Rail/Intermodal
North American rail volumes got a shock this week when the U.S. Customs and Border Patrol closed the rail border crossing at Eagle Pass, Texas. In response to the closure, Union Pacific and BNSF each issued embargoes for new shipments to the region given the uncertain timeline for how long the closure will last. BNSF also embargoed shipments to the crossing at El Paso, Texas, gateway.
Media reports suggest that Ferromex has stopped 60 northbound trains on the Mexico side of the border because of migrants using the trains to cross into the U.S. Further media reports show migrants riding on top of a variety of rail equipment on trains in Mexico, which creates a major safety issue for Ferromex and the U.S. Class I carriers.
UP said that its other border crossings do not have the capacity to handle the additional volume that could be diverted from Eagle Pass. The closure will most directly impact U.S. agricultural exports as the harvest season is just starting to ramp up and will require shippers to hold back volumes or divert to other locations until the crossings are reopened.
UP told customers it was sending its leadership to the region today to try to work with local officials to get the border crossing reopened. But late on Friday, media reports said that Customs and Border Protection was halting commercial cargo operations at El Paso, indicating the situation is getting worse.
Rail Volume
Agricultural volumes are showing signs of ramping up as the first sign of the harvest begins to materialize in rail volumes. While the harvest is ramping up and starting to ease a difficult year for grain traffic, the recent closure of the southern border at various points raises some uncertainty about U.S. exports to Mexico. It is possible that some shipments are deferred or delayed until the gateway reopens and the backlog of shipments eases.
The harvest surge is supporting overall carload traffic levels coming out of the Labor Day holiday, but it remains to be seen if that surge is sustainable without Mexican export traffic for a period of time.
The ongoing United Auto Workers strike is another headwind for volumes in a sector that has posted double-digit percentage gains for most of the year. The union announced that it would broaden the strike from three facilities to nearly 40 facilities with the aim of shutting down parts distribution.
There is thought to be 7 to 10 days of inventory before rail carriers will notice the impact of the strike on volumes, but the strike is at that point currently with no resolution in sight so its impact would be expected to show up in loadings soon. While not as severe as the reduction seen in the second quarter of 2020 in response to the pandemic because there are several large non-union plants still operating, it will still be large enough to show up in the rail volume figures moving forward.
