Rise in US domestic intermodal traffic a return to ‘historic norm’

Volatile mix of demand and capacity will drive up cost of US imports Cargo owners bringing freight into the US will be hit with higher charges for drayage ... WMT: BULLET QUESTION WMT: CFO TO ANALYSTS WMT: EYES ON TARIFF REFUNDSWMT: HEADWINDSUPS: BEATING RISK-FREE BUTFDX: MULTI-BILLION CONTRACTWMT: HAMMERED IN PRE-MARKET TRADEWMT: TRADING UPDATE ON THE WAYWTC: ROLLER COASTERKNIN: RESTRUCTURING ROAD OPERATIONSMAERSK: HIGH TIDEHLAG: CONSOLIDATING STRONGHOLDSZIM: DEAL UPDATEZIM: TRADING UPDATE OUT AMZN: DRONE DELIVERY GROWTHLOW: TRADING UPDATE OUT WMT: BULLET QUESTION WMT: CFO TO ANALYSTS WMT: EYES ON TARIFF REFUNDSWMT: HEADWINDSUPS: BEATING RISK-FREE BUTFDX: MULTI-BILLION CONTRACTWMT: HAMMERED IN PRE-MARKET TRADEWMT: TRADING UPDATE ON THE WAYWTC: ROLLER COASTERKNIN: RESTRUCTURING ROAD OPERATIONSMAERSK: HIGH TIDEHLAG: CONSOLIDATING STRONGHOLDSZIM: DEAL UPDATEZIM: TRADING UPDATE OUT AMZN: DRONE DELIVERY GROWTHLOW: TRADING UPDATE OUT Tight capacity and soaring rates in the truckload sector have prompted US shippers to turn increasingly to intermodal transport. But although enthusiasm for the alternative appears to be waning, it remains more fluid than trucking, despite predictions of rising volumes in September and October. The honeymoon seems to be drawing to a close amid shipper complaints of slower train speeds and less-reliable pick-up and delivery schedules. The pricing advantage has also been dented, Union Pacific’s announcement mid-month of a peak season surcharge for freight from California and higher spot rates for shippers that tender less than ten loads a week, just one example. Still, intermodal traffic continues to grow. Numbers published by the Intermodal Association of North America (IANA) show that through the first half of the year, it grew 2.5% year on year, propelled by a 7.4% increase in domestic containers, whereas international containers sank 1.9%. But the slump in international volumes reversed last month, driven by a 4.5% increase in containerised imports. The ports of Los Angeles and Long Beach both reported strong import growth for July. The latest numbers from the Association of American Railroads show a 3.5% rise in US intermodal volume for the week ending 23 July, while overall rail traffic grew 2.5% The rise in traffic, combined with the expectation of peak season volumes building, has raised concerns of congestion at ports and railheads, but so far this has not affected flows significantly. “We are not currently seeing widespread port or rail congestion, but we are monitoring several localised pressure points heading into September,” reported Joel Henry, CEO of drayage and landside logistics provider IMC Logistics, which has stations at all major US intermodal points. “Newark Terminals continues to have congestion issues, which are causing gate moves to average from one to 2.5 hours. New Orleans and Mobile continue to experience terminal throughput and appointment availability challenges. Oakland is struggling with gate moves up to 2.5 hours, even though volumes are flat,” he explained. “Despite steady throughput in Los Angeles and Long Beach, we are seeing delays in obtaining appointments at most terminals and a tightening chassis supply. We have also seen gate times increase via the North/South & West Coast Railroad Chicago rail ramps,” he added. Dutch Fry, VP intermodal business development at Echo Global Logistics, said the network remained fluid and had capacity to absorb more traffic, thanks to investments by the rail carriers. He regards the rise in domestic intermodal traffic as a return to an historic norm, noting that shippers lost faith in the product during the pandemic, which saw the rail carriers struggle. The shrinkage of trucking capacity that sent trucking rates and tender rejection soaring and blew out shipping managers’ budgets had been the trigger for a re-appraisal of intermodal, he said. His conversations with rail carriers indicated that their networks had absorbed recent growth without problems. Issues arose chiefly at the interfaces with trucking, at railheads, they told him. This aligns with recent comments by Maersk CEO Vincent Clerk during the earnings call on the company’s second-quarter results. He described congestion as a “deeply entrenched” in supply chains in the wake of a structural shift in market dynamics. The problem is not confined to US maritime gateways, he added: “From ports to inland transportation, we are seeing increased congestion and disruption across multiple geographies.” In terms of choosing between intermodal and truck options, the former offers more reliable, stable pricing than the trucking spot market, Mr Fry noted. Moreover, the trucking market is widely expected to see further reduction in capacity as the US government continues its campaign to eliminate non-domiciled drivers and those with insufficient English language proficiency from the industry, which augurs heightened tender rejection rates and continuing upward pressure on pricing. To some extent, the latter aspect will echo in intermodal rates. Mr Dutch noted that pricing was based less on the rail volume than on trucking rates. Meanwhile, IANA predicts intermodal demand will build momentum in September with the traditional peak season. But Mr Henry expressed concern about the cumulative effect of recent constraints if activity remained elevated. He added that Panama Canal draught restrictions could also affect vessel capacity and cargo routing, which could prompt some shifts of Asia-origin cargo from east to west coast ports, while some Europe-origin cargo destined for the west coast could be routed through east coast gateways. “At this point, we do not believe shippers should expect a widespread congestion event, but it’s key they remain flexible and build additional time into their supply chains in markets where carriers are contending with limited terminal appointments, increased gate throughput, and/or stressed chassis supply,” he advised. Noting that the past four weeks had seen a strong rise in intermodal volumes, Mr Fry said a continuation of this trend over the next four weeks would add up to a considerable increase in traffic that would require monitoring. But he does not expect to see a lasting impact, as the strong increase is unlikely to last beyond mid-October. For uninterrupted access, sign in or sign up to The Daily News, Premium or The Loadstar Enterprise Plan. Comment on this article