By Yemeng Yang

Does the increase of coal carloads at the beginning of 2017 have anything to do with President Donald Trump’s promise to revive the coal industry? The answer by experts is no.

“Absolutely not,” said Noël Perry, principal at Transportation Economics and partner at FTR Intelligence. “He has not done anything. It’s just normal market demand. It’s not Mr. Trump.”

The rail industry has seen signs of recovery after hitting the lowest level in 2015 since the financial crisis. The most recent four-week-average rail carloads increased 12 percent to 528,119 carloads from 470,276 carloads in December 2015. And, like coal carloads, it has nothing to do with President Trump so far.

In fact, the consensus is that the Trump administration is not helpful at all, or may even have a negative impact on the nation’s railroads.

“I’ve seen much more downside than upside stemming from the political situation, just simply because not only the potential impact of direct actions that might occur, but also just the uncertainty could make investors more cautious,” said Larry Gross, president of Gross Transportation Consulting Inc.

Carload traffic in February surged 6.7 percent to 1,044,040 carloads from a year ago, and intermodal volume increased 1.8 percent to 1,068,439 units, according to a press release by the Association of American Railroads.

Eleven of 20 commodities tracked by the AAR saw carload gains in February. Coal carloads, which account for the largest portion of the total carloads, rose 19.2 percent to 357,289 carloads.

“People were building stockpiles,” said Perry. “Coal demand fluctuates pretty strongly.”

While it’s an impressive gain in February, the traffic is the second worst since sometime before 1988, said John T. Gray, AAR senior vice president of policy and economics, in a press release.

The coal volume in 2016 decreased 20 percent to 4,096,848 carloads from 2015. But coal is challenged by inexpensive and plentiful substitutes, notably natural gas. Coal consumption in the U.S. declined 28 percent over the past three years, while the consumption of natural gas increased 3 percent.

“We harbor a tepid view of coal, expecting that production increases at the Powder River Basin will be offset by de-stocking inventories, renewable energy additions, carloads lost to plant retirement, and heightened competition from natural gas in 2018 and beyond,” wrote Brian Ossenbeck, an airfreight and surface transportation analyst at J.P. Morgan, in a January research note.

Coal volume “will not go back to where it was,” said Gross. “Right now, things have stabilized to the moment, but I don’t expect that situation to continue and I expect a decline to resume, but not at the rate that we have seen last year.”

Most experts agree that coal volume will continue to decrease in the long run, but may remain stable due to normalized market demand this year.

Given the importance of coal to the industry, railroad companies and railcar manufacturers suffered a lot in the past two years.

Union Pacific Corp., the biggest railroad company in the U.S. by revenue, saw an average annual decline of 9 percent in revenue in the past two years. The decline was mostly driven by falling coal carloads, down 9 percent for the most recent quarter. Coal revenue decreased 6 percent in the fourth quarter.

Analysts expect the revenue of Union Pacific this year to increase slightly, as “coal supply/demand normalized,” wrote Jeffrey Kauffman, an analyst at Aegis Capital Corp., in a research note. Analysts’ consensus for Union Pacific’s first-quarter revenue is $5.02 billion, up 4 percent from a year ago.

CSX Corp., another U.S. railroad company, anticipated carload improvement in the first quarter this year.

“We expect volume to be flat to slightly up year-over-year in the first quarter, as the industrial economy is stabilizing and energy related headwinds are moderating slightly,” said Frank Lonegro, the chief financial officer of CSX, at the fourth-quarter conference call.

Lonegro said the company expects declining domestic coal, but hopes to see growth of per share earnings in the first quarter and in 2017 overall, through effective cost control and strong pricing.

Gross, of Gross Transportation Consulting Inc., provided two pathways for the industry to deal with the declining coal volume. One is to adjust operations down to meet the reduced reality, such as consolidating facilities and laying off employees. Another is to reverse the trend of declining carloads in other commodities and begin to gain traffic back from the highway.

Other commodities that saw increases in February include crushed stone, gravel, and sand, up 13.1 percent, and primary metal products, up 6.8 percent, compared with a year ago.

Experts expect to see increased movements of construction materials such as cement and crushed stone, as President Trump put his early priority on infrastructure improvement. A big construction program would provide stimulus to the economy and other commodities.

“The traffic will grow slowly over time, but not much of 2017, because it takes time for the plans to be made. So it’s more like a 2018, 2019 thing,” said Perry.

Grain carloads increased significantly last year, up 7 percent, as there was a lot of soybeans exported. But the grain follows its own cycle which is heavily dependent on the harvest, growing conditions and export volume. It is difficult to predict grain volume this year.

Petroleum and petroleum products present a less rosy picture. Those carloads continued to decline in February, down 12.4 percent from a year ago.

However, experts said the reduction would stop soon, because the market has completed the adjustment from overexpansion earlier.

Crude oil carloads in the fourth quarter decreased 11.6 percent from the third quarter of 2016 and 49 percent from the fourth quarter of 2015.

Crude-by-rail shipment has shown faint signs of an uptick, faced with competition from pipelines. President Trump promised to ease permitting for oil pipelines during the campaign, which will increase competitive options to rail.

The prospect for trade is concerning. More than half of intermodal volumes are directly related to trade across the borders with Canada and Mexico, and other import and export activities in the U.S.

“At the moment, uncertainty rules the waves and as 2017 starts to unfold, the choice seems to caught between just grey skies and a raging storm,” wrote Steve Graham, a partner at FTR Intelligence, in a December note about trade.