Peak season for intermodal arrives with a whimper, as slack demand depresses volumes

Peak season for intermodal arrives with a whimper, as slack demand depresses volumes

As 2023 strikes from summer time into fall, the excellent news for intermodal rail shippers is that the delays skilled in 2022 from congestion at West Coast ports and Midwest rail yards have receded into distant reminiscence. The not-so-good information is that because the economic system stumbles into the ultimate quarter of 2023, the rail freight business stays in a droop, with projections for continued weak demand and softness nicely into the second half of 2024.

It’s been a difficult yr for America’s railroads. Over the primary eight months of 2023, the Affiliation of American Railroads (AAR) reported intermodal site visitors, which is the motion by stack prepare of each ocean and home containers in addition to trailer-on-flatcar site visitors on U.S. railroads, was down 9.2% from the identical interval a yr in the past. The first wrongdoer: a falloff in worldwide container volumes primarily via West Coast ports, which usually generate some 60% of intermodal field site visitors transferring on U.S. railroads.

“August was the third straight month wherein whole year-over-year U.S. rail carloads have fallen,” says John Grey, AAR’s senior vice chairman of coverage and economics. “This yr, should you take a look at what retailers [currently] have for inventories and shopping for ranges occurring, we’re most likely not going to have a [meaningful] peak season,” he’s noticed.

Certainly, volumes arriving on the ports of Los Angeles and Lengthy Seaside, which mixed symbolize the nation’s largest port advanced, have been nicely under final yr’s. By means of the primary six months of 2023, Lengthy Seaside dealt with some 3.72 million TEUs (20-foot equal models), trailing the greater than 5 million containers dealt with within the first half of 2022. At Los Angeles, some 4.14 million TEUs moved via the port in 2023’s first half, which was considerably under the 5.41 million models dealt with over the identical interval final yr.

On the flip facet, for Los Angeles, whole empties for export—containers returned to the port and loaded on ships for return journeys to Asia—had been down over 39% in July from final yr. That sends a troubling sign about future manufacturing unit output in Asia, as fewer empties being returned may foreshadow decrease output—and decrease imports later within the yr—leading to probably fewer ocean bins for rail intermodal to deal with. 

Lastly, drought situations and low water ranges within the Panama Canal, which as of early September was proscribing via site visitors to 32 vessels per day, may additional impression the place intermodal bins finally land within the U.S. Based on a report from funding agency T.D. Cowen, “Whereas delivery information signifies a pile of ships ready on the ends of the waterway, containerships haven’t [yet] been materially impacted within the U.S. East and Gulf Coast ports. Potential [delays] will hinge on climate and reservoir replenishment.” AAR’s Grey, nonetheless, factors out that ought to these situations worsen, “shifts [of traffic] to West Coast ports may very well be massive.”

Nonetheless, Grey experiences that from a service perspective, “intermodal is functioning fairly nicely at this time.” Rail operators have capability, they’ve been including crews and gear, retailer inventories are trending to extra regular ranges, and retailers seem like ordering conservatively. That every one provides Grey hope that “we’ll get via [the holiday] season with out the congestion problems with the previous, and issues may truly enhance.”


Jason Seidl, managing director at T.D. Cowen, notes that contract charges for this yr “have been hit fairly good” and customarily have are available in under final yr, by as a lot as 10% on common. He doesn’t anticipate a rebound till “the second half of subsequent yr, after we will see … firming of truck pricing, and hopefully, good rail service ranges. That ought to assist drive quantity and produce pricing up off the depressed atmosphere we’ve had this yr.” 

He provides that the latest rise in diesel gasoline prices could present some assist to intermodal, as shippers look to offset the 23% rise in diesel—and associated gasoline surcharges—seen this summer time. He cites one shipper whose trucking invoice was $400 greater due to diesel gasoline. “He thought it was a mistake,” Seidl remembers. “When you consider modality and the way shippers select between totally different modes, diesel [cost] turns into an element.”

