Canada intermodal growth outpaces US

Canada intermodal growth outpaces US

Something good is happening north of the US-Canada border when it comes to intermodal. The Canadian intermodal network has been bulking up as if on steroids so far this year, and things show little sign of abating.

The Association of American Railroads reports weekly volume numbers by commodity for all the major North American railroads, and the figures are in for week 26, closing out the second quarter of 2017. Overall, North American originations of intermodal containers and trailers were up 5.4 percent versus the same period in 2016 — not bad! But Canadian volume, defined as volume originating on Canadian National Railway and Canadian Pacific Railway, collectively was up 13 percent over the same time frame.

Intermodal Association of North America (IANA) data provide some color to the gains. The table at right displays intermodal revenue movements for 2017 through May by region or region-pair. Our analysis has divided the intermodal market by equipment type. International consists of revenue movements of ISO containers (20-foot, 40-foot, and 45-foot) and domestic includes movements of larger 53-foot containers (and 48-foot to the small extent that they still move) as well as trailers.

The data show that the forward momentum for Canadian intermodal is widespread, encompassing the international and domestic sectors, as well as all Canadian regions plus the cross-border trade with the United States.

What could account for the growth differential between the United States and Canada? First and foremost is the economy. According to Statistics Canada, Canadian GDP grew at an annualized rate of 3.7 percent in the first quarter, 2.6 times the reported US figure of just 1.4 percent for the same period. But Canadian local intermodal volume grew at a rate 4.1 times faster than US local volume.

Another factor is market share shift from the United States. In particular, volume flowing between the US Midwest and the Western Canadian ports of Vancouver and Prince Rupert has been growing rapidly, apparently at the expense primarily of Seattle/Tacoma (see the Western Canada–Midwest statistics in the table). Some may claim that the lack of Harbor Maintenance Tax on imports via Canadian ports is a big factor, but I’m more inclined to believe that it is a function of quick ship-to-rail transfer and consistent, favorable transit times plus competitive economics.

There is another intriguing difference between intermodal in Canada and the United States. Back at the dawn of the intermodal era, the US railroads made the decision to wholesale intermodal services, outsourcing the sales function to an array of third parties, including steamship lines, truckers, and intermodal marketing companies. The Canadian rails went a different direction, retaining the sales function. Although they employ the US wholesale model for their operations involving the United States, north of the border they retail intermodal service directly. They work with the big steamship lines and truckers, but also directly with beneficial cargo owners, some of which operate extensive private fleets of intermodal equipment. Although each approach has important advantages, I suspect that the direct customer contact generated by the direct retail channel can provide important insights in terms of the marketplace and the opportunities that lie therein.

There are of course important differences between the Canadian and US markets. The Canadian market is much smaller. Canadian traffic, including local and cross-border moves, collectively accounted for under 19 percent of North American intermodal movements during this period. But in terms of overall volume, the Canadian lanes shown in the table all rank in the top third of the 54 IANA region-pairs in terms of total volume and the long-haul Trans-Canada lane between east and west is one of the biggest. Canadian intermodal is also much more heavily oriented towards international movements than is the case south of the parallel. ISO containers account over 70 percent of Canadian local intermodal volume, far higher than the comparable figure for the United States of under 45 percent.

So the story is not a simple one. There is no “silver bullet” single reason in my view for the recent exceptional Canadian gains. Intermodal is a complex sport — attention to detail and execution are key differentiators. Although something such as the Prince Rupert connection might represent a home run, more often it’s a game of singles and doubles. The evidence indicates that the intermodal sector would do well to look northward for insights.

Lawrence J. Gross is president of Gross Transportation Consulting in Mahwah, New Jersey, and a partner at FTR Transportation Intelligence. A veteran with 34 years in the transportation business, he covers freight transportation, concentrating on the intermodal and trucking sectors from a transportation and equipment perspective. He is a frequent speaker at industry events. Contact him at ljgross@optonline.net and follow him on Twitter: @intermodalist.