Rail & Intermodal Volumes
Intermodal volumes weakened in the latest week on low Mexican traffic levels that also battered some carload sectors. Intermodal was already functioning at a low level before the recent weekly decline. It is possible that Mexican carriers shut down over the Easter holidays and that had the effect of weakening volumes, but it is not conclusive that this caused the weaker volumes.
Intermodal volumes suffered an additional blow in the latest week as the International Longshore and Warehouse Union (ILWU) withheld labor from the ports of Los Angeles and Long Beach starting with the night shift on April 6 and continuing through April 7. Subsequently, they have been slow to dispatch labor to the terminals in the days since, which has reduced throughput through the terminal.
The job action supported the fears of shippers that have diverted cargo to other less intermodal-friendly ports of entry, and those shippers likely will maintain those shipments through other ports until the west coast port labor contract situation is resolved. This will keep a de facto headwind in place for intermodal. The longer cargo flows through non-West Coast ports in large volumes, the more likely it is that volumes will not immediately flow back to the west coast when the labor strife is resolved.
Carload volumes also felt the effect of the Mexican slowdown with most sectors showing a significant decline in the latest Easter holiday week. Coal volumes declined significantly for the second consecutive week, in a decline likely not linked to the Mexican weakness, but rather low natural gas prices and export coal pricing. Most of the strong decline in Mexican traffic should be recovered in the current week as it is not likely to be the result of a long-term structural change.
Overall rail service has improved significantly over the last six weeks and will force a tough decision on the Surface Transportation Board as its existing expanded service metric reporting rules expire next month. The improved service may make it difficult for the agency to justify a further extension of the enhanced reporting rules.
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