Domestic intermodal leads the way for third quarter growth, reports IANA

Despite an uncertain economy, intermodal volumes continue to remain on a steady path, according to the most recent edition of the Intermodal Market Trends & Statistics report from the Intermodal Association of North America (IANA).

Second quarter intermodal loadings—at 3,768,155—were up 3.2 percent annually, which was less than the second quarter’s 5.2 percent annual growth gain and topping the 2.9 percent annual improvement in the first quarter.

For the quarter, three of the four major intermodal equipment categories tracked by IANA showed growth and were paced by domestic containers, which posted an 11.2 percent annual hike at 1,409,527. All domestic equipment—at 1,789,200—was up 5.8 percent, and international containers—at 1,978,955—was up 0.9 percent. The lone category on the decline for the quarter was trailers, which dropped 10.7 percent to 379,673.

In its analysis of the report, IANA pointed out that domestic containers were responsible for nearly all of the quarter’s growth. It added that the growth is likely coming from an increase in market share as more freight is shifted from both over-the-road trucking and trailers. What’s more, IANA said that domestic containers have substantial room to gain share in most U.S. regions, unlike Canada, which it said has less room for market share growth.

Making the domestic gains even more impressive is that the third quarter showed growth at a time when there were myriad warning signs about the economy, including prolonged economic uncertainty on a political level, cautious consumer spending, high unemployment, and slower manufacturing output. Third quarter loads also eclipsed the 1.4 million mark for the first time. 

Domestic containers continue to grow in double digits; this is the fourth quarters in a row,” said IANA President and CEO Joni Casey in an interview. “If the housing market starts to pick up as it appears it is finally doing, this trend should continue well into next year. The same general factors as previously identified are contributing to this growth—truck competitive rail service, fluctuating fuel prices, continuing shortages of truck drivers, more stringent regulatory environment on motor carriers, and OTR capacity issues.” 

She added that domestic intermodal continues to benefit from increasing shipper buy-in as shippers transition to intermodal from straight over-the-road movements. And once they are making that switch they are staying with it, she said.

While international volumes were up, IANA said the slow growth rate, which was down from the second quarter’s 3.9 percent annual boost was largely due to lighter port volumes because shippers have been reluctant to bring in more cargo resulting in higher inventories.

As an example, IANA noted that the Ports of Los Angeles and Long Beach posted a 0.4 percent decline in third quarter container imports and international intermodal volumes in the southwest dropped 6.3 percent during the quarter.

“International volumes softened in the third quarter probably based on earlier bumps in volume increases that resulted in higher inventories,” said Casey. “Some stakeholders have predicted another spike in Oct./Nov. but this remains to be seen.  Total intermodal traffic volumes should end the year with a 4-to-6 percent increase.”

Another reason for the slower quarterly growth rate on the international intermodal side, explained Casey, was that many shippers had diminished inventories coming off of last year which may have led to inventories being replenished earlier the following year. On top of that was shipper concern over the potential East and Gulf Coast labor strike, which was given a near three-month reprieve in early October for ports and labor organizations to work out their differences.

Intermodal Marketing Companies had a relatively strong third quarter performance, with intermodal loads—at 319,834—up 6.8 percent and highway loads down 1.4 percent at 130,324, and total loads up 4.2 percent at 450,158.

Intermodal Marketing Company (IMC) intermodal and highway revenue for the third quarter—at $849,249,821 and $189,418,760—were up 1.0 percent and 0.9 percent, respectively. Total revenue—at $1,038,668,581—was up 1.0 percent. Average revenue per intermodal load—at $2,655—was up 2.2 percent and average revenue per highway load—at $1,453—was down 0.6 percent.

IANA said that IMC intermodal growth topped industry-wide domestic growth for the fourth straight quarter, while volume for the quarter grew at double the pace of GDP, “despite a softening economy and factory sector.” But it cautioned that the total volume decline from the second quarter to the third quarter is contrary to normal seasonal patterns

Many analysts have told LM that even with a stagnant economy and flattening trucking volumes, coupled with no real indications pointing to motor carriers adding capacity any time soon, it stands to reason that intermodal is in a pretty good spot when it comes to its future performance prospects.
And with housing starts in September posting their best numbers in four years, according to Department of Commerce data, the future could be bright for intermodal for the foreseeable future if that trend holds.

Casey said that while there are many indicators moving in a positive direction, the percentage of growth in the economy less than consistent, but the indicators’ growth, especially in housing, is showing tangible improvement, albeit small growth. Should housing grow in earnest, it could result in strong gains in consumer expenditures and building materials, which she said would bode well for intermodal.

“Although intermodal has always offered shippers the opportunity to reduce cost versus over-the-road, it formerly came with an associated price tag of unreliable service that made the cost/service package unpalatable to many shippers,” said Larry Gross, senior consultant at FTR Associates. “What has changed in recent years is that although intermodal service is still slower than truck, the all-important reliability of the service has achieved an acceptable level.  This is fueling an increasing proportion of shippers who now seek to take advantage of the potential savings intermodal has to offer.  And intermodal has been gaining share versus truck.”

Gross added that intermodal is less sensitive to many of the factors that are working to increase trucking costs, including lower reliance on the driver pool and greater fuel efficiency.  And as truck capacity continues to tighten over the next few years, he said intermodal will provide an important alternative, with substantial investments being made in new terminals, particularly in the eastern region, which will serve to open up new territories and shorter lanes to intermodal service.