Some See TOFC Fading Away

For decades, trailers on flatcars have been a staple of U.S. freight trains. But over time TOFC has lost ground to doubled-stacker containers in well cars.

now some industry observers believe the endgame for TOFC will soon be at hand.

In an analysis published on the website of Trains magazine, intermodal analyst Larry Gross predicted TOFC will vanish within the next four years.

The long range implication for intermodal service is that railroads will no longer be able to serve as a plan B for shippers when trucking companies encounter driver shortages or when parcel shippers need extra capacity for peak volumes during holiday shipping seasons.

Intermodal traffic will become even more of a niche product for railroads than it already is.

Already, Gross noted, TOFC is gone in Mexico and Canada. In the United States TOFC accounts for just 8.5 percent of intermodal traffic.

As recently as 1988 TOFC was 60 percent of U.S. intermodal traffic.

TOFC has ebbed and flowed over the years and in the first quarter of 2021 TOFC traffic grew 26 percent, driven in part by an increase in parcel traffic triggered by explosive growth of e-commerce.

Gross, though, said traditional TOFC users are expanding their container fleets. For their part, railroads have encouraged the switch to containers by ending TOFC service on specific routes and terminals.

Railroads have also widened the rate differential between trailers and containers in another move to encourage the use of containers over trailers.

Not surprisingly, the move to precision scheduled railroading by most Class 1 railroads also has played a role.

Carriers prefer double-stacked containers because stack trains can carry twice the volume of a TOFC train of the same length.

Paring the number of trains on the road has been a major objective of U.S. railroads that have made the change to PSR.

Other reasons that railroads give for wanting to be rid of TOFC include the facts that trailers take up capacity in terminals, require separate lifting equipment, and must be placed on the few remaining TOFC cars maintained by TTX Corporation.

Yet from a shipper standpoint, containers are not always ideal.

Containers must ride on a chassis and shortages of those is a perennial problem for shippers.

Shippers also say that in some instances a container is not the best tool to move goods.

Gross projects that about half of current rail TOFC traffic will be converted to containers and the rest will move via highway rather than rail.

Shippers most likely to switch to containers are long-haul movers using 53-foot trailers, Gross said.

Business that is likely to be lost to the highway includes that which moves in 28-foot trailers favored by parcel shippers, such as UPS and FedEx, and shippers sending small lots of goods from origin to destination without a sorting move en route.

Gross said a few trailer-oriented services will continue to survive awhile longer, including Norfolk Southern’s Triple Crown RoadRailer service between Detroit and Kansas City.

The RoadRailers are likely to continue operating until the equipment wear out, Gross said.

TOFC has a long history dating to the former Chicago Great Western starting the service by loading trailers on flatcars in 1936.

At various times, railroads have sought to encourage the growth of intermodal business through innovation. RoadRailers are one such example.

There will continue to be intermodal trains and some of those trains will continue to receive expedited handling by dispatchers because shippers are paying extra for premium service.

But those trains will feature solid containers rather than the string of UPS trailers that have come to symbolize a railroad’s hottest trains.

Container Imports Expected to Continue Lagging

The COVID-19 pandemic and economic recession is expected to depress U.S. retail container imports this year to their lowest level in four years.

The National Retail Federal said this week that U.S. ports handled 1.61 million 20-foot equivalent units (TEUs) of cargo in June, up nearly 5 percent compared to May but down 10.5 percent year compared to 2019 levels.

NRF expects monthly TEU totals between July and December to be between 1.59 million TEUs and 1.81 million TEUs.

The trade group’s forecast for each month would be down between 5.8 percent and 9.6 percent compared with the totals from 2019.

If those figures hold, the TEU total for 2020 would be 19.6 million TEUs, down 9.4 percent from last year and the lowest annual total since 19.1 million TEUs in 2016.

The first half of 2020 totaled 9.5 million TEUs, down 10.1 percent from last year.

August is expected to be the busiest month of the July-October “peak season” when retailers rush to bring in merchandise for the winter holidays, NRF officials said.

But with retailers ordering less merchandise the August would be the lowest peak for the season since 1.73 million TEUs in 2016 and falls far short of the 1.96 million TEUs peak in 2019.

Pandemic Seen as Depressing Global Trade

International container traffic such as that seen on Norfolk Southern train 20T near Attica, Indiana, on the Lafayette District are at risk of becoming fewer as the effects of the COVID-19 on global shipping play out over the next year.

Global trade is expected to continue taking a major hit under two scenarios for the path the COVID-19 pandemic might take in the coming months.

The Organization for Econcomic Co-operation and Development, which is based in Paris, said one scenario is that the pandemic continues to fade and remains under control.

The other scenario is that a second wave of  COVID-19 emerges by the end of this year.

