Amazon Providing Container Shipping Space

Retail giant Amazon is making space available inside its intermodal containers to other shippers, Trains magazine reported on its website.

The report said this puts Amazon in direct competition with such intermodal marketing companies as J.B. Hunt and Hub Group in providing shipping space inside 53-foot intermodal containers.

A video posted by Amazon on YouTube said it manages loads from dock to dock and plans the transportation moves.

Amazon has a fleet of more than 5,000 containers. The Trains report quoted an industry observer as saying Amazon’s move is a way to make its intermodal operations more efficient because additional companies will be using the network.

The story can be read at https://www.trains.com/trn/news-reviews/news-wire/amazon-opens-its-intermodal-network-to-other-shippers/

Imports Set Record in August

The National Retail Federation reported last week that U.S. ports handled 2.1 million 20-foot-equivalent units (TEUs) in August, a 9.7 percent increase from July and an 8 percent rise over 2019.

August saw the highest number of containers imported in a single month since the group began tracking imports in 2002.

The previous record was 2.04 million in October 2018 ahead of a scheduled tariff increase, NRF said in a news release.

Imports set records last summer as retail sales rebounded bounced back from the pandemic and merchants refilled inventories and stocked up early for the holiday season.

Jonathan Gold, NRF vice president for supply chain and customs policy said retailers are stocking up for the holidays earlier than usual because they expect consumers will shop early to avoid crowds and delays in receiving their orders.

Conference Speakers Optimistic That Intermodal Traffic Growth Will Continue

Colorful containers on a late day eastbound intermodal train on  CSX in Clinton, Ohio.

Speakers at the recently concluded North East Association of Rail Shippers virtual fall conference expressed cautious optimism that recent growth in intermodal volume can help railroads recover from traffic losses prompted by the COVID-19 pandemic.

Jason Seidl, managing director of Cowan and Company said the consensus among railroad executives who spoke during the conference is that current trends could continue for the remainder of 2020 and into next year.

Railroads are bullish on intermodal for the time being due to continued tightness in the trucking industry that has sent some shipment onto the rails.

Kansas City Southern CEO Pat Ottensmeyer said the USMCA treaty, which replaced NAFTA,  “allows North America to emerge as an even more powerful force in global manufacturing and trade.”

However, Ottensmeyer said the United States “must do a better job” coordinating policy with Mexico and Canada in order to maximize the benefits of the treaty.

Tom Tisa, who heads business development for CSX, noted that railroads posted intermodal traffic records in August because retailers were restocking depleted inventories and preparing for the holiday sales season.

However, Tisa expressed some uncertainty that the intermodal surge is sustainable although he is optimistic that it will continue.

Speakers at the conferences noted a contrast between how Canadian Class 1 railroads are managing their precision scheduled railroading operating model with how it is being done by U.S.-based carriers.

Analysts said this probably is because Canadian National and Canadian Pacific have been using PSR for a longer period of time whereas the U.S. carriers are still in early stages of

PSR, particularly those focused on chopping costs and paring assets.

Whereas U.S. railroads are still looking to sell low-density lines, Canadian carriers are seeking to add routes, including some lines they once spun off.

Panelists See Slow Freight Rebound

Railroad industry analysts predicted this week that the COVID-19 pandemic will cause fundamental changes in the U.S. economy that will result in limited railroad freight traffic growth over the year.

The prediction was made during a webcast sponsored by the Midwest Association of Rail Shippers with panelists saying the pandemic has caused a great deal of economic uncertainty and the recovery that began in June remains fragile.

“We are not even close to getting back to equilibrium,” said Eric Starks, CEO of FTR Transportation Intelligence.

Straks expects the economic downturn will linger until there is an effective COVID-19 vaccine available.

Another member of the FTR firm, Todd Tranausky, said that in recent weeks intermodal traffic has gotten a boost from the need of retailers to restock their inventories.

Intermodal traffic also has benefited from tightening truck capacity, prompting shippers to turn to rail to move goods.

This has included parcel shippers seeking a relief valve for moving their packages.

For now, importers are routing more good via West Coast ports in order to get them to consumers faster.

However, he said that carload volume will be much slower to rise because industrial inventories are already at high levels.

FTR expects carload traffic to lag through at least the first quarter of 2021.

“It’s going to be a very slow, very uneven slog back to growth in the carload sectors,” Tranasuky said.

Panelist Discuss How Technological Changes are Affecting Competition Between Rails and Trucks

Railroads hold advantages over trucks in moving freight over longer distances, but those advantages might be wiped out or greatly diminished by the development of battery-powered rigs and autonomous truck operation.

Still, members of a panel that met during a recent Intermodal Association of North America webcast said Class 1 railroads have the money and time to do something about that because widespread use of battery-powered trucks and autonomous operation is still at least five years away.

