Jim Blaze: Commentary - Multiple contrasting intermodal market outlooks for 2020 (Part 1)

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There are multiple contrasting intermodal market outlooks for 2020.

One was posted by FreightWaves’s Mike Baudendistel on Feb 29th (Forecasting intermodal in 2020). His main points included:

  • There are significant weaknesses in the imports of containers from China
  • There could be a shortage of goods in the China-U.S. supply chain, thus negatively impacting U.S. intermodal volumes
  • Outbound loaded data from one FreightWaves source shows  a recent drop in outbound container volume from China to the U.S. market “from around 3,300 a day on a seven-day average to only about 1,830 a day”
  • That is a significant volume change
  • Intermodal organizers like the Hub Group “expect intermodal prices to be down for 2020” largely as a function of weak market demand for the rail services
  • The railroad managers at the Class I companies are resisting cutting their rail rates to retain or to grow customer market share as the current market demand for rail movement decreases
  • Experts from companies like TTX (the major railroad intermodal container railcar operator) admit that they know of only about 2,000 units of domestic sized 53-foot long containers being added to the North American fleet this year – fundamentally as a replacement of retiring units and not for growth

As an overall summary, the business sector sometimes referred to as “third-party intermodal organizers” overall don’t see their intermodal volume increasing year-over-year during 2020 by more than a low- to mid-single-digit level.

Other sources referenced in preparing this commentary might be classified as even less optimistic about rail intermodal.

Yes, as Baudendistel points out in his article, railroad intermodal service quality appears to be improving year-over-year – and there is plenty of overall track and route service capacity across the core intermodal railway track network.  So there is indeed capacity that could be used to gain market share. 

So far in 2020, that market share gain isn’t happening. Why does this subject particularly matter early in March?

It matters because currently, we are just over 18% throughout the year.  By now we have a pretty clear sample size about how 2020 is trending.

Fundamentally, the grand plans crafted by senior Class 1 rail officers – approved by their boards of directors during the 4th quarter of 2019 – do not appear to be holding up in regard to volume – nor in regard to expectations of truck market share penetration.

Deep inside corporate railroad headquarters, new spreadsheets have calculated by now the actual versus expected 2020 revised volumes. The lower volume achievement has to be disappointing.

When questioned by investors during January and February, most rail executives’ comments have at best been “reserved.” 

Bottom line – into the first week of March – there is little intermodal data excitement. Mostly a “hope and a prayer” growth outlook. No corrective tactics have been offered. A wait-and-see attitude seems to prevail.

But is this too harsh an assessment? What are other experts saying?