Analysis: US economy ripe for intermodal growth

Looking to the next year, domestic containers are well-positioned vis-à-vis trucking, whose capacity utilization
is expected to hit 98 percent as the electronic logging mandate takes effect in December.
Photo credit: Shutterstock.com


Against a favorable economic backdrop, intermodal business has made promising gains this year. With energy prices low and the US dollar high, total intermodal volumes improved 4.5 percent in the second quarter. This followed a 2 percent gain in the first quarter, and in July, the latest month for which data is available, shipments grew 6.6 percent. After the lackluster performance in 2016, the industry appears to have resumed its positive trends.

Low energy prices and an expensive dollar — conditions that benefit the US consumer — appear poised to continue for the immediate future. Furthermore, two leading indicators in particular are expected to exceed their 2016 numbers in 2017. Business investment is forecast at 4.1 percent versus negative-0.5 percent in 2016. Likewise, industrial production, driven by extraction, is forecast at 1.7 percent versus negative-1.2 percent. The labor market continues to improve, and housing starts, although improving at a slower rate, are expected to pick up steam.

Year-to-date growth through July for the combined North American Free Trade Agreement countries was a healthy 3.7 percent. International traffic was the primary driver, up 4.9 percent, with domestic containers and intermodal trailer volumes rising 2.6 percent each. The trailer percentages, largely accounted for by 28-foot pups, are worth noting, given their long-term downward trend, even though this segment remains a marginal component of domestic intermodal shipments.

One of the bigger stories of the first half of 2017 is the continued growth of transloading on the US West Coast. Transloading is an attractive option for shippers because of its flexibility and the economies of scale in consolidating three international containers into two domestic boxes. Increasing tightness in highway capacity and rising prices also may have provided an incentive.

The percentage of imports transloaded into domestic containers for movement inland by rail is now estimated at more than 34 percent in the Pacific Southwest and more than 30 percent for the Pacific Northwest. By contrast, IPI, variously known as Inland Point Intact and Interior Point Intermodal, remains marginal for these two regions, at 0.2 percent and negative-1.1 percent, respectively.

Estimates of transloading and IPI growth rely on the Intermodal Association of North America’s IMTS statistics and IHS Markit’s PIERS data. Through June, imports into the United States and Canada grew 6.6 percent, and IPI was up 4.3 percent. This is a stark contrast to the divergence last year, when imports grew but international shipments fell. While transloading grows on the West Coast, all-water service to other regions continues to gain market share.

Canadian growth is another big story. By origin country, intermodal has increased 2.5 percent in the United States, 10.4 percent in Canada, but has fallen 3.3 percent in Mexico. Five of the six top intermodal lanes for the first six months, those with 10 percent increases or more, included Canada as its origin or destination. Eastern Canada and western Canada notched 9 and 10 percent growth, respectively, through June, and together accounted for 15 percent of loadings. Following wildfires and an economic downturn in 2016, Alberta is bouncing back, and Canadian GDP is forecast to grow 2.8 percent for the year.

Total North American intermodal volume growth for 2017 is expected to be 4 to 5 percent, led by international at 5 to 6 percent, followed by domestic containers at 2 to 3 percent.

Although the trucking market is expected to loosen again during the last half of 2018, utilization is expected to remain above the long-term historical average of 92 percent.

For a deeper dive into the numbers, check out IANA’s quarterly Intermodal Market Trends and Statistics reports. Another opportunity is the FreightCast session at the Intermodal Expo, on Sept. 18, in Long Beach. For more information, visit www.intermodalexpo.com.

Joni Casey is president and CEO of the Intermodal Association of America. 

 

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