15th Annual Rail/Intermodal Roundtable: Seeking growth drivers amid big M&A questions

Calling these “interesting times” in the freight rail and intermodal markets may actually be an understatement. Year-to-date volumes are showing some improvement, alongside incremental gains in service levels. However, the industry’s trajectory remains closely watched.

Today, the conversation revolves around the proposed Union Pacific/Norfolk Southern merger and its potential ripple effects—both immediate and long-term. At the same time, the market is navigating a mix of headwinds and tailwinds: the lack of a clear economic growth driver to boost volumes; improving shipper-carrier relationships; signs of more technology adoption; and other emerging trends that together are shaping the path forward.

To help bring the current state of the nation’s rail and intermodal network into sharper focus, Logistics Management is joined by three of the nation’s foremost experts in the market, including:

• Anthony Hatch, rail analyst and principal at ABH Consulting;
• Adriene Bailey, partner and head of the North American Rail Team at Oliver Wyman; and
• Jeff Kauffman, partner, transportation and logistics equity research at Vertical Research Partners

Logistics Management (LM): How would you define the state of the rail carload market?

Adriene Bailey: While railroads are still behind pre-pandemic carload volumes overall, they’re holding their own. Coal has gone from being a significant headwind to a tailwind this year, with coal volumes up meaningfully from last year due to higher domestic electricity demand and higher natural gas prices [driven by larger export volumes].

This tailwind could moderate, as natural gas prices have started to decline. But with peak heating season ahead, this may not occur until early next year. Grain is the other commodity showing substantial volume gains from last year.

Jeff Kaufman: This has been an odd year to call. There’s general weakness in consumer-related commodities such as housing, construction and autos, while we’ve seen strength in bulk commodities such as coal [which has a longer-term drag], grains and intermodal.  Some of the bulk strength was related to currency changes and pre-tariff shipping, throwing off normal seasonal movements. 

Year to date, rail carloads overall are up 3.7%, which is split about 4.5% for intermodal and 2.8% for commodity carloads. However, when I strip out coal, grain and intermodal, the commodity carload figure is only up closer to 1% in a 1% industrial production economy. 

That’s OK, but not as strong as the overall figure appears to be. With intermodal weakening, we would expect carload growth in the 1% to 2% range until we get a catalyst in the form of tariff relief or lower interest rates.

Tony Hatch: As of this writing immediately after Labor Day, the carload market is seemingly outperforming the overall levels of industrial production [factory activity has declined eight months in a row]—but that’s somewhat deceiving and prone to extremities in comparisons. What do I mean by that awful phrase? 

The leader in both year-to-date and quarter-to-date carloads is Union Pacific—but that's itself led by a 20%-plus jump in coal versus the awful coal year for them that was 2024. CSX was hindered by the planned Howard Street Tunnel and unplanned Appalachian flooding mega-capex projects. In the meantime, CN is underperforming. The run-rate through the smoke seems to be low, single-digit growth.

LM: How would you describe the intermodal market from a volume and demand perspective?

Kaufman: We’re certainly seeing more balance in intermodal this year, with domestic and international closer to 50/50 for rails again this year. Demand remains difficult domestically as continued weakness in truck spot markets means some truckers are stealing intermodal loads off the rails—and the low truck rates keep a lid on intermodal rates.

On the international side, we would expect a slower future, given that many tariffs are now kicking in and the pre-tariff shipping we saw earlier in the year is moderating. There are full warehouses with pre-shipped goods, which means you may see better domestic intermodal volumes later this year.

Hatch: This will be the hardest to call—comparisons sway the numbers even more in intermodal considering the huge West Coast import surge in last year's peak season, the ILA issues in the east, labor issues in Canada, and the back and forth of tariffs. Intermodal demand is expected to soften—on an annual basis—by the fall and it seemingly already has.

Ocean container rates are down over two-thirds since the post-‘Liberation Day’ peak earlier this year. How will the Appeals Court's decision on those tariffs impact future demand? How will the wild swings in policy impact demand, both consumer and longer-term, industrial and supply chain?”

Bailey: Since more than half of intermodal traffic is international, tariff uncertainty has turned intermodal into a bit of a rollercoaster. Overall, international intermodal volume is above last year’s levels, and domestic volume is nearly flat—but that is better than down. Intermodal rail networks are running at generally high service levels.

The industry has opened new terminals and is offering new service lanes again this year, and that will help hold volumes up. There is a lot of container capacity in the market, so the industry is in a good position to grow as the economy turns around and railroads continue to improve their overall competitive position.

LM: How do you view service levels compared to this time last year?