In both cases, the agency predicted that by late 2021 the loss of income will exceed that of any previous recession over the past 100 years outside of wartime.

Under the “single hit” scenaio, global real trade growth is expected to fall by 9.5 percent while under the “double hit” scenario it will fall by 11.4 percent.

Global trade in 2021 would grow by 6 percent in the single hit scenario but just 2.5 percent in the double hit scenario.

OECD Chief Economist Laurence Boone said there is a risk that the pandemic could cause container shipping companies to bring sourcing back home.

“The crisis has demonstrated the vulnerability of domestic production to sourcing inputs from distant locations through complex global value chains,” he said. “The latest data shows that foreign value added in production exceeded 50 percent in most economies and areas.”

Boone said that economies are diverging and the pandemic has accelerated the shift from “great integration to great fragmentation.”

Import Containers From China Surge Upward

Import traffic from China to the United States took a big jump in May with officials saying this has helped to mitigate the effects of volume declines at U.S. West Coast ports.

The Port of Long Beach said that during May its inbound twenty-foot equivalent unit (TEU) containers were up 7.6 percent compared to May 2019 and up 23.3 percent from April.

The e-newsletter FreightWaves reported that inbound container volumes from China are greater than they were before the COVID-19 pandemic began.

Officials said demand for Chinese goods has driven up freight rates in an unusual occurrence during a global pandemic.

“It has been a tough few weeks . . . unless you’re an ocean liner on the China-U.S. West Coast, where rates just shot up,” said Freightos Chief Marketing Officer Eytan Buchman.

Also pushing up rates in the China-U.S. shipping lanes has been tight capacity.

Rates for moving containers between the two countries have reached levels not seen since January 2019.

The surge in imports from China has caused what had been expected to be a weakening market through June to instead plateau at above the levels of February and March.

BNSF Linking Seattle and North Baltimore

BNSF has introduced domestic intermodal service between Seattle and the Northwest Ohio Intermodal Terminal in North Baltimore operated by CSX.

In a message sent this week to shippers, BNSF said the container-only service will be offered five days a week for eastbound and westbound freight originating and terminating in Seattle.

The notice said containers can be forwarded from North Baltimore to such points as Toledo, Columbus, Cleveland, Cincinnati, Detroit, Louisville, and Pittsburgh.

Eastbound moves are expected to take 163 hours and westbound moves 167 hours from cutoff to availability.

BNSF has a haulage rights agreement with CSX that began in October 2018 and initially included service between North Baltimore and Los Angeles.

Service to North Baltimore from Northern California was added in April 2019.

Container Imports Ticked Up in May

Trans-Pacific container traffic showed an unexpected uptick in May which could be good news for intermodal traffic.

However, it is unclear what prompted the increase although there are a number of theories as to what prompted it.

The uptick came after container traffic plunged in late March and throughout April amid an economic downturn linked to the COVID-19 pandemic.

But now shipping companies are reinstating canceled sailing from China and are adding extra sailings.

During the depths of the pandemic, shipping lines had canceled 20 percent of sailings of container ships between China and the United States.

One theory for the uptick is that shippers canceled too many sailing after overestimating the near-term demand declines stemming from stay at home orders issued in numerous states.

Another theory is that consumer demand is stronger than predicted after states began relaxing and removing stay at home orders and allowed businesses and other activities to reopen.

Yet a third theory is that buyers of imported goods anticipate the collapse of a U.S.-China trade deal that could lead to new tariffs imposed by both countries.

At other times during the global trade war importers have ramped up buying in advance of tariffs and the same might be playing out now.

The e-newsletter FreightWaves repoprted market watchers saying this moving orders forward behavior is still being tempered by reduced demand due to the economic downturn.

Some observers have theorized that the upturn in shipping is temporary and will fall in early summer.

Import Traffic Continues Roller Coaster Ride

There are signs that imports to the U.S. are starting to pick up again, but it remains to be seen if that will continue or fall back later.

Container traffic to the United States, some of which is transported by rail once reaching a port, fell in March, rebounded somewhat in April but began falling again in May, reported an analysis by e-newsletter FreightWaves.

But now some importers are finding they pulled back too soon on their imports and need to step them up in light of the reopening of various businesses shut down this spring by state and local social distancing restricting seeking to contain the spread of COVID-19.

Shipping companies canceled 20 percent of their inbound container capacity to the U.S. in May and June after importers cancelled orders for goods.

At least two previously cancelled sailings have been reinstated due to an increase in imports and shippers report that most of their vessels are traveling the Pacific with full loads when they do sail.

Thus far shippers have canceled 10 percent of their planned sailings for July, but shipping business observers caution that it is too soon to say if this is a trend.

Maersk Line, the world’s largest carrier, expects volumes to be down as much as 25 percent through June and sees the third quarter of this year as unclear.

