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Commentary: Making a tough best guess market forecast




The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.  

Forecasting is hard enough to do when you have accurate and timely data. It’s almost impossible when your data is not up-to-date. 

There is an old adage: Forecasting is like driving blindfolded while your partner looks rearward and telegraphs the next turn based on what you recently passed. That is tough to do on a curved road. It is mpossible on a road never taken.

Railroad freight is a derived demand economic function because cargo moves when there is a market demand.   

(Photo: Jim Allen/FreightWaves)

Who sets the demand? It’s typically the receivers that set the demand table. Yes, the critical mass to projecting a forward business volume is the buyers. 

A map highlighting the delivery geography is the prime intelligence source for almost all freight forecasting.

In practice, one must examine both the origin and destination together with the alternate transit paths. There is complexity. Sometimes there is a middleman that changes the scope and the path and the timing of cargo movements.

A fuel change and a market slowdown or a price drop in certain commodities can also change the path and the chosen freight carrier mode.

Thinking about railway freight specifically, let’s briefly consider the essential planning factors that will influence the outlook for the remaining weeks in the second quarter of 2020. 

The setup for rail freight is that it moves bulk cargo and industrial cargo.  That covers the core rail carload sector. Carload traffic volume is more profitable on a per railcar revenue basis and much larger as a percentage of cargo relative to intermodal traffic (trailers and containers on trains). 

If we just focus on intermodal rail, we miss the heart of the still extremely profitable carload freight business model that drives the seven big Class 1 railroad companies.

Here is a simple profile of where the railroads most hope to preserve or to grow their 2020 business volume.  These commodity sectors are important because they are where the money is for a strong financial result.

What’s the official railroad company traffic volume and return to volume growth outlooks?

Collectively, they are very silent. None are effectively telegraphing the next turns ahead.  In investor relations terms it means eliminating their “forward guidance.”

Here is a sample of the non-forecasting language:

CSX withdrew its guidance for the rest of the year. Why? It is “too wide to predict at this time” according to the company’s president and chief executive officer.

Kansas City Southern has withdrawn its previous full-year earnings forecast. It is also reducing its 2020 capital expenditures by about 10% from the original target of ~$500 million. That might drop later by a full 20% depending upon evolving conditions.

Norfolk Southern Corp. withdrew its previous outlook for flat full-year revenue. It has not yet signaled how much its second quarter 2020 volumes will decline. Instead, it has signaled a so-called “doubling down” on lowering its structural costs as a means of driving profits. That suggests a financial outlook rather than a marketing message.

In railroad freight messages, the choice of metrics and the wording of the messages about their companies’ futures often emphasizes the financial scorecard. Customers and volume growth are not emphasized in the wording.

IPhoto: Jim Allen/FreightWaves)

The anticipated pivot towards traffic volume growth and capture of trucking market share is hard to discern.

If the industry internally isn’t clear, that leaves us with speculation. My sources tend to be railroad customers and what they are broadly saying and doing about the next few months of the business. 

We must interpret from the customer side without a direct contact to the changing railroad metrics.

True, we can examine broad system-wide reported traffic data for multiple commodity types. That data is published weekly.

But it is difficult to see the data in terms of changing market to market origin and destination corridor flows. The geography of rail freight transport is somewhat blind.

We can see trucking traffic by geography in near real-time, but not the rail carload volumes. The only way to do that is to use inferential modeling and secondary reporting access data such as from port records.

The problem is that there is a data capture lag time.

Remember our road trip partner in the car? This is like asking for the next turn ahead when she or he hasn’t seen the road behind yet.

Here are examples of what the outside market is seeing. It remains troubling; there is not much buoyancy.

How will intermodal rail play in the second quarter? Here are a few informed views.

With five weeks to go until the end of June, what’s the rail freight call?

In broad terms, here are separate volume numbers for intermodal and carload. It assumes a tepid U.S. economic recovery out over about six weeks.

Intermodal likely continues to show much slower returning traffic growth than expectations for the trucking sector. The primary reason is that intermodal does not carry much e-commerce merchandise. In addition, the possible return of the retail economy will be primarily truckload based because of speed and reliability.

Domestic intermodal is still 10 to 15% below that of June 2019, while international intermodal is still down 18% or more below June 2019.

