Freight carried by major U.S. railroads fell by 7 percent in the second quarter of 2015 compared with the same period in 2014, confirming that large parts of the industrial economy are in recession. The major Class 1 railroads carried 431 billion ton-miles of freight in the three months ending June, down from 463 billion ton-miles in 2014, according to the U.S. Surface Transportation Board. Changes in freight volumes reflect broader difficulties in the industrial economy. Rail operators have been struck by a perfect storm which has hit both their traditional and new business lines. Coal shipments to power plants, the biggest commodity on the network, accounting for about one-third of total tonnage, have been hit by a combination of environmental regulations and low gas prices. Coal shipments were down by 27 million tons, around 15 percent, in the second quarter compared with same 2014 period. Petroleum shipments, one of the fastest growing sources of new business during the oil boom, fell more than 650,000 tons, 5 percent, as production began to peak and new pipelines diverted crude from the rails. And shipments of sand and gravel, a key ingredient in fracking, plunged by more than 2 million tons, nearly 14 percent, as the number of new wells drilled and fracked tumbled. Shipments of a range of other items from chemicals to fertilizers and other industrial supplies were also lower as the industrial economy ran into stiff headwinds from a stronger dollar and sluggish capital spending. Industrial Slowdown The slowdown in industrial-related freight has continued into the second half of the year according to data from a range of other sources. Total traffic on U.S. railroads in the 42 weeks ending on Oct. 24 was down 1.3 percent compared with 2014, according to weekly carload statistics published by the Association of American Railroads (AAR). Shipments of intermodal shipping containers, which mostly handle manufactured products, were up 2.2 percent but shipments using box cars, tank cars, hoppers and gondolas, which handle farm and industrial products, were down 4.5 percent. Shipments were down in five of the 10 freight categories including coal (10 percent), forest products (3 percent), metallic ores and minerals (10 percent), nonmetallic minerals (2 percent) and petroleum (7 percent). The downturn has deepened and spread to more sectors as the year has progressed, according to AAR data. The number of cars carrying coal is down 10 percent so far this year but almost 13 percent in the most recent week. The number of cars carrying petroleum and petroleum products is down 7 percent year-to-date but almost 22 percent in the most recent week. Volumes Fall on All Ralroads In its third quarter earnings presentation on Oct. 22, Union Pacific, the largest publicly owned railroad, acknowledged freight had shrink in five of six categories during the quarter compared with 2014. Union Pacific carried lower volumes of farm products (3 percent), chemicals (3 percent), containers (4 percent), industrial products (12 percent) and coal (15 percent). The only sector to increase was automotive (5 percent). Other publicly owned railroads all reported falling volumes during the third quarter compared with 2014. Norfolk Southern blamed a “decline in metals and construction traffic due to softer steel production” and reported a 16 percent in coal volumes. Kansas City Southern reported that its volumes were down 2 percent including a 24 percent decline in frac sand. CSX reported volumes fell 3 percent including a 15 percent drop in metals traffic and an 18 percent drop in coal. Industrial Production Flat According to the U.S. Federal Reserve, total industrial output was 0.4 percent higher in September 2015 than September 2014. But while production of consumer goods was up 2.6 percent and business equipment 1.8 percent, industrial supplies were up just 0.2 percent and production of raw materials was actually down 0.2 percent. The struggling industrial economy explains some of the weakness in demand for distillate fuel oil compared with gasoline this year in the United States. Two-thirds of diesel is consumed by vehicles, mostly heavy trucks, on the highways, with another 5 percent on farms, 6 percent on railroads and around 4 percent in construction. But the expansion of the consumer-facing economy, coupled with employment gains and cheap fuel prices, has pushed gasoline demand to its highest since 2007. (Reuters)