Hatch: This is an unqualified ‘good news’ story for the rails. Year-to-date service has been the strongest since before the pandemic, and even carriers that undertook planned projects—such as CSX, which saw temporary metric declines—faced no notable shipper dissatisfaction, based on the chatter I’ve observed at shipper conferences this year, nor at the Surface Transportation Board [STB]. Of course, this isn’t the finish line—the rails need to sustain this performance consistently.

Bailey: Service levels are the same or better this year, and both western carriers are ahead of last year on service metrics. The railcar leasing and newbuild markets can be great bellwethers for changes in service levels, and both are showing a bit of weakness—likely due to improving service levels that are providing good car cycle times and modest demand, and this can be accommodated using the existing car fleet.

Kaufman: Well, until the STB comes out with its new service metrics, I’ll have to use train speed, dwell time, and cars online—as most rail definitions of service index vary. On the whole, train speeds are up at UNP, CPKC, CN and BNSF. The Eastern rails are flat at Norfolk Southern and down at CSX, for reasons relating to their respective infrastructure projects.

Similar with dwell times, improved at UNP, BNSF, CN and NSC and a little worse at CP on the Spring network crossover issue and up at CSX on the infrastructure projects. Cars online show similar trends—improvement in the West, better at NSC versus CSX in the East, and slightly improved in Canada. So, overall, service is better this year than a year ago

LM: What can shippers expect in terms of service in the next year or so?

Bailey: There are likely to be continuing service improvements as CPKC and CSX work through some of the service issues they are currently experiencing. It’s difficult to predict service levels because disruptions are often triggered by unforeseen events. However, there does not seem to be any visible reason that service levels would decline in the next year—and there’s focus at the railroads on continued improvement.

Kaufman: Rail service is not where it needs to be in the East, but is improved in the West. We would expect more improvement in the East as CSX completes its infrastructure projects.  While there’s the prospect of a potential UNP/NSC rail merger, that’s unlikely to happen until mid-to-late 2027 and many rail lines have gotten ahead on new labor contracts. So, there is less risk of a port strike or rail strike over the next couple years.

Hatch: I see no reason to suspect that rail service will do anything but continue to improve given management's focus on growth, which is service-reliant, and the applications of new technologies such as autonomous inspections.

One caveat is the M&A story. The proposed ‘transcon’ merger is wholly unlike the mergers that created the Big Four, but CPKC did suffer a quarter's worth of service decline and congestion in their IT cutover. Could that happen again? What happens to rails if their best and brightest are all called into the M&A war rooms?

LM: Is pricing where it needs to be for rail carload and intermodal in light of capital expenditure outlays made by carriers?

Kaufman: No, pricing is still below cost inflation for many commodities, in part because of larger rail cost inflation and low truck spot rates, impacting intermodal pricing. As the truck market continues to see capacity leave and volumes come more into line with capacity, we would expect truck rates to rise in 2026, leading to higher rail rates on those commodities such as intermodal that face truck rate competition. However, rates are not yet offsetting inflation.

Hatch: Investors have long expected rail pricing to outpace rail inflation, and that trend remains consistent. Generally, shippers aren’t likely to raise objections as long as service continues to improve.

In intermodal, however, the prolonged freight recession has left pricing well below levels that would generate a return on invested capital sufficient to justify the substantial capex required—both for maintenance and growth. Correcting that imbalance will require broader economic forces, which, at present, remain unseen.

Bailey: Railroad financial performance has been good, as measured by solid operating incomes with minor growth, capital expenditures that are generally slightly up, and strong free cash flow. This suggests that pricing performance is generally where it needs to be. They’re not pricing out of the business, and given the mediocre state of the economy and weak trucking rates, the rail industry seems well positioned. 

LM: How do you view the current state of carrier and shipper relationships in rail carload merchandise and intermodal?

Hatch: As good as they have been for years—let's see how the merger discussions impact that.

Bailey: Positive carrier-shipper relationships are vitally important for the long-term success of the rail industry. Shippers we talk with are noticing improvement in rail service as well as customer experience generally—although it does vary by railroad and at the individual customer level.

Most shippers transact with—and most shipments traverse—more than one railroad. It’s still substantially more complicated to do business with rail than trucking. Railroads have room to improve the customer/shipper interface and become more customer-centric.

Kaufman: Shippers I speak with are encouraged by the improvements in rail service over the past year, but also have memories about multiple service failures of the past decade.

The problems normally happen when growth picks up, so there’s some wait-and-see by shippers despite the better service. Low truck rates also are an alternative to rails. When those rates change, the rail offering has greater appeal. The good news is, overall, we’re in a better place.

LM: How do you view the emerging technology and automation in freight rail?

