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Intermodal volumes post record 2018 on heels of tariff concerns

The relationship between east and west freight is apparent in 2018. (SONAR chart of DATVF.LAXDAL and DATVF.DALLAX)


Chart of the Week: Rail Traffic Originated by Intermodal Containers (SONAR:RTOIC.USA)

According to FreightWaves’ SONAR platform, intermodal rail traffic (RTOIC.USA) had its biggest year by volume for the second year in a row. SONAR’s rail traffic index that tracks commodities by railcar count shows that the intermodal rail car count increased by 4.8% over 2017 volumes in 2018. This past year was the year of the intermodal shipment as the looming trade war put pressure on international shippers to move as much inventory from overseas into the U.S. as possible in order to give them enough time to adjust their supply chain.

Record container volume flooded the Los Angeles ports this fall: both Los Angeles and Long Beach posting record Octobers in terms of loaded inbound container volume — 17.6% higher than 2017. This led to outbound L.A. volumes exceeding peak summer levels well into late fall, not subsiding till after Thanksgiving.

Intermodal hubs like Chicago saw outbound volumes surge over inbound volumes as containers got off the rail in the Midwest and were distributed throughout the eastern half of the country. The Headhaul index for Chicago (HAUL.CHI) – which measures the amount of outbound minus inbound volume – hit its highest point in the first week of October of 67.24 when the rest of the freight market was dropping. A positive Headhaul Index value indicates outbound trucking volume exceeds inbound volume.

Many containers leave the rail and get drayed (movement from a port or railyard) to a transloading facility or distribution center where the freight will be potentially repackaged and placed on a dry van trailer for regional distribution. The railroads’ price advantage against trucking grows as length of haul increases, but because many final destinations are not located beside a railhead, most intermodal freight must move on another form of surface transportation — and more often than not, this is a truck.

Recently Norfolk Southern announced, “In an effort to improve service on the overall Norfolk Southern intermodal network, we are making targeted changes to our service offerings.”

These targeted changes include dropping offerings between Rossville, TN (Memphis) and Morrisville, PA (Harrisburg) and no longer handling trailers in 10 lanes effective February 11. The latter announcement is the more relevant of the two as trailer loads were up 10.9% last year compared to a modest 4.4% in container volume increases – keeping in mind trailer volume is still a very small percentage of total intermodal traffic.

Class 1 railroads don’t love trailers because they take up more train and terminal capacity than other modes. It is interesting to see the railroads bucking the trend and dropping a service that is gaining momentum, given the rapid growth in intermodal volume.

The railroads are under constant pressure from investors to continually drive for lower operating ratios. They are able to focus on running a more efficient operation by focusing on keeping lanes as dense as possible. Both of these moves make Norfolk Southern more efficient even though it reduces service offerings. In the fragmented trucking market there are thousands of competitors versus eight, making this type of move risky for their trucking cousins. Whereas reducing trailer hauling service is not great for truckload carriers, reducing service in smaller lanes will help drive volume back into the trucking market.  

We are waiting to see if the intermodal container boom continues into 2019; the economy is projected to slow, but we may reach a detente on the US – China trade war.

About Indices presented in this article

(SONAR: RTOIC.USA) Rail Traffic Originated by Intermodal Containers – USA – The Rail Traffic Originated by Intermodal Containers Index is a weekly count of rail cars with intermodal containers. There are 22 total rail traffic indices with various commodities such as grain, chemicals, and lumber. Each of these is also available by North American country of origin – Canada, U.S.A, or Mexico. These indices can be proxies for gaining insight into specific industries or macroeconomic conditions. For example when lumber movements are up, it is an indication that construction activity is elevated.

(About Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week the Sultan of SONAR will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on for future reference.

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Zach Strickland, FW Market Expert & Market Analyst

Zach Strickland, the “Sultan of SONAR,” curates the weekly market update. Zach is also a one of FreightWaves’ Market Experts. With a degree in Finance, Strickland spent the early part of his career in banking before transitioning to transportation in various roles and segments, such as truckload and LTL. He has over 13 years of transportation experience, specializing in data, pricing, and analytics.