Intermodal volumes falling fast, rates to follow in 2023

by | Dec 19, 2022 | Articles

Domestic intermodal volumes last month plunged to their lowest November level in seven years, a cold reality for intermodal providers that will give shippers leverage in contract rate negotiations for 2023. On a year-over-year basis, volumes in North America fell just over 7 percent, according to the Intermodal Association of North America (IANA). 

The soft market has caught the attention of Union Pacific Railroad, which will reduce contract rates by 3.3 percent for the 12 months beginning Feb. 1 compared with the current period, sources told the Journal of Commerce. The contract rates cover low-volume shippers using 53-foot containers labeled “UMAX” and “EMP.” 

IANA reported 725,398 containers and trailers were moved last month, down from 780,448 units in November 2021. Domestic intermodal volumes have fallen sequentially eight out of 11 months this year, and six out of the last eight months. 

Volumes originating in the US Southwest, which includes California, saw their worst November in five years, while businesses developing in the Midwest experienced the worst November in seven years, according to IANA. Overall, all regions in North America collectively had the lowest volumes for the month since November 2015.  

“Domestic intermodal has not grown now since the end of 2018, and that’s a pretty extended period of no growth, coming into the fourth year,” Larry Gross, founder of Gross Transportation Consulting and a Journal of Commerce analyst, said on an IANA webinar Dec. 13. “We’re seeing some signs of re-examination of domestic intermodal’s posture in the marketplace, and in my view that is going to need to continue if we’re going to get back on the growth track in the future.” 

UP’s decision to reduce contract rates across the board for small shippers is an acknowledgment that a re-examination is underway.  

The western US railroad will lower contract rates by 2 percent on average in Los Angeles and 5 percent on average in Oakland-Lathrop in 2023, according to sources, after increasing contract rates on the same lanes by double-digits this year. 

“I will say that UP has been very open to conversations about specific BCOs [beneficial cargo owners] to capture business, so I think they have been out in front of the market,” said one intermodal marketing executive who did not want to be identified. “Whether they’ll try hard enough to beat J.B. Hunt in a race for the bottom to keep shippers remains to be seen.” 

J.B. Hunt Transport Service, which partners with rival BNSF Railway, is incentivized to get aggressive on contract rates because it will have more space on trains when Schneider National officially leaves for UP on Jan. 1.  

J.B. Hunt owns more than 113,000 containers, more than any other intermodal provider in North America. 

Pressure in the east, too 

It is unclear how CSX Transportation and Norfolk Southern Railway will approach contract rates in 2023, but they will face pressure because of competitive truck pricing on short-haul lanes in the eastern US.  

Intense competition is likely in the triangle connecting Atlanta, Chicago, and Elizabeth, New Jersey, according to the JOC Intermodal Savings Index.  

DAT Freight and Analytics report that incumbent truckload contract renewals have been 8 to 15 percent lower than previous contracts across the US. 

If truckload contracts were to fall 8 percent from November levels, and CSX or NS raised intermodal contracts 2 percent simultaneously, then rail would save less than $200 per container on trips between Atlanta and Chicago in both directions, and one-way from Atlanta to Elizabeth

Source: JOC

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