CHICAGO (Reuters) - This is ugly.
For a picture of how rapid and steep the decline in U.S. manufacturing and retail sales has been in this recession, there are few better sectors to look at than transport.
Freight volumes -- everything from raw materials to durable goods -- have plummeted virtually across the board, making forecasting demand near impossible.
“We’ve downgraded our forecasts several times already this year -- and it’s only March,” said John Levine, president of Pinsly Railroad Co, which owns short-line railroads in Florida, Massachusetts and Arkansas. “Business has fallen off in a way that none of us have seen.”
To weather the slump, Pinsly has cut back hours for workers so all of its 150 employees are still working, he added.
According to data from the Association of American Railroads (AAR), rail carload traffic for the first two months of 2009 was down 15.8 percent.
Historical data shows the drop in U.S. manufacturing activity eclipses the recessions of the 1980s and 1970s and in terms of speed and scale it is comparable with -- but not as bad as -- the Great Depression before World War Two.
“We are in the worst contraction since the Great Depression,” said University of Maryland economist Peter Morici. “This is it.”
Truck firms are on the U.S. economy’s front line and have already been in a “freight recession” since late 2006. But they too have been slammed by a further drop in demand.
“We’re getting hurt on the business side, capex is down and consumers aren’t spending,” said Bob Costello, chief economist for industry group the American Trucking Associations (ATA). “We’re getting hit from all angles.”
The ATA’s freight tonnage index fell 10.8 percent in January. U.S. nonfarm output saw its greatest drop since 1982 in the fourth quarter, according to the U.S. Labor Department.
This leaves the transport industry wondering how much further business has to fall and how far off recovery is.
Before things went haywire, the U.S. transport sector was already suffering from weak volumes. But when the markets collapsed and global credit froze in the fall, freight volumes fell off a cliff.
"Someone turned the lights out sometime in November, and we saw a decline like nothing we had seen in terms of its precipitousness," said Wick Moorman, chief executive of No. 4 U.S. railroad Norfolk Southern Corp NSC.N at the Reuters Manufacturing and Transportation Summit last month. "And then it's just stayed down."
The meltdown of the U.S. housing sector, falling auto sales and slowing manufacturing have all taken their toll.
Of 19 types of rail carloads tracked by the AAR, 18 were down in the first two months of 2009.
Among the more serious declines reported by the AAR were motor vehicles and equipment (down 56.9 percent), metallic ores (52.8 percent), lumber and wood products (36.5 percent), grain (22.9 percent) and chemicals (17.1 percent).
Intermodal units -- standardized containers interchangeable between truck, ship and train used to haul consumer or finished goods -- were down 15.8 percent.
And the U.S. Department of Agriculture said in the week ending February 26 there were 22 percent fewer ocean-going grain vessels loaded in the Gulf of Mexico.
“We’re still seeing pockets that are holding up, such as food products,” said Reilly McCarren, chairman of the Arkansas & Missouri Railroad (A&M), which runs for 140 miles between the two states. “But construction-related products have been hit very hard and our industrial products business has been hurt by a trickle-down effect from the automotive sector.”
U.S. auto sales are down 40 percent from their 2007 peak.
Several railroads said one of those “pockets” of growth is ethanol. Daniel Sabin, president of Iowa Northern Railway, said he expected a 34 percent increase in ethanol carloads in 2009.
Many trucks, locomotives and rail cars have been removed from service, plus orders for new ones canceled or delayed.
SCANNING THE HORIZON
Faced with this grim news, U.S. transport insiders want to know how prolonged and how bad this downturn is going to get.
“The transport industry was really caught off guard in November by the speed of the falloff,” said Jason Seidl, a transportation analyst at boutique investment bank Dahlman Rose. “The question everyone -- from Wall Street analysts to transport executives and their customers -- is now trying very hard to answer is: ‘What is the underlying demand number?’”
The other unknown is how far off is recovery, he added.
A&M’s McCarren said that “with all the trillions of dollars out there in the form of government stimuli, we could see some form of recovery later this year.”
But he is not counting on recovery until 2011 or 2012.
Few seem to think the U.S. economy will turn around soon. A prolonged downturn is likely to push many truckers and some short-line railroads into bankruptcy.
“There is nothing on the horizon that makes us think this is going to change any time soon,” the ATA’s Costello said.
Additional reporting by Lisa Shumaker and Timothy Gardner; Editing by Patrick Fitzgibbons and Matthew Lewis
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