The timing and health of shipping peak season is as murky on the rails and roads as it is on the water.
The intermodal peak shipping season may have begun as early as last month, as the 4.3 percent year-over-year uptick in volume may indicate, or the surge might not take off until next month.
Trucking’s peak, which historically began in the early fall and ran through the Thanksgiving holiday, was still a no show late in the third quarter, though carriers and logistics executives expect it may start later and run longer.
Shippers keeping lower inventories, moderate retail sales, slow ocean line steaming and a potential port strike on the East and Gulf coasts make determining the timing and the health of the intermodal and trucking peaks particularly tricky in the post-Great Recession era.
Evolving shipping and inventory strategies, along with tight truck capacity, are changing expectations for what a “peak” should look like.
“I don’t know that anybody can say what a normal season is because we haven’t seen one since 2006,” YRC Freight President Jeff Rogers said in an interview earlier this year. “I really couldn’t tell you what a normal freight pattern is right now ... You don’t see the same peaks and valleys that you did before.”
The railroads appear to expect a toned down peak season, as evidenced by comments made by CSX Transportation and Union Pacific Railroad executives at a Dahlman Rose & Co. conference in New York earlier this month, according to The Wall Street Journal. The executives said they downgraded their expectations because economic uncertainty was making shippers cautious.
The question is how cautious. Global Port Tracker expects import cargo volume to jump 8.5 percent year-over-year this month and ramp up in the coming months. The optimism displayed by the forecast, created by the National Retail Federation and Hackett Associates, came days before the Commerce Department said July retail sales rose only 0.9 percent from June on a seasonally adjusted basis.
Higher gasoline prices and increased gasoline sales offset weak sales of electronics and apparel. Inventories were up 0.7 percent in July, however, a sign that preparations for peak-season shipments may already be under way.
There is no doubt that intermodal traffic, both domestically and internationally, has been rising year-over-year. But the week-to-week increases have been moderate, according to Association of American Railroads statistics. Intermodal volume in August reached the second strongest volume for the month on record, lending support to the idea that the peak shipping season began last month, said Ron Sucik, president of RSE Consulting.
Fear of an International Longshoremen’s Association strike likely spurred shippers to begin importing cargo earlier than usual, resulting in a surge in international intermodal traffic, he said.
Does the 13.9 percent drop in intermodal traffic in the week ending Sept. 8 from the week prior suggest the surge is already over? It’s too soon to tell. Making matters even more complicated is that the historical peak seasons in the last two years came earlier than the usual September and October period.
Larry Gross, a senior consultant with FTR Associates, isn’t ready to point to August as the beginning of the surge, largely because it isn’t clear how much of the traffic was driven by domestic intermodal growth. The Intermodal Association of North America is expected next week to release its month report showing the breakdown of domestic and international traffic.
Besides, Gross said the potential for an ILA port strike didn’t heighten until late August, suggesting many shippers didn’t begin to divert cargo until the end of the month. He is right that tensions heightened late last month, but it’s also unclear how much cargo shippers sped up shipments in the months prior as a hedge.
Although October is typically the beginning of the peak season for inbound volume, he said it “might be pulling forward to September.” He expects intermodal volume in October to hit an all-time monthly high, largely as a result of increased imported freight.
Still, signs of a peak so far have been scant. Month-to-month intermodal growth has “been more or less flat” from March to July, and domestic and intermodal volume growth looked particularly week in the latter, Gross said. That leads him to believe intermodal growth “might be plateauing,” and the domestic side has lost market share to trucking. Lending credence to this potential trend is that domestic intermodal volume rose 12.5 percent year-over-year in the second quarter, a slight deceleration from the 14.9 percent growth in traffic seen in the first quarter, according to IANA.
In the face of a fiscal cliff and a slowing global economy, the goods news for intermodal shippers is that spot pricinghasn’t risen much ahead of the peak season. The Cass Intermodal Linehaul Index climbed to 100.9 in August from 99.6 in July, after dropping from 104.5 in April. The price softening is likely the result of intermodal intermediaries getting squeezed because of increased capacity and more competition from trucks on shorter routes, said John Larkin, managing director at investment research firm Stifel Nicolaus, said during a conference call last week.
Gross doesn’t think increased capacity is pulling down intermediaries’ intermodal rates, and instead, thinks lower diesel prices and competition with trucks on routes less than 1,000 miles are the main drivers.
But with diesel prices having risen for the last 10 weeks, albeit only by five-hundredth of a cent last week, those intermodal spot rates will likely increase. Plus, increased federal regulation will further tighten truck capacity next year, giving the likes of J.B. Hunt and Swift Transportation the opportunity to boost pricing, Gross said.
Trucking companies still hope a pre-holiday surge of retail imports starting in October will fuel fourth quarter growth and help compensate for weak manufacturing demand in the third quarter. A replay of 2011, when a peak season analysts expected to be muted arrived in October and lasted through the third week of December, would be the perfect holiday gift.