Here is an independent view of the intermodal outlook as shared by FTR’s Eric Starks and colleagues. We might not yet be in the so-called restart of the railroad-served economic recovery phase yet. This data view as of May 13th

FTR uses AAR and other data partners in its tracking

How bad is this visually? Check out the FTR plotted trend of current early May data versus the five-year plotted intermodal volume. Intermodal volume might still fall further year-over-year in this four-week average plot out to just beyond week 26. We will have a sharper view in about four weeks.

Carload freight is likely to see much larger variances in traffic volume decreases than intermodal.

Canadian traffic will see a somewhat different pattern, perhaps a bit better in volume than that across the U.S. rail network.

Mexican railroad traffic will, like that of the U.S., see a negative impact largely related to the fortunes of how many new cars the automakers build and ship to their dealers. This is part of the market demand hypothesis being found at the delivery end rather than the origin.

Humbly, this is my offered level of confidence as to the total second quarter volumes:


The end of the third quarter outlook is less certain. There are some optimists that should not be ignored.

Roy Blanchard closely follows the Class 1 railroad and shoreline carload business sector. He likes the UBS Global Research contrary focus. 

Their three-part counter is simple. Investor sentiment has rarely been this depressed. While a bearish sentiment is over 50% in some surveys, there may be a sign of a rebound underway. For example, the CRB Commodity Index has “stabilized.” Maybe.

Lumber prices have retraced almost 50% of their COVID-induced decline. Does this reflect the gradual re-opening of the U.S. economy or rather a sort of desperate pricing for cash flow by sellers?

(Photo: Jim Allen/FreightWaves)

If stimulus payments by the federal government work as some suggest, then we might indeed see a rebound in cyclical sectors like energy, materials and industrials.

What’s your expectation?

Meanwhile, who within the railroad carrier sector will survive and who might stumble?

For the Class 1 railroads, there is an optimism that they will demonstrate resiliency in financial terms. Positive net cash flow from a somewhat less efficient productivity but still perhaps in the high 60s to at worst very low 70s “operating ratio level” will mark a second quarter success for investors.

It appears that North American railway freight will remain the most profitable of the freight modes entering the summer. 

This economist’s confidence level is about 95% or better for financial health.

Some short lines that specialize in selected commodities as their core regional business may stumble in both volume and in their reported second quarter accounting. Clearly this pandemic is a market test. 

Here is the broader rail-centric outlook for a year from now (the second quarter of 2021).

Intermodal volume across the USA – likely down as much as 23%. The eastern short-haul rail lines may possibly be down even more – in the range of 26%.

FTR second quarter intermodal outlook as absolute drop and percentage drop since end of 2019

The single market commodity that is a huge waiting opportunity is grain. In contrast, crude oil, fracking sand and coal are challenges as their markets continue to morph.

Chemicals and petrochemicals like plastics are still a good bet for rail traffic gains over the next decade. Auto traffic will grow again if the travel industry and the disposable income of the American consumer can recover at a reasonable pace.  

If Congress and the Trump administration can reach a political resolution that results in safety-related modernization of roads and bridges, that should spur primary metals- and aggregates-related growth for the railroads. But this remains a big “if” scenario. 

As for the continuing shift in market share from railroads to trucking, that’s not really a pandemic issue. It is a business issue.

It’s going to be decided largely in the halls of each of the separate Class 1 railroads. If the large railroads decide to share their productivity gains from the recent precision scheduled railroading business change – as they did four decades ago from productivity gains of the Staggers Act, then competitive pricing should shift railroad demand-side customers (the receivers) back to using more rail services. 

(Photo: Jim Allen/FreightWaves)

When we see that cost savings sharing occurs, my level of confidence as the volume and share pivot will be in the high 90s.  That is my market view.

What’s yours?

Despite all of these expert opinions, you the reader have to make a judgment. The best strategy is a reasonable high to low range – and then pray for a market migration “to the mean.”

Best forecast bet? That we are blessed by a combination of herd immunity and a successful vaccine.



TuSimple kicks off plan for a nationwide self-driving truck network with partners UPS, Xpress and McLane




Self-driving trucks startup TuSimple laid out a plan Wednesday to create a mapped network of shipping routes and terminals designed for autonomous trucking operations that will extend across the United States by 2024. UPS, which owns a minority stake in TuSimple, carrier U.S. Xpress, Penske Truck Leasing and Berkshire Hathaway’s grocery and food service supply chain company McLane Inc. are the inaugural partners in this so-called autonomous freight network (AFN).

