As freight flows fall, competition with intermodal transportation is increasing

Consumer goods (CPG) companies and retailers are among the largest intermodal shippers. Today’s edition of The Stockout highlights data important to shippers using or looking to move into intermodal rail to save transportation and/or promote commitment to environmental, social and governance (ESG) initiatives.

Will there really be a peak season for intermodal rail this year?

October is the traditional month of peak intermodal volume. In light of commodity shortages during the past two fall shipping seasons, this peak continued into November and even into December and January, as shown in the volume table above.

Ahead of this seasonal peak, domestic intermodal volume typically begins to pick up in August (see 2019 and 2020 above in blue and green, respectively). That hasn’t happened yet this August, which could be due to major retailers canceling billions of dollars worth of inventory as consumers avoid expensive purchases of their own volition.

Why the intermodal fall peak is important to shippers

The presence or absence of a peak season will likely affect the trajectory of intermodal contract rates next year.

Contracts are tightest early in the year, and negotiations typically coincide with the previous fall’s peak season — upward pressure on rates is greater if the previous fall’s peak season was strong. This has been the case in the past two years with intermodal contract rates rising by double-digit percentages from 2020-21. and again from 2021-22. after seasonal peaks in late 2020 and late 2021.

In addition, intermodal contract rates rose steadily throughout the year, both in 2020 and 2021. Now, nearly two-thirds of the way through 22, intermodal contract rates are roughly where they were at the start of the year. The potential absence of a significant upcoming peak season, in addition to increased competition from highways, could put downward pressure on rates at the start of the ’23 bidding season.

Rail service remains poor

Were many anecdotes from shippers about poor rail service and the chairman of the Land Transport Board not optimistic about rail service levels and are also concerned the railway’s ability to effectively serve the autumn grain harvest.

While many of these comments relate to railcar transport, it is clear from recent data that rail intermodal services also remain poor. The data below points to continuing challenges with intermodal services. The chart below shows that three of the five Class I railroads have more loaded intermodal cars on their systems that have not moved for 48 hours than their respective historical averages. BNSF and Norfolk Southern have the most unfavorable historical variance, with intermodal cars detained two days or more 124% and 96% above their respective historical averages, as shown below.

Class I railways have largely blamed manpower availability as the main cause of maintenance problems.

In past cycles, after layoffs or furloughs during a downturn in volumes, the railroad had no problem hiring or rehiring workers when volumes rebounded. This time it didn’t happen, I believe, largely due to morale issues as employees were required to “do more with less” and spend more time away from home.

The chart below shows the average weekly number of BNSF railroad intermodal trains carried per day, broken down by reason. The volume of intermodal trains carried on BNSF in recent months exceeds the number since the middle of last year, a period of very poor rail service. Also, reasons for train delays certainly include crew availability (shown in dark orange – a factor that seems to have increased recently) and locomotive power in addition to “other” factors such as overall load).

Source: US Ground Transportation Council and FreightWaves

The competitiveness of intermodal transport with trucks has increased

The Intermodal Contract Savings Index is a measure of the difference in rates between dry vans and domestic intermodal shipments on the same origin-destination pairs (same three-digit zip codes) with fuel charges included for both types.

For all lanes longer than 400 miles — lanes shorter are considered truck-only lanes — the intermodal savings rate is 12%, up from 18% last year, but still close to the midpoint of the historical discount of 10-15% . More interestingly, the long-haul intermodal contract savings index, which includes only lanes over 1,200 miles (white line above), fell from nearly 30% at this time last year to 16.8%.

Part of this decline is due to timing – truckload contract rates are more responsive to market conditions than intermodal rates. In a declining freight market, this leads to a narrowing of spreads. Declining intermodal economies on long-haul lanes mean contract rates for dry vans are falling on those lanes, which likely includes many lanes out of Los Angeles, an unusually loose truck market for this time of year.

Shippers see less value in intermodal rail in the eastern lanes

While the softening of the freight market in the West may make some longer hauls more competitive across modes, it seems that the Eastern lanes are always more competitive than the Western ones due to shorter haul times.

For example, the average number of dry vans on the Chicago to Atlanta lane is down 36% since March. Underscoring the increased competition, domestic intermodal provider Hub Group reported that its “domestic eastern” intermodal volume (volume that originates and terminates in the eastern third of the U.S.) fell 14% year-over-year in the second quarter, and the company attributed loss of its share by road carriers participating in the spot market.

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The TOP 500 FREIGHTWAVES The list of hired carriers includes Hub group (No. 29).