and Demand Estimates" report lowered corn production forecasts by 187 million bushels, although total production still is expected to reach a record 13.8 billion bushels, Baird analysts said.

"Corn yield projections were also lowered from last month," they said, adding that corn represents about half of grain carloads and a quarter of total ag products carloads.