Observers say the combination of high unemployment, business bankruptcies and loss of consumer confidence could cause the up and down nature of imports to continue in the second half of this year.

Container Volume Will be ‘Disastrous’ in 2nd Quarter, Expected to Pick up in 3rd Quarter

A British transportation consultant said the pace of imported containers to U.S. ports could begin picking up in the second quarter.

But that prediction is based on the premise that there is not a major resurgence of coronavirus cases.

Maritime Strategies International projects that imported container traffic will be sharply down for most of the second quarter, which it said will be “disastrous.”

Container volume from Asia to West Coast ports is expected to fall 20 percent when compared with the second quarter of 2019 but rise by 1 percent in the third quarter.

Container traffic from Europe to the East Coast westbound lane is projected to fall 14 percent in the second quarter but gain 3 percent in the third quarter.

The recovery in the third quarter from the pandemic is likely to be uneven in mainline volumes.

MSI said there will be a high degree of differentiation by region and industry.

Although consumer retail goods are a major force behind container traffic, MSI said its share of overall volume is sometimes overstated.

“Machinery, parts, semi-finished materials and chemicals all hold a significant share of the volume,” MSI said. “Industrial production will likely be an early sector to return to normal output, but again, there will be differences: Goods tied to the construction industry may return relatively soon, but auto parts—hugely important on certain trades—could well see a prolonged period of subdued demand.”

Rail Intermodal Traffic Hits Plateau

A consultant on intermodal traffic recently told the Rail Equipment Finance conference that he sees growth in railroad intermodal traffic as having reached a plateau.

Ron Sucik, principle of RSE consulting, expects continued rail intermodal growth in the United States, but is not sure how much that will be.

He also said an electronic logging device mandate for the trucking industry has changed the nature of the motor carrier market although it remains to be seen what this means for railroads.

Sucik expects occasional surges of growth, but rail intermodal growth has exceeded the U.S. gross domestic product by two and sometimes three times only six times in the past 12 years.

The American Trucking Association has predicted that rail share will not likely divert many trucks from the highway to rail even if rail intermodal growth doubles.

Truckers believe that during the next decade or more they and not rail will continue to grow market share because there is that much potential freight.

Sucik said his sources have indicated that trucking companies such as JB Hunt, Schneider and Swift move less than 20 percent of containerized freight, excluding dimensional, flatbed and liquid, whereas railroads move less than 10 percent.

Seventy percent of container traffic is moved by the rest of the trucking industry, particularly by independent truckers moving freight that doesn’t lend itself to hub-and-spoke movements between larger consumption centers.

In the meantime, trailer on flat car loadings have been declining at a rate of 5 to 6 percent due to the emergence of double-stacked containers.

However, TOFC traffic increased 7.6 percent in 2017 while container traffic was up 3.5 percent.

Sucik said one possible explanation is a “four corner” distribution system whereby traffic is was more dispersed.

Although some observers say that the opening of a third set of locks in the Panama Canal and Panamax ships carrying more containers has diminished West Coast intermodal traffic, Sucik expressed doubt that this has had the adverse effect that some say.

He said the industry has been talking about “all-water diversion” for years and has watched most of it already happen.

However, traffic originating at the ports of Prince Rupert and Vancouver in British Columbia experienced growing traffic last year.

Railroad economist Jim Blaze believes that intermodal rail is concentrated into relatively few corridors with two-thirds of the freight moving in seven corridors. “Intermodal rail doesn’t go everywhere. Trucks do.” he said.

The only double-digit growth lane in North America, Blaze said, is the west-to-east Canadian corridor led by Prince Rupert’s rapid growth, which grew by 17.7 percent last year, exceeding all other rail intermodal lanes by a wide margin.

Sucik said that intermodal marketing people looking for new business don’t think like operating or financial people.

The marketing department might see short-haul traffic as a potential growth market, but the finance department replies why make the time and effort to move traffic with such a low margin of profit.

As the financial people see it, double-stacked container trains traveling longer distances can more easily pay for terminal infrastructure costs and for operations. So that traffic gets favored.

Shareholders are demanding lower operating ratios and low-margin traffic won’t help a railroad get there.

One wild card in the deck is that truck rates have posted the highest increases in years, hitting double digits in the past 12 months.

Shippers are paying 17 percent to 25 percent more on average than they did a year ago. Sucik sees in that some potential profit for railroads.

However, it might take an iron highway-type engineered rail platform to get it.

CSX and Canadian Pacific tried but have given up on the iron highway model.

Reviving the iron highway might require new trailer handling equipment that has yet to be developed.

Sucik said there is potential to gain additional intermodal rail market share in the short-haul range, but it would require a different approach that has thus far proven to be elusive.