Rail/Intermodal
Publicly traded Class I carriers started presenting their earnings this week with most slightly missing Wall Street expectations and echoing cautious outlooks. Several discussed their expectations that car-load volume growth will run ahead of industrial production in 2023 rather than ahead of Gross Domestic Product (GDP), which is the more traditional measure of volume growth.
According to some carriers' estimates, industrial production is expected to decline by 0.5% in the estimates provided by the carriers, while GDP is expected to grow by about 1.5%. This suggests that some carriers expect carload volume growth to be flat in 2023 and are signaling that to the financial community early in hopes of setting more conservative investor expectations for the year ahead.
Intermodal volumes have been challenged to start the year, coming in below a weak 2022 y/y and below the five-year average. Carriers’ expectations and FTR’s own forecast for intermodal are for the volume weakness to persist for much of the year.
Lower import levels, a more competitive truckload market, and market share gains by east and Gulf coast ports will all serve as headwinds for intermodal in the year ahead. The shift to east and Gulf coast ports that accelerated last year erodes the average length of haul, which is one of intermodal’s key advantages for shipments off the west coast.
Intermodal’s competitiveness versus trucking likely will be sharply negative throughout the year. Even peak season demand is expected to make its competitive position less negative, not positive.
Rail’s own service issues also have held back volumes coming out of the pandemic as carriers struggled to bring additional employees online. There were signs in December that carriers possibly were starting to turn the corner.
The industry moved above 50,000 train and engine employees in the U.S. during December for the first time since March 2020. Because the employment census is done mid-month, March 2020 likely showed no effect of the pandemic as lockdowns were only starting to ramp up over the final two weeks of that month.
Several individual carriers also matched or exceeded their levels of train and engine employment from March 2020 suggesting that carriers are making progress across their systems.
The next few months will bear watching closely as there could be higher-than-average attrition after train and engine employees receive their back pay allowances. If January and February headcount results take a meaningful step backward, then it could imperil expected timelines for sustained and consistent service improvement that has staying power for shippers.
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