That’s the consensus of a panel of intermodal experts who spoke at the Intermodal Association of North America’s annual Intermodal Expo on Monday.
Part of the problem can be traced to a highly unusual 2018, when imports from China spiked to avoid tariffs and truck capacity was historically tight, which helped to propel intermodal volume.
Last year’s boom in international traffic will make for difficult year-over-year comparisons this year. And truckers have increased capacity and recaptured volume from railroads as domestic freight demand softened.
For the year to date through August, international intermodal is up 0.3% and domestic intermodal is down 6.3% compared to last year. When compared to 2017 — a more normal year — international volume is up 6.8% year-to-date, while domestic intermodal volume is up 1.1%, says intermodal analyst Larry Gross.
Lars Jensen, CEO of SeaIntelligence Consulting, says international container volume should start to show year-over-year declines beginning this fall due to the unusual surge in cargo that landed at American ports late last year to beat tariff deadlines. This should not be interpreted as a decline in demand, he says.
But intermodal traffic still faces short-term headwinds.
“There’s a lot of challenges out there,” Gross says.
Chief among them: Domestic intermodal is losing share to the highway.
“Intermodal is having a competitiveness problem,” Gross says, noting that domestic intermodal has leaked volume to trucks for four straight quarters, the longest losing streak since he began tracking share in 2000.
The problem is not service-related, Gross says, pointing to average intermodal train speeds that are currently running above the five-year average.
Instead, Gross contends that domestic intermodal volume is hitting the highway due to a combination of railroad price increases and interline service reductions as railroads adopt Precision Scheduled Railroading operating models.
In the first half of the year, Class I railroads’ intermodal revenue per unit grew at a pace that would equal a 9% annual rate increase at a time when the trucking industry has excess capacity and truck rates are declining, Gross says.
Meanwhile, Class I railroads are focusing on streamlined intermodal networks that rely more on point-to-point intermodal service with less complexity and work en route. As a result, they have dropped steelwheel interchange in Chicago for lower-volume intermodal lanes. The cost and complexity of crosstown rubber-tire moves between intermodal terminals has simply pushed volume to the highway, Gross says.
Concentrating intermodal service on a few high-density lanes runs counter to the trend toward shipments that move to more dispersed locations.
“Intermodal, in its simplification mode right now, is swimming against the tide,” Gross says.
But Maryclare Kenney, vice president of intermodal and automotive at CSX Transportation, told a separate audience that the railroad’s PSR-related changes to its intermodal network have dramatically improved service, which should translate into volume gains.
CSX’s intermodal on-time performance, measured by trip-plan compliance for individual containers and trailers, is 93% for the third quarter to-date.
Service reliability is key, experts say, but speed is becoming increasingly important. And that’s a problem, Stifel analyst David Ross says, because it means intermodal does not fit well into fast-growing ecommerce supply chains that emphasize delivery speed.
“If speed is of the essence, supply chains will favor truck over intermodal, and pay that 10% to 15% premium, just to get the service,” Ross says.
But Tom Williams, group vice president of consumer products at BNSF Railway, disagrees. Intermodal is the best way to maintain a flow of goods to electronic retailers’ distribution centers and represents a growth opportunity for railroads, he told Intermodal Expo attendees.
In an interview, Williams said intermodal pricing typically lags movements in truck pricing because what moves on the railroad is handled under contracts.
