US intermodal poised to end 2019 at three-year low 26/11/19

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Source: https://www.joc.com/rail-intermodal/intermodal-shipping/us-intermodal-poised-end-2019-three-year-low_20191126.html

 

US intermodal poised to end 2019 at three-year low

Two US Class I railroads are poised to finish 2019 with their lowest annual container volumes in three years, barring a December miracle, a sign of how a slowing economy has affected intermodal conditions over the past 12 months.

BNSF Railway and CSX Transportation are not only hitting a three-year low on annual volumes, but are also in the midst of a weak peak season. The holiday season, in fact, has been a disappointment for all five Class I railroads, weaker than 2018 and 2017.


Low truck rates have sliced into the price advantage domestic intermodal traditionally holds. Spot rates are so low that trucks are actually cheaper and faster than trains in some markets. International container volumes have fallen by double-digits in Los Angeles and low single-digits in Long Beach this year, a decline that has spilled over into BNSF and Union Pacific Railroad’s international intermodal business. CSX volumes have also fallen because the company has closed hundreds of domestic intermodal lanes since 2017 as part of the precision scheduled railroading (PSR) rollout.

PSR emphasizes operating margins and return on invested capital, so low-volume or low-margin lanes are ripe for the axe.

Kansas City Southern Railway and UP are thus far doing better than 2017, but by margins slim enough that a poor December could cause them to join BNSF and CSX in hitting three-year lows.

Only Norfolk Southern will avoid joining the list; in fact, 2019 was its second-strongest year in intermodal volumes, surpassed by 2018. NS hasn’t instituted PSR into its intermodal network yet, so the railroad hasn’t canceled as many lanes as CSX. Top US East Coast ports served by NS have also increased volume in 2019, unlike their West Coast competitors.

CSX is in the toughest position with 2.4 million intermodal units — trailers and containers — through Week 47, down 7.6 percent versus 2018 and 5.8 percent versus 2017, according to the Association of American Railroads (AAR). Fourth quarter volumes are 5.4 percent worse than a year ago and 4.9 percent below the 2017 peak.

BNSF has handled 4.6 million intermodal units in 2019, down 4.3 percent from last year and 1.1 percent from 2017. Fourth quarter volume is down 4.3 percent versus both 2018 and 2017.

Union Pacific Railroad has handled 3.4 million units and Kansas City Southern 887,930, up just 0.3 percent and 0.5 percent, respectively, compared with 2017. Given UP’s fourth quarter volume is thus far down 3.1 percent against 2017 and KCS is down 2.8 percent, it’s not clear whether 2019 will be better or worse than two years ago.

Norfolk Southern is reporting 3.8 million units through Week 47, according to AAR, down 3 percent against 2018, but up 4.2 percent compared with 2017.

Service and margins are better

Train speeds are higher as a by-product of hauling fewer containers. The industry-wide average is up 4 percent to 25.2 miles per hour. It’s a step in the right direction after shippers grappled with delays and disruptions in 2018. Even UP’s train speeds have improved 1.2 percent since July 4 after flooding in the Midwest caused a major disruption to its network this spring.

Intermodal marketing companies (IMCs) warn shippers, however, that speed doesn’t capture the entire shipper experience. Speed measures when the train is in motion, but doesn’t measure how long the container sat in the terminal before it was loaded and exited the station. It also doesn’t calculate how long it takes for a container to be offloaded at the destination and made available for pickup.

“CSX is moving toward measuring each unit from ingate to notification of availability. That’s a better metric because if I've sold the customer seven-day service, I want to measure the whole experience,” Adam Rodery, vice president of intermodal for Mode Transportation, one of the top IMCs in the United States, said at the JOC Inland Distribution Conference last month.

Operating ratios are also improving, but it’s a metric investors care about far more than shippers. In fact, shippers have publicly expressed concern to the US Surface Transportation Board about whether precision scheduled railroading slashes expenses too much.

It’s a critical time for railroads to develop a pricing strategy for next year. With truckload spot rates likely to remain negative year over year until April or May, according to earnings calls, a miscalculation may undermine efforts to convince shippers to convert freight to the rails.

US intermodal poised to end 2019 at three-year low

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https://www.joc.com/sites/default/files/field_feature_image/BNSF%20train%20700x467_0.png

BNSF's volumes have suffered because of weak international volume into L.A. and Long Beach, plus competitive truck rates into hubs such as Dallas and Chicago. Photo credit: BNSF Railway.

