As we report this month, August saw the lowest monthly fall in US freight traffic since February, with some types of freight, such as chemicals and automotive, actually showing an increase. Both Norfolk Southern (NS) and Union Pacific are starting to return the large number of stored locomotives and wagons to traffic.
However, the picture across the border is a little mixed. Canadian National says it is finding a floor to the recession, while Canadian Pacific says it cannot see "any substantive, sustained recovery underway." But both railways agree that the recovery will be slow, with CN's CEO saying a return to pre-downturn economic recovery could take three to four years. This is echoed by German Rail's CEO who says quite rightly that it will take several years to reach the record levels of traffic achieved in 2007-08.
But is this really a desirable objective? Considering the world was riding an economic boom before the crash, a better test of recovery would be when the economy returns to a more normal level of activity. A rollercoaster ride of boom and bust might be thrilling, but more gentle rises and falls in economic activity are better for long-term business stability.
A similar picture to that in the US is emerging in Europe. A study for Germany's Ministry of Transport, says Germany - the continent's largest railfreight market - is likely to have much better trading conditions next year, enabling volumes to recover. But rail has more ground to make up than road transport, as German railfreight is likely to have slumped 18% by the end of the year compared with only 10% for road.
Some operators are doing better than others in the current downturn. While DB Schenker Rail recorded a 26.2% drop in traffic during the first half of this year, open-access operator TX Logistik says it expects this year to prove as profitable as its performance in 2007, indicating that last year was a boom. Its CEO believes that the German railfreight market has now bottomed out, and the company is drawing up plans to launch new services.
Russian Railways' subsidiary Freight One reports net losses of $US 50 million for the first half of this year. Conversely, Freight One's largest competitor, Globaltrans, says it has significantly outperformed the market recording only a 4% fall in tonne-km compared with a 21% drop for the overall Russian railfreight market.
Globaltrans cites a number of reasons for its success: strong relationships with key clients, providing good-quality service, and a large fleet of universal gondola wagons which can be switched quickly between different types of traffic. These are good principles for any operator to follow, and have proved particularly beneficial to Globaltrans in the face of a severe recession.
Wagon hire and rail logistics operator, VTG, is another company that has fared better than others. During the first half of the year, VTG only recorded a 3.7% fall in revenue to Euros 287.3 million and a 3.1% drop in operating profit to Euros 75.4 million. Utilisation of its 49,400 wagon hire fleet was around 88.9%, only slightly below the record levels achieved last year. VTG's rail logistics business reported growth in cross-border block train and LPG traffic, which offset a drop in chemicals.
VTG's CEO, Dr Heiko Fischer, says VTG is "a solid company" which has prepared itself for the economic downturn by "taking timely measures to secure operating profit." Furthermore, Fischer says when the economy picks up, VTG will be able "to push on seamlessly" with its international growth strategy.
This philosophy of exploiting the current situation to prepare for the upturn is being actively pursued by some US railways. The Class 1 railways still expect to invest about $US 9 billion this year. NS will spend $US 1.4 billion on capital improvements, which is only a little less than the $US 1.55 billion it invested last year, but more than the $US 1.34 billion it spent in 2007. Within this, NS is focusing on improving its infrastructure to be ready for the recovery.
Similarly, CSX is investing $US 1.65 billion this year and has maintained its commitment to infrastructure so that when the economy has recovered it will have made the investments needed. Some railways have taken advantage of the reduction in traffic to do work that was postponed during the boom time.
So what are the key measures to surviving a recession? The main ones are reacting swiftly when traffic and revenue show consistent signs of decline; maintaining or even increasing service quality - spending cuts should not jeopardise existing business and alienate customers who now have more choice; be as flexible as possible so that resources can be redeployed quickly to take advantage of any new traffic on offer; and get ready for the upturn when it comes through strategic investment and improvements in efficiency. But, this is a good strategy to follow whatever the economic climate.