Bailey: Railroads are behind trucking in this regard, especially in terms of customer-facing functionality. On the operating side, we’ve seen regulatory issues slowing progress on legitimate technology improvements that offer benefits in safety and efficiency. We hope this will change in the near term, as railroads need to be able to keep pace in developing and deploying new operational capabilities. 

Emerging autonomous truck operations, while slower than expected in coming to full commercial viability, are still a large future threat to rail competitiveness. Which means that railroads need a similar regulatory framework that supports the development of autonomous operating capabilities.

Kaufman: Technology gains don’t get enough attention from investors, as rail technology is making significant differences in terms of safety, fluidity and rail efficiency. Autonomy is one such potential tool, but so are inspection technologies as well as tech that allow rails to avoid derailments, speed decision making and allow for better equipment utilization. 

We believe we’re at the early stage of AI programs making a difference with respect to handling crises, helping make operating and pricing decisions, and allowing the rail to be run more efficiently. Automation is only part of that solution.

Hatch: I view it as another straight win for rails in an up-and-down season. The new Federal Railroad Administration attitude towards testing autonomous inspection—cars and rail, short-haul intermodal and other elements—is a real breath of fresh air.

LM: What are your thoughts on the regulatory front as it relates to things like reciprocal switching and STB service mandates?

Kaufman: At the end of the day, the STB wants fair rates, easier access to smaller shippers, and easier access for customers who are not getting the service they should be. The regulators can use mergers as an opportunity to revisit those rules, but they can also use service failures—which seem to happen every couple of years—as an opportunity to advance that agenda. Reciprocal switching is one tool in that arsenal.

Hatch: At the end of last year, I thought we had gotten to a state of post peak STB—unless it was called on to evaluate a major merger. In which case, all bets are off and the Board is all powerful, able to look into segments that they otherwise are barred from. Reciprocal switching and even Open Access are being bandied about as ‘remedies’ to get merger approval.

Bailey: The STB EP-711 reciprocal switching rules for service issues were vacated by the 7^th Circuit Court of Appeals on July 7, 2025. The STB has not publicly disclosed any alternative course of action.

LM: With freight rail M&A getting a lot of attention these days, what do you think about the potential for the Union Pacific-Norfolk Southern merger? Similar to the CPKC deal?

Hatch: As of this writing, it really is subject to its own discussion. That said, I would put the odds at 50/50, which probably makes me by far the most conservative on the Street.

Bailey: The proposed UP-NS merger has already been announced, and the STB’s review process is underway. Oliver Wyman’s research has documented the very real market share advantages that rail single-line service has over lanes that involve an interchange.

Discussions directly with shippers reveal a common preference for single-line routes, where possible, versus dealing with multiple railroads. Our expectation is that the STB will do a thorough review and take due care in its decision. The Canadian system has had two transcontinental railroads for more than 100 years.

Kaufman: Well, we’re going to see if that is indeed the case. The tone of the regulators after approving the CP/KCS merger seemed to be that the ‘enhanced competition’ standard was raised to a level where cooperation made more sense moving forward. UNP is going to test that now.

Does the STB view rail-truck competition as part of that mosaic, or will it be rail-to-rail? Will they accept the application and make this about concessions to get a deal approved, or will they reject the application focusing only on rail modal competition? If they accept the UNP application and allow the rail-truck competition to be part of the mosaic with only modest concessions to customers and other rails, then you might indeed see transcontinental rails.

LM: How will the rail and intermodal markets look five years from now?

Hatch: It depends. Is it with a merger or without one? Rails were really getting their acts together in the growth pivot. Will M&A happen? If so, will it accelerate that trend? Will the delays and internal and regulatory focus cause momentum to be lost? It's all up in the air.

Bailey: Railroads have made it clear that growth is a priority. If trucking supply/demand balance returns to a more normal level, there will be even more opportunities for intermodal growth, as motor carriers will finally be able to increase rates to compensate for increasing operational costs.

If there’s substantial reshoring of manufacturing to U.S. markets, we could see upticks in carload opportunities as well. We’re in uncertain times, with tremendous potential for rail, but railroads will need to continue to improve on customer-centricity and service reliability to earn shippers’ freight.

Kaufman: A lot of this depends on just how successful we are in bringing back manufacturing to the U.S. shores. If successful, rail growth could jump 20% to 25% for domestic commodity movements. If the freight market goes back to 2% to 3% overall growth, truck rates will rise, and you could see increased demand for intermodal again.

With rail service in better shape for now, there might be opportunities for intermodal to grow again in high single-digit/low double-digit rates. If we see transcontinental rail mergers, you could see rails start to go after the “watershed” intermodal opportunity which is largely lanes within 500 miles of the Mississippi river.

These could be growth opportunities for the industry. If not, we still think the industry grows faster in a stronger economic cycle that has been the case over the past year, but at less exciting growth rates.