Railroad executives speaking this week at an investor’s conference expressed optimism that lagging traffic volume will get a boost from the reopening of North American auto assembly plants this month.
However, they also described it as only likely to be a slight increase and that the longer term outlook for automotive traffic is grim because the economic downturn is expected to result in lower demand for vehicle sales.
That combined with social distancing measures that auto makers will impose among plant workers will result in muted auto production once it resumes.
“It’s going to be a slow ramp,” Kevin Boone, CSX Transportation’s chief financial officer said at the Bank of America 2020 Transportation and Industrials Conference.
“But certainly going from zero to something is helpful and there’s a lot of other markets that that impacts, from our metals business across to our plastics business.”
Union Pacific Chief Financial Officer Jennifer Hamann said the railroads will be watching to see how much consumer demand for vehicles there will be.
Massive job layoffs occurring during the COVID-19 pandemic and a rocky economy have battered consumer confidence.
IHS Markit has predicted that demand for auto sales will fall 27 percent this year to 12.5 million vehicles.
The automakers shut down their plants in March in an effort to restrain the spread of the coronavirus.
That led to a 90 percent plunge in North American rail shipments of vehicles and auto parts the Association of American Railroads reported.
The auto industry has signaled that it will be reopening its plants on a gradual basis starting May 18.
Canadian National CEO J.J. Ruest said at the conference that he expects May to be CN’s worst month of the quarter although he sees June traffic as being higher than that handled in April due to the resumption of auto production.
Kansas City Southern Chief Financial Officer Mike Upchurch said the shipment of auto parks from upper Midwest factories is expected to begin rising as auto plants in Mexico resume production.
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