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After a period of slow performance, US intermodal traffic is increasing, indicating potential future growth in the market.
This month, Union Pacific (UP) inaugurated a new route connecting Chicago and southern California. The route, which goes from Fontana in the Inland Empire to Northlake, has transit times of 4-6 days, aiming to attract intermodal traffic that might otherwise use trucks.
The railway mentioned the cost benefits of lower drayage for shippers at both ends of the route.
In a related development, UP is introducing on-dock rail service at the port of Houston, where there has been a significant increase in container traffic over the past few years.
According to data provided by the Association of American Railroads, intermodal traffic in the United States is on the rise. Volumes for the year up to April 6 have increased by 9% compared to the first 14 weeks of 2023.
In Mexico, the use of multiple modes of transportation increased by 9% last year and is expected to continue growing at a similar rate by 2024. The President of the Mexican Association of Intermodal Transport, Diego Anchustegui, anticipates double-digit growth in many transportation routes due to nearshoring and disruptions in cross-border trucking.
Recent years have seen a rise in new domestic intermodal services, including those that link the capital city to Monterrey and Guadalajara.
Domestic intermodal traffic saw a 36% increase last year, and the trend of nearshoring is projected to boost cross-border volumes. Mr. Anchustegui anticipates that capacity will grow with CPKC serving Lazaro Cardenas and Ferromex at Manzanillo.
Rail carriers in the US are looking to take advantage and gain more business from the trucking industry. The President of UP, Beth Whited, is focusing on improving network efficiency to attract shippers who currently rely on trucking services.
Outlook on the US Rail Industry
In a recent report, S&P Global provided an optimistic view of the US rail sector. They anticipate improved operating performance in the coming year due to better service quality and decreased inventory de-stocking. Analysts predict that rail companies are well-positioned to capture a larger share of the freight transportation market currently dominated by trucks.
Railroads will need to maintain their performance to assure shippers of reliability and prevent a significant shift from trucks to rail transportation, particularly on short-haul routes where competition has intensified. The analysts mention that trucking rates are expected to increase as a result.
"Despite trucking spot rates remaining low, there is a belief that these rates are not sustainable. This could lead to a reduction in capacity within the market. As a result, railroads, with their stable service and cost-efficiency, are likely to gain back market share from trucks," they remarked.
The trucking industry, particularly the truckload sector, is still facing a surplus in capacity as predicted by various experts and executives. This oversupply is expected to lead to the exit of numerous players from the market.
Knight-Swift Transportation, a large trucking company, stated in a recent securities filing that it refused some business contracts because the shippers were trying to lower rates even more.
"We chose not to make additional concessions on what we believe are unsustainable contract rates," it stated.
The company has transferred more capacity to the spot market, leading to increased pressure on revenue and utilization. Knight-Swift has reduced its earnings forecast for the latter half of this year by 56%.
Last week, JB Hunt disclosed a decrease of 26% in revenue, totaling $285m, for its brokerage unit, Integrated Capacity Solutions, during the initial quarter. The number of loads dropped by 22% and revenue per load decreased by 5%.
The release of the company's financial results caused a decrease in the stock prices of trucking businesses such as Saia, Old Dominion, ArcBest, and TFI International.
The increase in diesel prices is set to create more challenges for truckers, especially those who are small operators.
