advertisement

---

Despite a relatively flat April, rail volume growth continues to outpace Gross Domestic Product (GDP) growth, driven by strong intermodal demand and economic recovery, according to Robert W. Baird & Co. Inc.’s “Domestic Truck, Intermodal and Rail Trends” report for May. However, the pace of traffic growth has notably slowed from a robust 2010, Baird analysts said in the report.

For the remainder of 2011, expectations remain in place for above-GDP volume growth given secular intermodal opportunities and continued economic strengthening, they said. Intermodal volume growth is being driven by tight truckload capacity, high fuel prices and rail infrastructure development in the East.

So far in the second quarter, Eastern intermodal volume growth (up 9 percent) continues to outpace Western volume growth (up 7 percent) as Norfolk Southern Railway and CSX Transportation benefit from emerging local opportunities, the report states. Share shifts are apparent among the Western railroads as Union Pacific Railroad’s intermodal volume growth so far in 2Q (up 2 percent) lags U.S. Class Is’ growth while BNSF Railway Co.’s volume growth (up 12 percent) outpaces all U.S. railroads.

In the coal sector, U.S. roads’ export traffic opportunities remain encouraging given pent-up demand and global growth, Baird analysts said. On the domestic side, utilities are registering more normalized coal inventory levels.

“UP and NS see economic growth, electrical demand recovery and new business as supporting opportunities for year-over-year growth, while CSX’s [recent] analyst day reflected more tempered expectations for domestic utility coal growth,” the report states.

Baird analysts plan to continue monitoring industrial traffic trends in the coming weeks for signs of carload growth above a “more modest” 2 percent average. They also expect to keep tabs on chemical traffic, which has been stable so far in 2011, but negatively impacted in 2Q by seasonal slowing in fertilizer demand and below-seasonal demand for petroleum, Baird analysts said.