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US domestic intermodal volume expected to rise, bringing higher rates

THE so-called "freight recession" in North America, which has seen domestic intermodal shippers enjoy relatively lower rates with industry wide declines in freight volume and overcapacity across all modes, may soon be coming to an end, according to an IHS Media survey.

In the second quarter, freight volumes across the board were down, shipping rates dropped and railway profits were meagre. But just as the industry is coming to terms with the doom and gloom, the clouds are beginning to lift.

Said ABH Consulting transport analyst Tony Hatch: "It's a freight recession. But, by the time we realise we're in one, we're beginning to leave it."

North American railroaders and analysts like Mr Hatch say they anticipate intermodal traffic - and intermodal pricing - to rebound in the second half of 2016, or the first half of 2017 at the very latest.

The analysts have pointed to a number of positive signs: consumer spending is up, imports are on the rise and west coast ports - with far more connections to the US intermodal network than their eastern counterparts - are gaining market share.

Moreover, rail executives and transport analysts agree capacity across all modes should begin to tighten as new US regulations hit a trucking industry still struggling with a chronic driver shortage.

"Intermodal continues to be impacted by excess capacity in the truck market, a condition we expect to change next year," said Norfolk Southern vice president Alan Shaw.

There's little doubt that a bounce back in the intermodal market would be welcome news to many US and Canadian railways, which have seen traffic volume fall across a wide range of business segments in recent months.

King coal has officially lost his throne. Energy sector volumes have been down double digits at railways since last year. But there has yet been a successor named that could fill the void coal and other carload commodities have left in both volume and revenue.

Intermodal has been the leading nominee. Networks are primed for its revival, service has already improved to levels that preceded the devastating 2013 to 2014 winter roiled networks nationwide and multiple railways have even introduced new marketing campaigns to win over new intermodal business.

Many railway executives on second quarter conference calls with investors and analysts characterised the shift as an actual exchange between coal's declining promise for Class I railways and the potential of new intermodal business.

"We will continue to preserve the business value of coal," said CSX transport chief Michael Ward. Nevertheless, "our future evolves leveraging a premier highly efficient network that reaches diverse merchandise and intermodal markets and nearly two thirds of the American consumers."

Said Canadian Pacific (CP) president Keith Creel: "I see an opportunity for intermodal growth. I don't know exactly where the pin is going to fall. I've got to see what the economy does second half, but all I can say is it's exciting."