TuSimple’s AFN involves four pieces: its self-driving trucks, digital mapped routes, freight terminals and a system that will let customers monitor autonomous trucking operations and track their shipments in real-time. For now, TuSimple will operate the trucks and carry goods for its customers, which now number 22.  TuSimple wants to eventually be able to sell its autonomous trucks so customers can choose to operate their own fleets.

The plan was made public just days after TechCrunch learned that TuSimple had hired investment bank Morgan Stanley to help it raise $250 million. Morgan Stanley recently sent potential investors an informational packet, viewed by TechCrunch, that provides a snapshot of the company and an overview of its business model, as well as a pitch on why the company is poised to succeed — all standard fare for companies seeking investors. TuSimple, which has raised $298 million to date, has also shared its plans to build its autonomous freight network with potential investors.

“Our ultimate goal is to have a nationwide transportation network consisting of mapped routes connecting hundreds of terminals to enable efficient, low-cost long-haul autonomous freight operations,” TuSimple President Cheng Lu said in a statement. “By launching the AFN with our strategic partners, we will be able to quickly scale operations and expand autonomous shipping lanes to provide users access to autonomous capacity anywhere and 24/7 on-demand.”

TuSimple already carries freight in its autonomous trucks (always with human safety operators on board) along seven different routes between Phoenix, Tucson, El Paso and Dallas. TuSimple said it will expand its service area with existing customers UPS and McLane. U.S. Xpress is a new partner. Penske will help TuSimple scale its fleet operations nationwide and provide preventative maintenance for the self-driving trucks, the company said. 

TuSimple said the network will be rolled out in three phases, starting with a focus on a service area in the Southwest where it already operates. Phase 1, which will launch in 2020 and into 2021, will cover service between cities Phoenix, Tucson, El Paso, Dallas, Houston and San Antonio. TuSimple plans to open this fall a new shipping terminal in Dallas. TuSimple said these terminals are designed to be shared by mid-sized customers. TuSimple will carry freight directly to a company’s distribution center if it is a high-volume customer.

The second phase will begin in 2022 and expand service from Los Angeles to Jacksonville and connect the east coast with the west, the company said.

The final phase will expand across the lower 48 states, beginning in 2023. The company said it will replicate the strategy in Europe and Asia after the AFN rolls out nationwide.


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2021 BMW 5 Series Will Let You Add Options Via Over-The-Air Updates




BMW announced that it would start offering over-the-air activation of optional features as part of its new Operating System 7, with some features available on a free-trial basis or with a subscription. Operating System 7, which debuted alongside the 2021 5 Series, will be available on most late-model BMWs as part of a software update. It also includes a wide range of data and connectivity updates, but it’s not without controversy.

BMW freely admits that many of its new vehicles are equipped with the hardware needed for optional extras like adaptive cruise control, adaptive M suspension, and high-beam assistance. Ticking the box on the order sheet for those features merely adds the coding needed to run them, rather than altering the vehicle’s hardware. In its official Operating System 7 announcement, BMW representatives implied that additional features might be added to that over-the-air activation setup – seat heating and cooling, automatic climate control, power seat memory, and remote start might be on that list.

The company drew up a potential use case for over-the-air feature activation. The owner of a brand-new 4 Series coupe might decide against ordering adaptive cruise control or ventilated seats upon purchase, but after living with the car in a traffic-clogged urban environment in the heat of summer, she decides she’d like to try those features out.

She can order a one-month free trial, and if she likes the optional extras, she can purchase either a one- or a three-year subscription. When her time with the car is over and she sells it to its next owner, he might have different priorities. He can then subscribe to a particular set of features that suit his needs better. We like the idea that one could pay a bit less at the dealer, then decide later on that some features might be worth optioning.

Of course, the part that makes us raise our eyebrows is that if the hardware is already there, demanding that customers pay a monthly, yearly, or periodic fee to keep it activated feels like money-grubbing. BMW learned the lesson already that customers don’t want to pay for features when they sign the dotted line, then continue to pay for the privilege of using them.

