FTR’s Gross provides update of intermodal market

While intermodal transportation may not currently be seeing the traction on the domestic side, things are picking up in other areas, most notably on the international side, as well as the ongoing improvements in service levels.

These were some of the key takeaways at this week’s Intermodal Expo hosted by the Intermodal Association of North America (IANA) in Ft. Lauderdale, Fla.

Larry Gross, senior consultant at freight transportation consultancy FTR, told attendees at an opening session on Monday that international intermodal volumes on an annual basis through August is outgrowing domestic based on data from IANA, which he said is an “unusual situation in terms of recent history,” with August international intermodal volumes up 6.3 percent, while domestic is up only 1.6 percent for the same period, with total volumes up a cumulative 4 percent.

“It is really international that has been [driving] growth since the end of the West Coast port disruption earlier this year,” he said. “

Taking current intermodal growth patterns a step further, he said that on a three-month moving average, international is up about 6.5 percent, and domestic is up 2.7 percent, with a cumulative total of 4.6 percent.

As for where specific intermodal growth is occurring, Gross explained that seasonally-adjusted numbers provide a clearer idea of where growth is occurring.

Since the beginning of 2015, Gross noted that seasonally-adjusted domestic numbers are not showing much growth at all, adding that any gains are more a function of activity at the end of 2014 compared to what is happening now.

And he also pointed international volumes saw a “tremendous surge” following the resolution of the West Coast port labor dispute in June, which has since eased back.

“Normally, August is the biggest month of the year for intermodal volumes, but it won’t end up being the case this year, due to the West Coast disruption,” he said.

Shifting to intermodal service levels, Gross referred to data from Rail Performance Measures, which tracks service metrics for all Class I railroads (except for CP), which showed that intermodal service in 2015 has recovered 27 percent of the lost ground incurred from 2014, which was severely hindered by harsh winter weather. Intermodal train speed dropped a cumulative 2.2 miles per hour during the winter of 2013-2014, with 0.6 miles per hour regained during the winter of 2014-2015.

“When it comes to intermodal…speed is not the issue, consistency is the issue,” he explained. “That is what is going to determine its marketability compared to truck. Unfortunately, we don’t have published consistency and reliability data. The only thing we have is speed data, and there is a fairly decent correlation that when speed goes down, reliability goes down, and conversely when speed rises it is good indication that service is coming back into line.”

Domestic headwinds: At the moment there continues to be slow growth demand for long-haul (550 miles or longer) dry van segment.

Gross said that growth there is projected to be pretty slow, with part of that being attributable to the economic recovery, coupled with increased consumer demand rather than industrial demand, which he said in turn produces demand for truck transportation, leaving intermodal to have to work harder to grow. Truckload is also continuing to benefit from the suspension of the 34-hour restart rules for motor carrier drivers’ hour-of-service, which Gross said created about 4-to-5 percent of additional capacity and represents the difference between now and a year ago for domestic intermodal output.

“Truckload capacity is still tight, but folks can find trucks when they need trucks, and lower fuel prices also does not work in intermodal’s favor,” he said. “There have also been some rate increases in anticipation of tight driver supply that have perhaps had an effect on intermodal. The equation between service and prize has come under a lot of pressure this year.”

International headwinds: While some shippers diverted inbound intermodal freight from West Coast ports to East Coast ports during the West Coast port disruption, Gross made it clear it was not a new trend, instead saying it is more of a long-term trend, which is more pronounced on the export side.

North American imports are up 5-to-7 percent to date in 2015 based on FTR and United States ports data, while export conditions remain weak, due to global economic conditions and a strong dollar, he said.

West Coast ports, he explained, saw strong growth in August, leaving the question of how much of the diverted volume is coming back and how much of it represents basic economic growth in imports?

“It is an encouraging sign, but we need to be shown if the diverted volumes are really coming back or not,” he said.