Intermodal’s gain is trucking’s loss

Chart of the Week: Outbound Domestic Loaded Rail Container Volume, Long Haul Outbound Tender Volume Index – USA SONAR: ORAILDOML.USA, LOTVI.USA

Long-haul truckload demand has moderated in October while domestic intermodal loaded container volumes have hit their highest levels since 2021. The implication is that shippers are converting truckloads to rail once again as service improves and rates fall. Rail’s resurgence could be another headwind to the beleaguered truckload market.  

It has been difficult to tell, but demand for freight has been on the rise over the past six months. Most of that growth has come in the form of long-haul freight or loads moving more than 800 miles. This freight is also extremely fungible with intermodal containers on the rails.  

This type of freight is also typically associated with imports as companies bring goods into the ports and warehouse them until they get moved closer to the end users in the nation’s consumption centers. The consummate example lane for this activity is from Los Angeles to Chicago, which is also the highest volume rail intermodal lane in the U.S.

The pandemic was considered a missed opportunity for many of the railroads as trucking capacity tightened and rates soared. Many expected the rails to gain new business and have sustainable growth coming out of this period. 

The exact opposite happened as the railroads were more of a victim of congested infrastructure in and around ports and rail ramps. The railroads are extremely efficient at getting freight between two rail heads, but the infrastructure at the beginning and end of the journey limits how quickly the freight can transition on and off the trains. 

Truckload rates increased rapidly in 2020 and 2021, while intermodal rates were much slower. In late 2021, intermodal shipping on the rail offered over an 18% discount versus truckload but volumes for loaded domestic containers were down versus peak demand in 2020. Service was simply too much of an inconsistency.  

Overall freight demand plummeted in early 2022, closing the window for the rails to take advantage of the pandemic consumption boom. With truckload rates falling rapidly, the discount offered to ship via rail hit multiyear lows in June and July. After bottoming around 7.8% in early July, the intermodal savings index recovered to 9.8% in early October. 

During J.B. Hunt’s recent earnings call, EVP and President of Intermodal Operations Darren Field stated September had the best volume week ever as volumes improved throughout the quarter. Revenues were down 15% but volume was up 1% year over year. 

Even with demand improving throughout the year, domestic transportation markets remain burdened with abundant capacity. Even as the railroads take back some lost ground, intermodal rates remain in a deflationary state. 

Rail’s resurgence could add more downward pressure on rates in the truckload market, removing one more leg holding up capacity in the space. Ironically, this will help both trucking and rail in the long run by bringing the domestic transportation market back into balance.

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Source: freightwaves - Intermodal’s gain is trucking’s loss
Editor: Zach Strickland, FW Market Expert & Market Analyst