That’s why the company announced it would suspend its Apple CarPlay and Android Auto yearly fee schedule, instead offering smartphone integration as a “lifetime” subscription with a one-time charge. Here’s hoping BMW follows its own example by allowing customers to opt in once for the feature in question, then get access to it forever (or at least as long as they own the car).


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BMW wants to sell you subscriptions to your car’s features




BMW today announced a number of updates to its in-car software experience during a VR press event, complete with a virtual drive through Munich to show off some of these features. These new updates will come to most recent BMWs that support the company’s Operating System 7 later this year — and new cars will already have them built-in.

The automaker is now able to not only update the car’s infotainment system but virtually every line of code that’s deployed to the various compute systems that make up a modern vehicle. And because of this, the company is now also able to bring a couple of features to market that it has long talked about.

Perhaps most notable is the update to the program that allows you to subscribe to specific hardware features that may already be built into your car but that you didn’t activate when you bought the car — like heated seats or advanced driver assistance systems.

BMW has talked about this for a while, but it is now making this a reality. That means if you didn’t buy the heated steering wheel and seats, for example, your new BMW may now offer you a free three-month trial and you can then essentially buy a subscription for this feature for a set amount of time.

Image Credits: BMW

“We offer maximum flexibility and peace of mind to our customers when it comes to choosing and using their optional equipment in their BMWs, whether this BMW is new or used,” a company spokesperson said during today’s press event. “So flexible offers, immediate availability, simpler booking and easy usability for choice, at any time, when it comes to your optional equipment. We already started connectivity over 20 years ago and since 2014, we are online with our Connected Drive Store, where digital services can already be booked.”

Those were very much infotainment features, though. Now, BMW will let you enable vehicle functions and optional equipment on demand and over the air. The company started offering some features like active cruise control with stop and go functionality, a high beam assistant and access to the BMW IconicSounds Sport. The carmaker will add new features to this line-up over time.

Surprisingly, it’s often easier and cheaper for car manufacturers to build some hardware into cars, even if it is not activated, simply because it removes complexity from the production process. A lot of the features that BMW is talking about consist of a combination of software and hardware, though.

What’s new here is the ability to only subscribe to some features for a short time.

“In the near future, we will not only be able to add more functions here, but we will also be able to add even more flexibility for our customers with temporary bookings so booking of options for three years, for one year, or even shorter periods of time, like a few months,” a spokesperson said.

Image Credits: BMW

The company also notes that this will give somebody who buys a used car a lot more flexibility, too. It’s worth noting that Apple CarPlay support was also originally a subscription feature in new BMWs, costing $80 a year. That really felt like nickel-and-diming drivers, though, since none of its competitors charged for this. The company’s customers were not very happy, so the company reversed that decision last December.

It’ll be interesting to see how drivers will react to additional subscription services, but the focus now is more on convenience features that would usually be an option when you buy a new car, so my guess is that this will be less of an issue.

Among the other new and updated digital services the company showcased today is support for Apple’s new ‘Car Keys,’ which BMW brands as the BMW Digital Key, as well as an updated BMW Personal Assistant. Some of these new Assistant features are more cosmetic and about how it is showcased on the in-car display.

One nifty new Assistant feature is a kind of IFTTT for your car, where you can program it to automatically roll down your windows when you enter your company’s parking garage, for example, so that you can easily scan your badge to open the boom gate.

Image Credits: BMW

Other updates include the new BMW Maps, the company’s built-in GPS system, which the company described as a ‘major leap.’

This cloud-based service can now find routes faster, has more granular traffic data and also includes the ability to find parking spaces for you — and that parking feature itself is based on a lot of work the company is doing in aggregating sensor data from across its fleet, which already covers and maps close to 99% of the German highway system once a day in HD.

Image Credits: BMW

Speaking of maps, the company, which is still in the middle of the roll-out of its hybrid-electric vehicles, also announced today that its hybrid fleet will make it easier for drivers to find charging stations and will automatically switch to electric driving when they enter low-emission zones in 80 European cities, with support for additional cities coming over time.

“Digital technologies belong to the core of BMW – because hardware and software are of
equal importance for premium cars,” said Oliver Zipse, the Chairman of the Board of Management of BMW. “Our mission is to integrate advanced digital technologies with highest product excellence to enhance our customers’ experience and driving pleasure even more.”


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