Rail intermodal faces an uphill battle in 2020

Remember when your parents told you they walked three miles barefoot uphill in the snow – both ways – to get to school. Well, that’s the task ahead for rail intermodal this year.

Railroads have an uphill climb ahead – both ways – for domestic and international freight, after a 4.1% decline in North American volume, according to the Intermodal Association of North America (IANA.) Rail moves of international cargo in 2019 kept pace with the record volume from 2018 right up until November and December, because late 2018 featured a surge of activity by importers trying to beat the tariffs.

DAT RateView enables you to compare national intermodal rates to truckload rates. Learn more.

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With the U.S. economy still doing well, why be glum about rail intermodal? Four reasons:

  1. Coronavirus fears – The coronavirus seems to have knocked a hole in near-term import volume. So far, there’s been anecdotal evidence of skipped sailings and sharp declines in freight on some vessels that are moving. Port statistics are not available yet.
  2. Trade and tariffs – The trade feud continues between the U.S. and China. Though partially resolved, there is still uncertainty surrounding tariffs.
  3. Route cutbacks – Multiple railroads decided to trim intermodal origin-destination pairs where profit and/or demand lagged. Though some lanes have revived, many cuts are still in place.
  4. Domestic market – Railroads’ decisions to focus on profitability rather than market share are well-established. Aggregate intermodal revenue per unit was virtually unchanged last year, while contract truckload rates measured by DAT last year fell by double digits. On the volume side, domestic rail intermodal declined 6% last year, while truck freight load counts generally head steady.

Of course, it’s no secret that trucking capacity expanded greatly last year after a very strong 2018, which pushed rates down as demand slid from 2018’s peak. With deeper pockets and a relentless focus on cost reduction, the railroads avoided the pricing mud-pit that truckers had to enter.

One positive dimension to the 2020 rail intermodal picture is that shippers’ past howls of protest about service disasters were answered by some impressive increases in train speeds and on-time performance.

Where does this leave shippers and 3PLs today?

It appears that domestic freight brokers are backing away from rail in favor of truckload transportation. For shippers, the latest twists and turns of the international market are likely making them feel as sick and tired as kids who think “here we go again” when their parents talk about walking uphill.

What can change the gradient? Well, rail intermodal’s uphill climb would be eased by a more predictable international freight market. Domestic intermodal could rise when or if excess truck capacity is soaked up. Expanding the small number of new rail services added in recent months would help volume. So would taking on a bit more domestic intermodal at lower profit margins, now that rail operating ratios have been beaten down nearly to the point that there is no uphill left to climb.

Will any of these changes happen? Perhaps, but it’s still an uphill slog.