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 more as service improves and rates fall. Rail’s resurgence may very well be one other headwind to the beleaguered truckload market.
It has been difficult to inform, but demand for freight has been on the rise over the past six months. Most of that growth has are available the shape of long-haul freight or loads moving greater than 800 miles. This freight can also be extremely fungible with intermodal containers on the rails.
This kind of freight can also be typically related to imports as corporations bring goods into the ports and warehouse them until they get moved closer to the top users within the nation’s consumption centers. The consummate example lane for this activity is from Los Angeles to Chicago, which can also be the best volume rail intermodal lane within the U.S.
The pandemic was considered a missed opportunity for most of the railroads as trucking capability tightened and rates soared. Many expected the rails to realize latest business and have sustainable growth coming out of this era.
The precise opposite happened because 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, however the infrastructure at first 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 an excessive amount of of an inconsistency.
Overall freight demand plummeted in early 2022, closing the window for the rails to reap the benefits 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 perfect volume week ever as volumes improved throughout the quarter. Revenues were down 15% but volume was up 1% yr over yr.
Even with demand improving all year long, domestic transportation markets remain burdened with abundant capability. At the same time 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 within the truckload market, removing yet one more leg holding up capability within the space. Sarcastically, it will help each trucking and rail in the long term by bringing the domestic transportation market back into balance.
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