Two US Class I railroads are poised to finish 2019 with their lowest annual container volumes in three years, barring a December miracle, a sign of how a slowing economy has affected intermodal conditions over the past 12 months.

BNSF Railway and CSX Transportation are not only hitting a three-year low on annual volumes, but are also in the midst of a weak peak season. The holiday season, in fact, has been a disappointment for all five Class I railroads, weaker than 2018 and 2017.

https://www.joc.com/sites/default/files/resize/u3839656/intermodal%20dismal%20chart%201-400x275.PNG

Click to enlarge

Low truck rates have sliced into the price advantage domestic intermodal traditionally holds. Spot rates are so low that trucks are actually cheaper and faster than trains in some markets. International container volumes have fallen by double-digits in Los Angeles and low single-digits in Long Beach this year, a decline that has spilled over into BNSF and Union Pacific Railroad’s international intermodal business. CSX volumes have also fallen because the company has closed hundreds of domestic intermodal lanes since 2017 as part of the precision scheduled railroading (PSR) rollout.

PSR emphasizes operating margins and return on invested capital, so low-volume or low-margin lanes are ripe for the axe.

Kansas City Southern Railway and UP are thus far doing better than 2017, but by margins slim enough that a poor December could cause them to join BNSF and CSX in hitting three-year lows.

https://www.joc.com/sites/default/files/resize/u3839656/intermodal%20dismal%20chart%202-400x274.PNG

Click to enlarge

Only Norfolk Southern will avoid joining the list; in fact, 2019 was its second-strongest year in intermodal volumes, surpassed by 2018. NS hasn’t instituted PSR into its intermodal network yet, so the railroad hasn’t canceled as many lanes as CSX. Top US East Coast ports served by NS have also increased volume in 2019, unlike their West Coast competitors.

CSX is in the toughest position with 2.4 million intermodal units — trailers and containers — through Week 47, down 7.6 percent versus 2018 and 5.8 percent versus 2017, according to the Association of American Railroads (AAR). Fourth quarter volumes are 5.4 percent worse than a year ago and 4.9 percent below the 2017 peak.

BNSF has handled 4.6 million intermodal units in 2019, down 4.3 percent from last year and 1.1 percent from 2017. Fourth quarter volume is down 4.3 percent versus both 2018 and 2017.

Union Pacific Railroad has handled 3.4 million units and Kansas City Southern 887,930, up just 0.3 percent and 0.5 percent, respectively, compared with 2017. Given UP’s fourth quarter volume is thus far down 3.1 percent against 2017 and KCS is down 2.8 percent, it’s not clear whether 2019 will be better or worse than two years ago.

Norfolk Southern is reporting 3.8 million units through Week 47, according to AAR, down 3 percent against 2018, but up 4.2 percent compared with 2017.

Service and margins are better

Train speeds are higher as a by-product of hauling fewer containers. The industry-wide average is up 4 percent to 25.2 miles per hour. It’s a step in the right direction after shippers grappled with delays and disruptions in 2018. Even UP’s train speeds have improved 1.2 percent since July 4 after flooding in the Midwest caused a major disruption to its network this spring.

Intermodal marketing companies (IMCs) warn shippers, however, that speed doesn’t capture the entire shipper experience. Speed measures when the train is in motion, but doesn’t measure how long the container sat in the terminal before it was loaded and exited the station. It also doesn’t calculate how long it takes for a container to be offloaded at the destination and made available for pickup.

“CSX is moving toward measuring each unit from ingate to notification of availability. That’s a better metric because if I've sold the customer seven-day service, I want to measure the whole experience,” Adam Rodery, vice president of intermodal for Mode Transportation, one of the top IMCs in the United States, said at the JOC Inland Distribution Conference last month.

Operating ratios are also improving, but it’s a metric investors care about far more than shippers. In fact, shippers have publicly expressed concern to the US Surface Transportation Board about whether precision scheduled railroading slashes expenses too much.

It’s a critical time for railroads to develop a pricing strategy for next year. With truckload spot rates likely to remain negative year over year until April or May, according to earnings calls, a miscalculation may undermine efforts to convince shippers to convert freight to the rails.

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