Few bright spots in official Q1 intermodal data

Few bright spots in official Q1 intermodal data

A BNSF Railway train hauling ocean containers. Although international volumes rose slightly, overall intermodal loads fell in Q1 for the first time since 2016. Photo credit: Shutterstock.com.

There are few bright spots for intermodal in the first quarter and warning signs that business conditions are heading towards a freight recession.

It’s hard to determine whether the numbers mean shippers aren’t moving as much freight, they are disenchanted with rail service, or they are shifting freight back to truck. Perhaps it was as innocuous as a one-time weather induced result and no recession is on the horizon. Most likely, it’s a combination of all of the above.

The only positive sign in the latest figures from the Intermodal Association of North America is that international business grew 1.2 percent year over year during the first quarter. Even so, this is the slowest growth rate since the freight recession ended in late 2016. International business was lower in February and March than last year, and domestic intermodal has been lower year over year for five consecutive months. Neither has happened since 2016. Domestic volume fell 4.3 percent and intermodal loads overall dropped 1.5 percent, also results unseen since the freight recession ended.

Cause for optimism?

Import estimates offer some relief in that forecasts call for volume growth, albeit at a slower pace than last year. Melissa Peralta, senior economist and forecaster at TTX, told a symposium last month imports are projected to increase 1.8 percent this year, and Daniel Hackett of Hackett Associates told JOC.com that he predicts 2.5 percent growth. Other analysts went as high as 3.7 percent growth.

Union Pacific Railroad, which reported a 15 percent increase in international volume thanks to a new contract with container carrier Ocean Network Express, believes the economy is stable but is still a “mixed bag.”

“Industrial production is still on the positive side, even though it was revised downward. The uncertainty is around international trade. On one end is the [non-intermodal] agriculture business we help export. On the other is any impact on trade coming from Asia and how will demand look [in 2019],” said Kenny Rocker, UP’s executive vice president of marketing and sales.

CSX CEO Jim Foote said on an Apr. 16 earnings call that intermodal revenue and volume could be flat to slightly down this year. International should grow because of more imports to the East Coast and new inland ports in Georgia and South Carolina. Domestic intermodal weakness, though, will offset any international gains with routes eliminated as part of precision scheduled railroading, according to CSX.

John Roberts, CEO of J.B. Hunt Transportation Services, said he expects a “reasonable year” for the economy in 2019.

“The Purchasing Manager Index that we follow I think hit 55, which is up from the previous month — which is strong — so that tells me that people are going to be buying things in the future; that with a late spring and hopefully we can get the tariff noise out of the way,” he said.

Although descriptors such as “stable” and “reasonable” are better than more negative words such as “tepid,” “lackluster,” and “recession,” they are telling in that intermodal is underwhelming compared with early 2018, when terms such as “strong,” “robust,” and “thriving” were common.

If imports increase in 2019, then 20-foot and 40-foot intermodal volumes should also rise. It will be difficult to replicate the 5.4 percent growth rate seen in 2018, but a deceleration in growth is still growth. Domestic intermodal, meanwhile, has an uphill battle to beat the 5.7 percent growth rate in 2018 after contracting in the first quarter.

Improving on last year’s poor service will give shippers more confidence in using the mode. However, five of the seven Class Is reported slower intermodal train speeds in the first quarter. As the weather improves, though, UP, CSX, and Kansas City Southern Railway believe precision scheduled railroading will offer better service to shippers going forward.

Contact Ari Ashe at ari.ashe@ihsmarkit.com and follow him on Twitter: @arijashe.