The timing and health of shipping peak season is as murky on the rails as it is on the water.
The intermodal peak season for imports may have begun as early as last month — as the 4.3 percent year-over-year increase in volume could indicate — or the surge might not take off until next month.
The railroads appear to expect a toned-down peak season, as evidenced by comments 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.
There’s little doubt, however, 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 previous week suggest the surge is already over? It’s too soon to tell. Further complicating matters is that the historical intermodal 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 label August as the beginning of the surge, largely because it isn’t clear how much of the traffic was driven by domestic intermodal growth. Besides, Gross said the potential for a strike or lockout at East and Gulf Coast ports didn’t heighten until late August, suggesting many shippers didn’t begin to divert cargo until the end of the month.
Although October is typically the beginning of the peak intermodal season for inbound volume, he said it “might be pulling forward to September.” Gross expects intermodal volume in October to hit a record monthly high, largely because of increasing imports.
Still, signs of a peak have been scant. Month-to-month intermodal growth was “more or less flat” from March to July, and domestic and intermodal volume growth looked particularly weak in the first full month of the summer, 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 good news for intermodal shippers is that spot pricing hasn’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 likely results from intermodal intermediaries getting squeezed because of increased capacity and more competition from trucks on shorter routes, John Larkin, managing director at investment research firm Stifel Nicolaus, said in a mid-September conference call.
Gross doesn’t think increased capacity is pulling down intermediaries’ intermodal rates. Instead, he thinks lower diesel prices and competition with trucks on routes less than 1,000 miles are the main drivers.
But with diesel prices rising for the last 10 weeks, those intermodal spot rates will likely increase. And 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.
Contact Mark Szakonyi at firstname.lastname@example.org. Follow him on Twitter @Szakonyi_JOC