Shelli Austin, president of InTek Freight & Logistics, an Indianapolis-based third-party logistics service supplier (3PL) and intermodal advertising firm (IMC), and board chairman of the Intermodal Affiliation of North America (IANA), echoes Seidl’s feedback. “The market is gentle, and charges are persevering with to go down,” she’s noticed, noting that 90% of InTek’s enterprise is intermodal strikes. And whereas rail operators sometimes have tried to carry the road on pricing, as summer time has proceeded into fall, “the rails have develop into extra aggressive going after market share. It’s undoubtedly the time to take a look at intermodal pricing,” Austin says.

Modal shift, or the diversion of freight by shippers from rail to truck, has been erratic, she notes. “Shippers are vacillating backwards and forwards. Now that the rails have determined they should get market share again, it’s everywhere in the board. It’s form of a diversion free-for-all. You’ve received to be in your toes,” she says, noting that intermodal spot charges are down greater than 20% from final yr. “At one cut-off date, truck was on the backside of the barrel, however no longer a lot, as intermodal goes after market share in an enormous approach since they’ve capability to fill.”

But her expertise with bigger shippers who’ve been longstanding purchasers is that they proceed to stay to their plans and try for a steadiness between truck and rail. “They perceive [the current market] is only a second in time; they need to defend their capability and preserve a dependable provide chain circulate,” she notes. “They don’t spend quite a lot of time chasing charges and transferring freight backwards and forwards.”

With intermodal charges declining and rails seeking to fill capability, is that offering 3PLs and forwarders with a possibility to extend margins? 

“With the rails getting aggressive, I would need that had been true,” says Austin. “However it truly has had an opposed impact.” As head of a 3PL emphasizing intermodal, she’s competing towards truckers with loads of capability and different IMC and rail suppliers for freight as nicely. “As a result of the market is free and there’s a lot capability on the market, we’ve to trim our margins considerably to be aggressive, preserve the enterprise we’ve, and win new enterprise,” she notes.

Two areas the place Austin believes intermodal has confirmed benefits in any market are sustainability and security. By one business estimate, freight transferring by prepare can cut back a shipper’s carbon footprint by as much as 75% versus truck. And as shippers start to deal with coming necessities for ESG (environmental, social and governance) reporting, significantly round greenhouse gasoline emissions (GHG), they may “actually perceive the significance of intermodal and the way it helps them execute their provide chains in assist of GHG objectives,” Austin says. 

The opposite space she sees as a bonus to intermodal is security. “Within the truckload business, there may be some nasty fraudulent brokering occurring that’s creating havoc and impacting shippers,” she notes. In some instances, she has seen three or 4 totally different events concerned in brokering a load—in addition to unhealthy actors working as a part of theft rings concentrating on sure varieties of freight and impersonating carriers. That places truck drivers in addition to shippers—and their freight—in danger. 

“With intermodal, the publicity to probably nefarious trucking exercise is way shorter, with much less alternative for fraudulent gamers to be concerned,” she notes. “As soon as [that container or trailer] is on the rail and transferring, there may be much less threat of its being compromised.”

General, Austin counsels her prospects to “plan strategically, act tactically” to handle the ebbs and flows of freight transport markets. “Shippers ought to stay diversified in mode choice and task. Make a dedication to your IMC or rail supplier to guard your capability. Sooner or later, we’ll return to a secure market,” she advises, including that “continually looking for the bottom fee isn’t sustainable.” When the market lastly stabilizes, “capability suppliers will bear in mind who put their ft to the hearth,” she warns. “Sooner or later, trolling for the bottom fee continually will come again to chunk you” and go away you on the provider’s doorstep with out capability.


Having persevered via final yr’s challenges, Class 1 rail operators have been making use of classes discovered and implementing methods to enhance service, cut back delays, and put money into rolling inventory and infrastructure to assist dependable capability—even within the face of a down market.