Railroad industry observer Anthony Hatch said railroads have five advantages over trucks: Railroads are less labor intensive, more fuel efficient, have a lower carbon footprint, own their own infrastructure, and are financially strong.

In fact, Hatch said, the railroad industry is more profitable than ever.

But if railroads sit on those resources rather than invest them in becoming more efficient operators, trucks may erase some of those advantages.

Electric and autonomous trucks hold the promise of being less costly to operate, which would overcome the labor and fuel costs advantages that railroads have now.

“If we were to see a magical turnover to an all-electric road fleet, that would be good for the air that we breathe and not very good for railroad shareholders,” Hatch says.

He said some “very smart people” in the trucking industry are working diligently to figure out how to improve the range and lower the cost of battery-powered trucks as well as implement autonomous operation.

Battery-powered trucks are currently on the road, but their high cost means that trucks powered by diesel fuel are still cheaper.

Another drawback of existing battery-powered trucks is a range limited to 150 miles.

Currently, the economics of battery-powered trucks only work in California and because of a state subsidy implemented to reduce air pollution.

Most battery-powered trucks are being used for drayage and local service.

Brian Cota of Daimler Trucks America said many of the costs of owning and operating electric trucks, including battery life and charging costs, remain unknown.

He said trucking companies will need five years of experience with electric rigs before being able to get a handle on what the market will look like.

Panelists said battery-powered trucks need a range of at least 350 miles to become practical for regional moves.

The consensus in the railroad industry is that 500 miles is the floor at which railroad double-stack service can compete with trucks.

As for autonomous trucks, technology firm TuSimple is testing autonomous truck moves on Interstate 10 in the Southwest with a driver in the cab to monitor operations.

TuSimple is working with Navistar to produce self-driving semis by 2024.

TuSimple’s Robert Brown expects autonomous trucks to be used primarily for highway moves. Human drivers will be used for pickup and delivery at shippers’ docks.

Brown said the initial market is expected to be team driving routes that aren’t competitive with intermodal.

Seth Clevenger, managing editor of features at trade publication Transport Topics, said the move toward autonomous trucks is expected to be an evolution, not a revolution.

As for what railroads can do to counter advances in the trucking industry, Hatch said they could borrow some of the technology that truckers are developing.

That would include using battery-powered drayage trucks in order to reduce the costs of picking up and dropping off containers at rail terminals.

BNSF is operating a pilot program using autonomous yard trucks and autonomous and remote-control cranes in intermodal terminals.

It is also working with Wabtec to test a battery-powered road locomotive in California.

Not All Intermodal Lanes Are Equal

Railroad intermodal freight traffic has been lagging and industry observers point to many factors behind that.

Many of those start with the economic downturn triggered by the COVID-19 pandemic but other forces are at work and were depressing intermodal traffic before the pandemic began.

This included a shift in business to trucks and even railroad choosing to forgo some intermodal business because it was not profitable enough.

But the forces depressing intermodal rail shipment have not affected all intermodal traffic lanes in the same manner.

Competition from trucks, for example, is not the same in every market.

An analysis by e-newletter FreightWaves that was published by Railway Age show that in some lanes rail intermodal holds up well against truck completion.

One of those is Los Angeles to Chicago where rail has an advantage due to the density of the market and the transportation infrastructure unique to those cities.

The anchor cities in that market are two of the nation’s largest consumption centers.

They also have more outbound than inbound freight.

Intermodal rates in the Los Angeles to Chicago lane are considerably above the intermodal national average.

In the New York to Chicago lane, intermodal does not enjoy the same rate competitive advantage.

Trucking spot rates have fallen significantly, as they have throughout the country, which has eaten away at intermodal value.

Trucks can ship freight in two days, which provides shippers better service than intermodal for a slightly lower cost.

Intermodal volume from New York to Chicago has underperformed nationwide intermodal volume in the past month.

The analysis said it remains to be seen if the strength of the Los Angeles to Chicago lane for intermodal will be sustained.

It might have been rooted in a surge in imports at the end of April and early May.

Since then imports have fallen and the truck market in Southern California has weakened.

That could lead to an eroding of the relative value of intermodal shipping.

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.

Lagging Imports Bad News for Intermodal Traffic

Indications are that imports to U.S. Ports on both coasts are going to continue lagging through at least the end of June.

That’s not good news for railroads that haul containers from those ports.

The e-newsletter FreightWaves reports that canceled sailings combined with a loose truck market will continue to depress intermodal volumes.

Port of Los Angeles Executive Director Gene Seroka said volumes through April were down 15.5 percent compared to 2019.

Traffic did tick up in April over March but through the end of June the port will experience cancellation of 28 sailings.

Seroka said that “ . . . is a tremendous number, yielding softness in the market through the months of May and June.”

