The factors behind North America’s intermodal acceleration

The factors behind North America’s intermodal acceleration

The growth in intermodal volumes that capped off 2017 has continued in 2018. With strong consumer spending and export activity on the one hand, and a tight truck market on the other, the industry posted a 7.2 percent gain in the first quarter of 2018. This was the best in nearly four years, and it was followed by 6.2 percent growth for the second quarter.

Leading economic indicators that are used to track intermodal business are up and are expected to exceed the previous full-year results at the end of 2018. Annual US GDP, originally forecast at 2.4 percent, is now expected to perform closer to 3 percent. Retail sales, industrial production, and business investment have also been revised upward.

Manufacturing, in particular, including new orders and backlog, is still elevated, suggesting future growth, especially in the energy sector. Likewise, employment gains remain solid, and productivity is on the rise. All these signs bode well for intermodal.

One big variable, however, is tariffs, and as of now, the scope and ultimate impact is unknown. How will producers respond? Will they change their pricing? Will beneficial cargo owners (BCOs) hedge their bets and ship more products earlier? What is known is that some imports are sensitive to pricing variability.

So, expect some potential impacts on intermodal at some point, depending on the size and volume of the tariffs that come online. Another $16 billion in tariffs was scheduled to go into effect in August, with hints of more to come later on this autumn.

For now, the wind is at our back across the North American markets, and in contrast to last year’s narrative, which centered on Canada, growth by origin country has so far been more evenly distributed in 2018. For the United States, Canada, and Mexico, it was 6.8 percent, 6.4 percent, and 4.9 percent, respectively. Although Mexico’s intermodal moves fell 3.9 percent in the second quarter, it posted double-digit gains in the first.

Likewise, the distribution of growth across segments has been more even: international volumes increased 6.0 percent and domestic containers, 6.1 percent. Trailers have been the outlier, leading overall growth at 16.3 percent.

IANA data by lanes

The Intermodal Association of North America’s (IANA’s) reporting by lanes sheds more light on where gains are occurring and in what direction. The Northeast-Midwest was the best performing corridor for the first two quarters of this year, netting an 18 percent increase in traffic as westbound freight heavily outweighed eastbound. It was the fastest growing among the seven highest density lanes, which account for more than 60 percent of total intermodal volumes.

Diving deeper into the numbers, the distribution of volumes by equipment type provides insight into the decision-making of shippers. Transloading, the consolidation of three international containers into two domestic containers, realizes economies of scale at the same time that it provides flexibility. In the first half of the year, shippers continued to transload imports landing in Southern California and ship them inland by rail, at approximately 33 to 35 percent of the total. Unlike last year, however, transloading has remained flat relative to international containers traveling intact inland (IPI).

On the East Coast, the numbers are revealing, in that IPI outpaced imports in the first half of this year. While the latter increased 7.0 percent, IPI grew 8.1 percent, suggesting an overall rail share gain. Driver shortages and higher fuel prices make rail more attractive, and with rail’s share of inland moves much lower on the East Coast versus West Coast, there is room to grow. This was true for the Northeast, which saw international volumes increase 12.7 percent in the second quarter, more than twice the industry average.

One number that continues to stand out in 2018 is the trailer volumes that grew at a rate of 16.3 percent for the first six months. This points to the strength of domestic intermodal equipment as a whole. As truck capacity has plausibly shifted some volumes to rail, tight domestic container supply has resulted in trailer conversions at the margins.

The numbers for July, the latest month for which data are available, showed a broad-based 7.2 percent growth, with all market segments gaining 6 percent or more.

With trucking capacity utilization expected to remain high and loadings strong, full-year growth for intermodal trailer moves is expected to average around 13 percent. Domestic container shipments should close the year with a 5 to 6 percent overall gain. International loads, driven by the same factors, are projected to grow by 4 to 5 percent — all in all, a productive year for intermodal.

Joni Casey is president and CEO of the Intermodal Association of North America. Contact her at joni@intermodal.org.