“The railroad is in nice form with service at or, in some instances, exceeding 2019 ranges,” says Kendall Sloan, spokeswoman for the Burlington Northern Santa Fe Railroad (BNSF). “Velocity continues in the best path. BNSF’s hump yards have set all-time bests for productiveness virtually each month of 2023,” she notes.

Sloan says BNSF has been targeted on three main drivers to enhance service: restoring community fluidity and velocity, growing locomotive and crew availability, and boosting automobile stock. The corporate pulled greater than 250 locomotives out of storage over the winter and deployed further models within the spring. Store exercise was accelerated, and output elevated through the use of extra time to hurry locomotive restore. Each actions introduced belongings on-line sooner and improved community fluidity, Sloan says. 

Lastly, sick-leave agreements had been reached with 11 out of 12 unions, which, together with different scheduling adjustments, helped the BNSF rent extra employees and “enhance the work-life steadiness of our workers’ schedules,” she says. The general aim: “to make sure we’ve the best sources in place on the proper time to maneuver the freight that should transfer,” Sloan says.

Over on the Union Pacific Railroad (UP), the corporate “nonetheless expects to outpace [the overall economy’s] industrial manufacturing [this year] in sure markets, however weak demand for client items has pushed our full-year quantity outlook under present industrial manufacturing estimates,” says UP spokeswoman Robynn Tysver.

The railroad “has ample capability to deal with our prospects with room for progress,” Tysver provides. “We’re leveraging our reliable capability to create new alternatives and industrial improvement.” A kind of initiatives was a brand new Mexico-U.S.-Canada service that the UP launched at the side of Canadian Nationwide Railway and Grupo México Transportes. Tysver says the “Falcon Premium” intermodal service will present the “quickest, most dependable rail service between Canada and Mexico” via combining the companies of every accomplice.

The railroad in May introduced a brand new service supposed to expedite the supply of products touchdown on the Port of Houston. It’s designed to “permit intermodal containers to be loaded immediately onto railcars from cargo ships after which shipped on to inland terminals with out being trucked overland,” she explains.

Tysver emphasizes that rail intermodal represents “one piece of the availability chain—the center mile.” She provides that, “The great thing about intermodal is the way it will increase the general capability within the transportation provide chain, combining the advantages of each [truck and rail]. [It] creates capability and effectivity within the whole provide chain at a decrease price than truck alone and delivers on sustainability initiatives that cut back the shipper’s carbon footprint.”

For Norfolk Southern (NS), the capability challenges that plagued the business final yr have abated, notes Shawn Tureman, the railroad’s vice chairman, intermodal and automotive advertising. And whereas the corporate expects a “muted” peak season and a market the place volumes have moderated, Norfolk Southern however has capital enchancment initiatives coming on-line to extend terminal capability and is hiring extra workers. Among the many investments: the addition of practically 5,600 chassis in 2022 and 2023. 

Tureman notes that the railroad has not been immune from the results of soppy demand and the diversion of some freight from intermodal to truck. He characterizes it as “a cyclical change that has impacted shipper selections about routing site visitors. This has required us to regulate as nicely.” 

And whereas he has seen some site visitors shift again to the West Coast, “we’re seeing continued energy at our East Coast ports,” he experiences. Citing the Savannah, Georgia, market specifically, he notes that Norfolk Southern has added “three further trains in every path” to deal with the volumes.

Regardless of a gentle market and quite a lot of challenges, Tureman believes that Norfolk Southern total is headed in the best path. “NS, like all railroads, has been working aggressively … to beat [the labor] problem via recruiting and coaching a whole lot of recent conductors and locomotive engineers, in addition to buying further chassis capability—regardless of the market downturn,” he notes. 

“For the previous yr and a half, we’ve continued to put money into infrastructure and expertise so as to add capability and throughput,” he emphasizes. “Going ahead, we are going to proceed these investments with the intention to get forward of the long-term progress curve we all know is coming.”

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