Coal In Decline: The Impact on Railroads


This round’s labor negotiations are taking place against the backdrop of unprecedented change across the freight railroad industry and among its customers.

At issue is that the health of railroads is affected by the dramatic reduction in shipments of coal – their largest revenue source – and in other commodities as the nation’s economy faces major challenges.

The bottom line is that the economic outlook for the industry has significantly shifted from when the labor negotiations began in 2014 – a development that must be taken into consideration by negotiators and interested parties.

The decline in coal shipments parallels national efforts to generate power with alternative sources. In 2006, nearly half of the electricity generated in the country was from coal. Today, less than one-third of power is from coal. That matches the natural gas share, which has risen sharply in recent years due to favorable pricing and wide availability.

How the contraction in coal is impacting freight railroads:

• No single commodity has been more important to America’s railroads than coal, which accounted for more than 17 percent of rail revenue in 2015, according to industry-compiled data. But deliveries of coal are in dramatic decline and, because of economic considerations and national energy policies that favor cleaner sources of energy, will never return anywhere close to former levels.

• As a percentage of total freight rail carloads, coal was the highest by far in 2009, comprising nearly 25 percent of total carloads. Coal shipments have declined every year since. Today, coal accounts for approximately 13 percent of carloads with even fewer carloads likely in future years.

• Revenue generated by coal shipments has dramatically declined as well. Class I railroad gross revenue from coal was $12.1 billion in 2015, down from a peak of $16.4 billion in 2011. And it continues to decline steadily.


Source: Association of American Railroads, Railinc.


It’s not just revenue from coal that has dropped. Many customers and industries served by freight railroads have yet to recover from the worst recession in generations, as the U.S. economy continues to experience only tepid growth. That in turn has resulted in less business for freight railroads, exacerbating the uncertainty that railroads are facing.

The traffic data tells the story of an industry in flux.

From January 2016 through September 2016, the key measure of total carloads shipped over the freight rail system was down nearly 11 percent compared to the same period in the previous year. To be sure, the precipitous drop in coal carloads (down nearly 26 percent) led the way, according to the Association of American Railroads. But a steady drop in shipments of other commodities has followed suit, reflecting the uncertainty rail customers face in a challenging economic environment:

• Petroleum and petroleum products, down more than 22 percent
• Forest products, down nearly 8 percent
• Metallic ores and metals, down 6 percent
• Farm products and non-metallic minerals, each down more than 3 percent

These changes present freight railroads with serious challenges as they strive to align resources and costs for success in today’s dynamic and highly competitive marketplace.

In order to meet those challenges, railroads must maintain the financial flexibility to spend billions of dollars annually for maintenance and improvements to the 140,000-mile network. These investments will help ensure that railroads provide competitive service and facilitate future growth.

To learn more about how freight railroads are weathering fundamental business challenges, go to:

Industry white paper: Railroads and Coal.

Freight rail monthly and weekly traffic reports.

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