He indicated that the canceled sailings are due to retailers delaying or canceling orders for goods.

Fast fashion has seen its business drop by 50 percent and auto and related parts are well down.

The port of Savannah, Georgia, reported it expects 37 canceled sailing in May, which would be nearly 22 percent of vessel calls.

Thus far about 15 percent of June sailing have been canceled.

FreightWaves said its data shows an expected decline in intermodal shipments in the coming weeks.

Loosening Truck Market Bad News for Intermodal

Like railroads, trucking companies have felt the sting of lost traffic volume during the COVID-19 pandemic.

In March there was a spike of trucking activity as retailers rushed to stock their shelves amid increased consumer demand that led to the hoarding of some products.

That was followed by an April lull when trucking business fell. That in turn has been followed by a slight uptick this month as some businesses have reopened after more than a month of social distancing restrictions.

Yet intermodal shipping has yet to benefit from those developments and the e-newsletter FreightWaves said that during the March surge intermodal didn’t gain any additional business as truckers did.

A continuing loose truck market in which there is surplus capacity chasing after the less available business does not bode well for intermodal volume growth.

In various conference calls to announce quarterly financial results, Class 1 railroad executives have been pointing to the loose trucking market as a key reason why there has not been intermodal volume growth.

FreightWaves reported that during March the demand for truck transportation rose 30 percent over what it was in March 2019.

Much of that demand was driven by grocery companies, big box retail stores and consumer products companies seeking to replenish stocks depleted by binge buying.

In April, shippers requested trucks to ship goods with 10 percent less frequency than they did in April 2019.

Demand for truck services has been rising modestly since businesses have begun reopening.

However, the FreightWaves analysis noted that many of the businesses that have been reopening are service-based and move little freight.

Shippers continue to request 6 percent fewer truckloads than they did a year ago.

FreightWaves said the current situation in the trucking industry is that in many cases spots rates are well below contract rates.

That’s important because in more prosperous times spot rates that are above contract rate will lead truckers to decline to move a particular good at a contract rate because they can earn more moving another good at a higher spot rate.

When truckers reject moving a load at a contract rate this is known as tender rejection.

FreightWaves said the tender rejection rate of late has been 2.85 percent, which indicates that moving freight at contract rates may be the best business that many truckers can find.

Although this might be as bad as it gets and business is poised to rise with more commerce arising from the end of COVID-19 shutdowns, that rebound may not be as robust as some want to believe.

The FreightWaves analysis concluded that the rejection rate this spring has been of historic proportions and there is little evidence at the moment pointing toward a substantial rebound.

That is particularly bad news for intermodal shipping because it remains to be seen if intermodal is still a growth area within the transportation field.

“ . . . it appears that the March surge in transportation demand was for freight that was too service-sensitive, for freight that too often needed to be refrigerated, in lanes that too often were not truck-compatible and in a market with truck capacity that was too loose to make much of a dent in intermodal volume,” the FreightWaves analysis said.

The analysis said the market has shown a willingness by some truckers to accept loads in lanes that would typically be best suited for intermodal with truckload rates falling below intermodal rates.

Class 1 Operating Ratios Improved in 1st Quarter

With Class 1 railroads now having completed announcing their first quarter financial results, a few conclusions can be drawn.

Although the first quarter overlapped in part the onset of the COVID-19 pandemic, Class 1 railroads continued to whittle away their operating ratios, which is the percentage of revenue that is spent on operating expenses.

U.S. Class I railroads saw an operating ratio improvement of 270 basis points when compared to the first quarter of 2019.

Despite the pandemic inducing an economic downturn, the Class 1s for the most part managed to exceed the expectations of Wall Street analysts, who love seeing operating ratios fall.

The continued shaving of operation ratios suggests that railroads have yet to hit the floor of how much efficiency they can wring from their cost structures.

At the same time, sharp drops in freight volume have meant that the Class 1s are not going to enjoy revenue growth anytime soon.

The results reported by the Class 1 stand in contrast to the financial results reported by truckload-based domestic intermodal marketing companies such as J.B. Hunt, Hub Group, Schneider National and XPO.

Their operating ratios fell by 120 basis points in their intermodal segments.

Intermodal providers have been squeezed by rising purchased transportation costs, which has resulted in thinner profit margins.

Domestic truckload-based intermodal providers are facing a weak import market that is expected to continue through the summer if not longer.

A steep jump in unemployment and an uncertain economy have dampened consumer spending despite economic stimulus packages approved by Congress.

Intermodal providers also face rising purchased transportation costs for rail capacity, a condition that seems to reflect the bargaining power between the two parties rather than economic conditions.

Of course this is not necessarily good news for railroads. The truckload market is still loose and intermodal long-haul truckers, those traveling 700 or more miles, are taking market share from intermodal.