State of the Industry 2023–Choppy Air But Overall Smooth Flying

David C. Lester

RAILWAY TRACK & STRUCTURES - DECEMBER 2023 – STATE OF THE INDUSTRY

This has been a strange year for our nation and our world. The war in Ukraine is entering its second winter, with horror stories of death and suffering coming from the country almost daily. This war has also strained relations between the United States and Russia. In addition, the horrific war between Israel and Hamas, resulting in the near obliteration of the Gaza Strip, has been horrible for both sides of this conflict and has caused internal political strife here at home. U.S. relations with China have been strained for a variety of reasons, including Chinese fighter aircraft challenging U.S. rights to fly in International Air Space over the South Pacific with dangerously close flybys that could cause an international incident. Moreover, the choppy air of politics in the U.S. has caused division and upset unlike any we’ve seen in a long time.

The U.S. economy has been under strain as well, although recent indicators show that things may be improving. Rising inflation has plagued the economy for much of the year. Just ask anyone who shops at the grocery store. However, at this writing at the end of November, inflation seems to be dropping a bit, and after raising interest rates several times in 2023, the Federal Reserve chose not to raise or cut the current rate at its November 1 meeting, with the hope that year-to-date rate increases have sufficiently cooled inflation to point to possible rate reductions in 2024. Nevertheless, inflation has hammered much of the economy this year, with just over 40% of respondents to our annual survey saying that inflation and rising interest rates have impacted their business significantly, and nearly 15% saying these two factors have impacted their business tremendously.

Despite the challenges economic challenges of 2023, nearly 60% of respondents told us that business has been good this year, while just under 20% said this business year was excellent. When asked about their outlook for their businesses in 2024, the percentages were about the same – approximately 60% saying their outlook is good, and approximately 20% said their outlook is excellent. Many economists believe that since 2023 was the first year since 2020 when people were relatively confident that the voracious nature of COVID had subsided (although it’s still with us today), there was a tremendous amount of pent-up demand throughout the economy. This, topped off with significant federal spending programs, the economy got too hot, resulting in rising prices and interest rates. Hopefully, this situation will ease in 2024.

While the primary focus of our industry report is on infrastructure and maintenance of way, it’s important to take a look at rail traffic performance. After all, changes in in traffic levels can have a direct impact on infrastructure and MOW spending. According to the Association of American Railroads, as of October 31, year-to-date traffic, including carloads, coal, and intermodal, is -3.8% compared to the same period last year. More specifically, as of October 31, year-to-date total carloads is +0.2%, total carloads excluding coal, +0.6% and intermodal is -7.2%. With only two more months of reporting to go for 2023, it’s unlikely that these percentages will have changed significantly by the end of the year.

Each year, we send out a survey to a cross section of companies in the rail industry with questions on various issues, both general and specific. We sent this survey out a little later in 2023 than in years past to enable more months of business to be included in respondents’ answers.

The results of our survey are displayed via 20 graphs and 1 table that you can access at this link to our digital edition. The graphical material represents direct answers from respondents and has not been adjusted in any way. We also asked a few new questions this year to provide a wider picture of the state of the industry. If you ever have suggestions around questions or other information you’d like to see in our survey, please let us know. Your feedback will help us tailor this exercise to include the information that is most useful to you.

The coming year will be pivotal for our nation. Domestic politics, world conflicts, and foreign affairs will likely affect business conditions. We encourage you to stay abreast of the issues. The Simmons-Boardman Rail Group, consisting of Railway Track & Structures, Railway Age, and International Rail Journal, will keep you informed about the rail and rail supply industries. We encourage you to stay informed about other issues through your favorite newspaper, news magazine, or other news outlet. Accurate information will be critical in 2024.