That’s the consensus of a panel of intermodal experts who spoke at the Intermodal Association of North America’s annual Intermodal Expo on Monday.
Part of the problem can be traced to a highly unusual 2018, when imports from China spiked to avoid tariffs and truck capacity was historically tight, which helped to propel intermodal volume.
Last year’s boom in international traffic will make for difficult year-over-year comparisons this year. And truckers have increased capacity and recaptured volume from railroads as domestic freight demand softened.
For the year to date through August, international intermodal is up 0.3% and domestic intermodal is down 6.3% compared to last year. When compared to 2017 — a more normal year — international volume is up 6.8% year-to-date, while domestic intermodal volume is up 1.1%, says intermodal analyst Larry Gross.
Lars Jensen, CEO of SeaIntelligence Consulting, says international container volume should start to show year-over-year declines beginning this fall due to the unusual surge in cargo that landed at American ports late last year to beat tariff deadlines. This should not be interpreted as a decline in demand, he says.
But intermodal traffic still faces short-term headwinds.
“There’s a lot of challenges out there,” Gross says.
Chief among them: Domestic intermodal is losing share to the highway.
“Intermodal is having a competitiveness problem,” Gross says, noting that domestic intermodal has leaked volume to trucks for four straight quarters, the longest losing streak since he began tracking share in 2000.
The problem is not service-related, Gross says, pointing to average intermodal train speeds that are currently running above the five-year average.
Instead, Gross contends that domestic intermodal volume is hitting the highway due to a combination of railroad price increases and interline service reductions as railroads adopt Precision Scheduled Railroading operating models.
In the first half of the year, Class I railroads’ intermodal revenue per unit grew at a pace that would equal a 9% annual rate increase at a time when the trucking industry has excess capacity and truck rates are declining, Gross says.
Meanwhile, Class I railroads are focusing on streamlined intermodal networks that rely more on point-to-point intermodal service with less complexity and work en route. As a result, they have dropped steelwheel interchange in Chicago for lower-volume intermodal lanes. The cost and complexity of crosstown rubber-tire moves between intermodal terminals has simply pushed volume to the highway, Gross says.
Concentrating intermodal service on a few high-density lanes runs counter to the trend toward shipments that move to more dispersed locations.
“Intermodal, in its simplification mode right now, is swimming against the tide,” Gross says.
But Maryclare Kenney, vice president of intermodal and automotive at CSX Transportation, told a separate audience that the railroad’s PSR-related changes to its intermodal network have dramatically improved service, which should translate into volume gains.
CSX’s intermodal on-time performance, measured by trip-plan compliance for individual containers and trailers, is 93% for the third quarter to-date.
Service reliability is key, experts say, but speed is becoming increasingly important. And that’s a problem, Stifel analyst David Ross says, because it means intermodal does not fit well into fast-growing ecommerce supply chains that emphasize delivery speed.
“If speed is of the essence, supply chains will favor truck over intermodal, and pay that 10% to 15% premium, just to get the service,” Ross says.
But Tom Williams, group vice president of consumer products at BNSF Railway, disagrees. Intermodal is the best way to maintain a flow of goods to electronic retailers’ distribution centers and represents a growth opportunity for railroads, he told Intermodal Expo attendees.
In an interview, Williams said intermodal pricing typically lags movements in truck pricing because what moves on the railroad is handled under contracts.
All great comments. The railroads are in a pricing service struggle. Intermodal just is not the value it once was given changing needs in the freight and logistics market. Wall Street still reigns in the rr industries going out business sale.
The only ray of sunshine I believe we can cling to is perhaps the U.S. Class I’s going thru this PSR change will adopt the same path as did CN in the early ’10s. Once EHH’s bloodletting was complete and Claude Mongeau became CEO, he had the company’s marketing people do what amounted to an apology tour. And then CN’s operating, marketing and sales teams took on this mission: maintain the operating discipline of PSR, but balance that with an entrepreneurial attitude toward creating new markets and wooing back customers. Overall, it has worked (except when Canadian winters turn twice as awful and kill the operating ratio).
If CSX, UP and NS all think they can adopt this plan and then just sit and wait for customers to crawl back to them, good luck. Time will soon tell: are the current corporate officers truly just shills of Wall St., or do they have some of the backbone of real railroaders in them?
And when coal dries up…then what? An industry that’s run by bean counters disconnected from reality….intermodal is where they should be attacking the market…but nope.
So it goes.
“On time”. I was told that on a flight that ostensibly arrived on time. Trouble was, I missed my connection the day prior, so I was actually an entire day late, or later than the sum total of my scheduled flights the day prior. So what is truly “on time” in PSR—the train, or my container?
Douglas Scott,
BNSF is not reducing service at their own choice..when the interline partner tells you their closing lanes you have no choice but to eliminate that service yourself…or try and run your own trains over the other railroads lines, as they have done in a few cases. As for pricing, people are willing to pay a premium to BNSF because they run a premium service…look at the rest of the industry for problems, not BNSF.
So CSX and BNSF have decided to ignore the voice of the customer and instead insist that their strategy of steady price increases and reduced service is really what customers want. Meanwhile, the customers vote with their dollars and are shifting more freight to trucks. But hey, Walk Street is happy (for now).
“An orderly going out-of-business strategy”.
It’s working.
I’m not seeing anything from IANA’s panel of experts that hasn’t already been said in recent months by the Newswire panel of experts. 😉
And I’ll add one thought which is I don’t believe Ms. Kenney “gets it”. Simply improving the service reliability likely won’t be enough to win back business. Combine the improved service with an attractive rate package and perhaps she can get some of that business back from the trucks.
Precision Scheduled Reductions!
“CSX’s intermodal on-time performance, measured by trip-plan compliance for individual containers and trailers, is 93% for the third quarter to-date.”
How much of that improvement in on-time is because the trains are running at the convenience of CSX and not that of the shippers? I fear it is a big hunk.