Intermodal expert Larry Gross offers up market update at RailTrends

When looking at the current state of intermodal volumes, a few quick themes jump out, observed Larry Gross, president of Gross Transportation Consulting at the last month’s RailTrends conference in New York hosted by Progressive Railroading and independent railroad analyst Tony Hatch.

One theme highlighted by Gross was the ongoing decline in domestic volume going back to March, which he said, when looking back at calendar year 2022, will be viewed as the real Peak Season month for intermodal, in terms of the highest level of intermodal activity for the year.

“We are seeing a pretty steady decline in intermodal domestic volume, this is not a capacity issue anymore,” he said. “This is a market demand issue that we are seeing right now.”

While there is an ongoing domestic intermodal decline, Gross explained that IPI (inland point intermodal), or international volume had a huge drop around this time last year, “when the ocean carriers turned off their business and then…turned it back on when they got to February and March,” because there was enough volume and improvement to allow the equipment to start venturing inland again.

That situation, he said, will lead to some significant year-over-year volume improvements, for the fourth quarter, with the caveat that those numbers are much more about what happened last year as opposed to what is happening now.

At the moment, Gross said that the only real area of intermodal growth is in the domestic private container arena, for companies like J.B. Hunt, and Schneider National, among others, more so than railroad domestic containers, which he said is largely offsetting the growth being seen on the domestic private container side.

“There is very little growth year-to-date, in terms of total domestic [volume],” he said. “It is up only a fraction of a point. So, all of this growth we are seeing among the publicly-traded intermodal carriers, is really, it appears to me, a market share shift that is occurring, and we are not growing the size of the volume, at least not this year.”

Looking at intermodal import and export activity, Gross said roughly 60% of what happens on an intermodal basis in North America is directly driven by import and export volume, with a longstanding intermodal theme being a huge gap between the export volumes coming out of North America and the import volumes that are arriving.

“That does not even speak to the quality of the freight, because the stuff that is moving out in exports is of much lower value than what is coming in,” he said. “So, we have a very significant imbalance. Volume on the import side has been holding steady at this point. That is masking some big changes that are occurring, because the West Coast volume is quite a bit down year-over-year, whereas the East Coast volume is holding steady and stronger than prior years. There is a big West-to-East migration. That is a long-term trend that has been exaggerated most recently by the congestion that has occurred on the West Coast. And now what’s keeping it going is the threat of a labor disruption on the part of the longshore workers on the West Coast, so shippers are preemptively trying to work around that congestion.”

That is a good thing for freight railroad carriers on the East Coast, he noted, but added that the intermodal volume share that comes off of the East Coast is considerably lower than the volume that comes in off the West Coast. And from, a global industry standpoint, he said the West-to-East migration is not necessarily a good thing.

On a more positive note, Gross said that the participation of intermodal in import volumes coming in is starting to rebound.

“We saw that huge drop late last year and early this year, and that has started to reverse,” he said. “The ratio of import TEU versus the railroad intermodal TEU is starting to recover. It is not back up to where it was…but we are seeing a bit of a recovery there.”

Looking at the intermodal market collectively, Gross laid out myriad major themes, including:

• demand for freight is cooling, particularly in domestic markets, with imports lagging the trend but not for long;
• the move from goods to services is well underway, with freight to be weaker than overall GDP numbers would indicate;
• the lack of a true 2022 Peak Season;
• high inventory levels, in many cases of the wrong goods, continue to clog every step of the supply chain;
• a 2023 recession now seems more likely than not;
• ship backlogs are shrinking fast;
• ocean carrier demand for IPI/international has normalized;
• the system will begin to get some congestion/capacity relief in late Q4 or Q1; and
• empty containers are clogging terminals