Intermodal Update
Intermodal volumes remain in a struggle with no sign of a pre-Lunar New Year bump. It is likely that the declines will get worse before they get better with the holiday lull coming over the next few weeks.
The wild card will be how quickly volumes recover as it is unclear what the Chinese government’s policies will be concerning COVID after the Lunar New Year holiday celebrations. If China sticks to its zero COVID policies of the past few years, import volumes might see a much slower return than normal.
Volumes declined sequentially in the latest week even with a week-over-week boost from Union Pacific loadings as they returned to normal after a bridge outage stalled intermodal moves on UP’s network in the week prior.
Intermodal faces a number of headwinds beyond just the uncertain fate of imports to the U.S. west coast. Its competitive position relative to the competing truckload market and the fate of railroad service improvement will play a large role in determining the overall rate of decline that intermodal posts in 2023.
Carload Volume Update
Carload shows signs of slowing as well in the latest week with a sharp sequential decline in nearly all commodity sectors in the latest week. Coal took nearly the largest sequential drop of all, losing nearly 10,000 carloads on a week-over-week basis. While that could reverse in the next week’s data, natural gas prices below $3/mmBtu could be triggering the expected decline in coal volumes in 2023.
Chemicals traffic remained nearly steady in the latest week’s figures – a worrisome sign as it could foretell a slowing of industrial and manufacturing activity. If indeed this is what is happening, such weakness easily bleeds into other sectors of the economy and pushes a slow-growth economy into negative territory. Therefore, chemicals traffic bears close monitoring in the weeks and months ahead.
Meanwhile, carload volumes overall could be dented in next week’s release because of the closure of Norfolk Southern’s main east-west corridor after a 50-railcar derailment in Ohio that left the line closed for several days.
Rail service continues to show improvement in recent weeks, providing hope that the recent gains can be maintained and built upon. Skeptical shippers might well point out that carriers are benefiting from weaker volumes, which is at least partly true. But it is also true that the carriers are moving the hiring needle in the right direction as well.
The real indicator of potential service improvements will come next week with the release of January employment numbers. The question is whether carriers can hold onto their recent gains or whether operating personnel left in significant numbers after receiving their back pay payments. If a significant number did exit, carriers would find it harder to maintain their recent gains in service and put them at risk of giving back some of their recent gains.
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