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Welcome to Highball Helper Blog Thumbnail

Welcome to Highball Helper Blog

As this is my first post for the “Helper”, I thought it would be a good idea to outline the purpose of these posts. The main reason is to educate individuals on all sorts of subjects that we all encounter throughout our lives. While the chief focus will be on retirement strategies for Railroad workers, I also will be writing on whole host of topics. This could span the gamut from industry trends to reducing monthly budgets with helpful cost savings tips. I hope you find these posts insightful and beneficial.

Let’s jump right into it with a high level overview on the state of the railroad industry. These are very good times for railroads. Taking a look at Class 1 railroads and the publicly traded companies are up over 41% in the last twelve months with an YTD over 18%. A very impressive run to say the least especially for a group of companies in the usually underperforming industrial sector. Some of the companies to highlight this year are CSX and Norfolk Southern that are up 34% and 20% respectively YTD. Most Wall Street analysts have out-perform ratings on the stocks meaning they are expecting continued great stock price performance by these companies. It is important to note however that following analysts should come with trepidation and caution. In my many years of experience, they are consistently late getting to the party and always the last to leave the party.

Let’s now turn our attention to the actual business of railroading and see how it has performed recently. Railroads in the United States originated 1,338,037 carloads in October, up 1% from October 2017, and 1,443,914 containers and trailers, up 4.2%. Combined U.S. carload and intermodal originations in October were 2,781,951 units, up 2.6% from the same month a year ago. Thirteen of the 20 carload commodity categories tracked by the AAR saw on-year gains, including major segments petroleum, 28.4%, and primary metal products, 9.8%. Coal shipments edged up 1.6%. Declining were coke, 9.9%; crushed stone, sand and gravel, 9.6%, and grain, 4.8%. “U.S. rail traffic in October was mixed. On the negative side, changing market conditions for frac sand caused lower rail carloads of crushed stone, sand, and gravel, while uncertainties in export markets helped keep grain carloads down,” said AAR Senior Vice President John T. Gray. “On the plus side, coal carloads in October rose for the first time in five months and intermodal enjoyed its second-best month ever. All in all, we expect most rail traffic categories to continue to benefit from what we hope will be continued solid economic growth.”

Total combined U.S. traffic for the first 44 weeks of 2018 was 23,862,514 carloads and intermodal units, an increase of 3.8% from 2017. For the week ending November 3, total U.S. weekly rail traffic was 560,046 carloads and intermodal units, up 5.4% from the same week in 2017. Traffic totaled 270,305 carloads, up 1.8%, while intermodal volume was 289,741 containers and trailers, up 8.9%. Seven of the 10 carload commodity groups finished ahead of the 2017 week including petroleum, 31.1%; miscellaneous carloads, 24.3%, and metallic ores and metals, 6.5%. Grain tumbled 12.4%; motor vehicles and parts slowed by 4.8%.

So what does all these numbers mean? What is great about the railroad industry is that it is a proxy for what is going on in the overall economy. The reality is that railroads touch just about every part of the economy. Therefore when we see Petroleum shipments up 31% we know that the price of crude has surged. Drillers can't get their product to market fast enough to take advantage of high crude prices. However these numbers are in the past and crude prices have fallen 21% since the beginning of November. We can expect crude shipments to fall in the final quarter and into next year effecting shippers bottom lines. Another interesting number was auto shipments down 4.8%. This could be a sign that the consumer is tapped. This could be a omen as the consumer is what drives the US economy. Put a decrease in auto shipments and a relatively flat shipment of forest products it might be time to think about safety in this long bull run. Finally, another big number was the huge decrease in grain shipments. This can be attributed to the tariffs the Trump administration has imposed. Hopefully they will be temporary and we can get to free and fair trade. As you can see looking at these reports can you as a investor a good macro-economic view ob the state of the economy.

I hope you will enjoy and find insightful these blog posts over the coming years.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from John McNamara, and all rights are reserved.