WASHINGTON — Rail is winding down in the final weeks of 2024, supported by strong international intermodal volumes, a healthy grain crop and modest 4 percent year-over-year GDP growth. Economically, inflation is still a problem as food costs more than it did four years ago. Unemployment is around 4% and fuel prices are lower than they were last year, but still higher than before the pandemic. Mortgage rates are rising again as the cost of borrowing remains high.

Even with the outcome of the election settled, macroeconomic issues remain and uncertainty is likely to continue for the foreseeable future. I have observations about what President-elect Donald Trump’s priorities might mean for the rail business, but I pretend that I’m not an economist, nor do I claim to be an expert on any of the forces pulling on our economy, and my comments are nonpartisan. These are my thoughts.

Rates and what they mean for cargo, intermodal

The president-elect has indicated strong support for domestic manufacturing, levying tariffs on importers to incentivize companies to invest and manufacture in the US. This could lead to more manufacturing in the US, reducing foreign dependence on items such as consumer goods, pharmaceuticals and furniture. US imports from countries like China. I don’t expect this to result in a remarkable shift in domestically produced goods moving by rail, but the point here is that during Trump’s second term, perhaps more U.S. investment they will create car loading opportunities. I think 2025 is too early, though.

Also, any increase in carloads that might result from higher domestic production would likely be overshadowed by less international import intermodal traffic. If the tariffs are implemented early in the new administration, U.S. railroads could see weaker international intermodal volumes, while the benefits of increased domestic production would not be seen in freight load growth until the second half of the term.

Energy policy does not necessarily mean more tank cars, coal transports

The new administration is expected to relax regulations on energy and environmental policy. That could boost natural gas production and ease coal regulations. Increased natural gas supply could lower coal prices, making natural gas more favorable than coal for domestic utility consumption. Utilities that don’t have the capacity to use natural gas could ship slightly more tons of coal under the new administration, given the bullish outlook on coal. Price is more important than policy, and many utilities and power producers will remain committed to their long-term climate goals.

Where the railways stand to gain is by reducing fuel costs. For example, Union Pacific spent $2.1 billion on fuel in 2019 before the pandemic, when retail diesel prices were No. 2 in the US averaged $3.05 per gallon. In 2023, UP spent $3.4 billion when retail diesel prices averaged $4.21 per gallon. Railroads typically procure fuel below these retail rates, but the trend line is the same. While cheaper diesel will reduce railroad expenses, it will also reduce revenue from fuel surcharges, which railroads cover by carload rates.

Domestic intermodal an area to watch

Domestic intermodal has been lackluster in many quarters, primarily due to overcapacity in the over-the-road truck market and little incentive for domestic shippers to choose rail. If economic sentiment improves in the US and consumers begin to spend more on Trump’s pro-American agenda, this could boost economic activity, potentially giving a jolt to carriers and the so-called freight recession. This is not necessarily a volume shake-up for the railroads, but it is an opportunity for the railroads to find creative business avenues that work for its customers against a pro-America-everything backdrop. I want to keep a close eye on this and gather what I can from intermodal and rail experts in 2025.

Housing and construction

America still needs to build millions of homes to recover from the housing shortage. Eventually, new homes will begin to be built. Lower interest rates will help stimulate real estate activity, but I don’t expect this to move quickly. I am optimistic that there will be more lumber and drywall activity in 2025 given the election result and lower inflation, but how much the railroads benefit remains to be seen. Tariffs on Canadian lumber could boost U.S. production, but how much market share will railroads have compared to trucks in this scenario?

Aggregates and other minerals should continue to perform strongly in 2025, with a stockpile of infrastructure projects underway from the Bipartisan Infrastructure Deal injecting $1.2 trillion into the economy. I would expect different types of aggregates, cement and other building materials to do well, further supported by Trump’s commitment to domestic investment and lighter regulation.

And American steelmakers will benefit from sweeping tariffs. Steel prices have been depressed since the start of the pandemic due to slowing demand, caused in part by high interest rates and a glut of domestic production and imported steel. Boosting domestic steel production, supported by strong manufacturing demand, could boost activity.

Also, lower interest rates, a stronger dollar and a more optimistic view of the US economy could make consumers more likely to buy vehicles, also boosting steel demand.

Where do we go from here?

All things considered, I still think there are a lot of uncertainties in 2025, and I look forward to studying more about the economic and railroad role in the US economy, especially under an America-first administration. No one seems to be making any bold assumptions, and I won’t be the first, but 2025 should be interesting and hopefully the railways can quickly pivot to new opportunities.

I’ll reiterate again that I’m not an economist, and while this column is usually a collection of my thoughts, this time I’m asking for your thoughts and ideas, and I welcome your thoughts. You can contact me at [email protected].

— Vehicle loading considerations are monthly Trains News Wire Commentary Series. The rail freight industry, commodities and economic trends are discussed. Its views are the opinion of its author, with no particular emphasis on a particular railroad or shipper.