For the first 10 weeks of 2016, North American Class I railroads originated 3.3 million carloads of freight (excluding intermodal). That’s 427,000 fewer carloads than the same period last year, or a decline of more than 11 percent.

If things continue at this rate, 2016 will come in at 17.1 million carloads. That’s just a calculation, not a forecast, but it’s an indication of the severity of the situation, because if that were to happen, it would mean 1.9 million fewer carloads this year versus 2015. That translates into 52 fewer 100-car trains every day of the year. That’s a deep hole. How will the railroads fill it?

A big part of the problem is distress in the energy sector. Coal is undergoing a permanent structural change. A few years ago, coal accounted for one in three North American carloads, but no longer. For a while, the drop in coal had been offset and softened by the surge in activity associated with the fracking revolution and the renaissance of domestic oil production. Trainloads of frack sand were being pulled out of the Upper Midwest to the drilling areas, and trainloads of crude oil were then coming out of places such as North Dakota, bound for refineries on the East and West coasts that lay beyond the reach of the oil pipeline network. 

Those markets are fading fast, as plunging crude oil prices have hindered domestic production, and coastal refineries have switched back to imported crude because of reduced spreads between imported and domestic oil.

But the problem extends beyond the energy sector. Of the 20 non-intermodal commodities the railroads handle, half showed deficits over the first 10 weeks of 2016. The industrial sector has been going through a soft patch, and this situation might improve, but it won’t be enough. So the rails will have to look elsewhere for growth, and the focus will fall squarely on intermodal.

I’m always bemused when I see comparisons that simply add the number of carloads and intermodal units, because a single container in no way corresponds to a carload in terms of freight, revenue, margin or any other dimension. You’re going to need a lot of growth in intermodal to make up for the carload shortfall. 

With intermodal roughly divided 50:50 between international and domestic cargo, we need to look at each segment separately. Growth in international is subject to import-export trends, and it will be tough for volume to grow any faster than overall containerized international trade.

In fact, the west-to-east shift triggered by last year’s U.S. West Coast labor issues has worked against intermodal, because the length of haul off the East Coast is generally lower and the rail participation is a fraction of that for freight coming into the West Coast. We can see the problem in the declining length of haul for ISO containers. So the growth prospects are modest at best.

That leaves domestic intermodal, which has been the growth star since the recovery began in 2010. But the growth rate for domestic intermodal has been dropping each year since 2010, and 2015 was the lowest yet at just 2.8 percent. Domestic intermodal is fighting headwinds, including ample truck capacity and lower fuel prices. 

The silver lining to the carload volume drought is that the network is wide open, and intermodal train speeds have recovered fully from last year’s difficulties. But the railroads are trying to lower costs by running longer trains, and that means less frequent departures and longer terminal times to ground the containers and make them available for pickup.

Shippers also have long memories with regard to previous difficulties. The competition with truck is fiercest at the shorter lengths of haul, and the statistics again show the problem, with average domestic intermodal length of haul having increased for the last three quarters.

There is little opportunity to convert truck freight to rail carload. Most shippers don’t have direct access to rail, and those that do have aren’t eager to switch to a mode that requires them to take three or four truckloads at a time, in a vehicle that provides much longer transit time and with delivery variability measured in days or even weeks. There isn’t a price low enough to pull volume off the road into rail carload except for a narrow slice of the world of freight that can accept rail carload’s shortcomings.

It’s going to come down to intermodal. If things stay on their current track, “the mother of all truck capacity shortages” eventually will help bring relief, but that won’t happen until next year at the earliest.

In the meantime, the railroads will have to get aggressive to pump up the intermodal growth rate, so expect to see a flurry of action in the coming months. We’ll see if the railroads bring their “A” game to the fray.