And on Class I earnings calls this month, not one executive said their railroad expected the usual seasonal surge in intermodal volume.
“Normally, October is the busiest month for intermodal. And last week was lower than late February, and that is crazy,” says intermodal analyst Larry Gross. “It’s not good.”
Several factors inside and outside the railroad industry are behind intermodal’s struggles this year.
Among the rail-related factors: Changes related to the implementation of Precision Scheduled Railroading, including demarketing of domestic service in lower-volume lanes, and railroads holding the line on pricing.
“Intermodal pricing is determined by truck pricing. If intermodal is going to attract volume, it has got to offer a door-to-door cost to the customer that’s lower than truck because it’s slower and less reliable than truck and less flexible than truck and more complicated than truck,” Gross says. “There’s nothing wrong with that, but you can’t expect to get a price that’s equal to or better than truck.”
Among the external factors: There’s plenty of truck capacity and global trade is slowing.
“The biggest issue by far is the fact that truck capacity is still fairly loose compared with last year and shippers are voting with their freight to use what they view as a more consistent, reliable mode of transportation in truck compared with rail intermodal,” says Todd Tranausky, a rail and intermodal analyst with FTR Transportation Intelligence. “Until either truck capacity tightens up or the railroads use price to entice shippers to shift freight from truck to rail intermodal, there is unlikely to be a real acceleration in intermodal volumes in the peak season or otherwise.”
Domestic intermodal has not grown in two years, Gross points out. And domestic container market share compared to the highway has declined for four straight quarters. “The decline in domestic container market share is unprecedented,” Gross says.
International intermodal volume is up roughly 7% over the past two years, which is roughly in line with growth in import volumes, Gross says.
But this year, as trade slows, imports are up a little more than 1% in the third quarter to date, while international intermodal volume in North America is down a little more than 1%, Gross notes.
The gap, Gross says, is likely due to the impact of cargo shifting from West Coast ports to the East Coast and Houston, where distances to inland points are shorter, making intermodal moves far less likely.
For the year through the end of September, overall North American intermodal volume is down 3.3%, with domestic off 6.7% and international volume flat.
poor service as a result of psr can be blamed for most of it
Trump’s Chinese tariffs?
Gee, I guess Walmart just didn’t order as much from the far east as they usually do. Instead of a “rollback’ on prices, a rollback on orders.
“Internodal pricing is determined by truck pricing. If intermodal is going to attract volume, it has got to offer a door-to-door cost to the customer that’s lower than truck because it’s slower and less reliable than truck and less flexible than truck and more complicated than truck,” Gross says. “There’s nothing wrong with that, but you can’t expect to get a price that’s equal to or better than truck.”
I’ve not read a better capsule summary of the “OR uber alles” thinking misleadingly mislabeled “Precision Scheduled Railroading”. Nor a better way to exit the business entirely. I’d say it’s a total joke, but contracts (with minimums) might be involved.
But even this is stupid. Would they be off with a higher minimum and a lower price? Undoubtedly, because costs do not rise linearly with each additional unit Until you need to add another train start at which point once again costs do not rise linearly with each new unit after that train start cost step function. Which is mainly crew cost based because there’s now plenty of locomotives and well cars and domestic 53s idle and more track capacity on account fewer train starts overall. And since the volume has been shrinking for 4 quarters now, the same goes for ramp capacity.
Does anyone know what the demand for domestic intermodal would be if they could achieve “truck plus a day” at one and a half nines reliability (that’s 95% on time). I think not because they’ve never achieved that kind of reliability. I’m not sure it’s in their DNA anymore.
This reads like a Fred Frailey column where railroads expect customers to just magically show up and thank the railroads for high prices, poor service and general indifference.