With four weeks to go in 2023, it appeared that North American intermodal was headed for another year in the red, with data from the Association of American Railroads (AAR) showing that year-to-date volume was still 6.8% lower than the prior year.

That would make 2023 the fourth year out of the past five in which volume has declined from the year prior, with total intermodal loadings projected to be about 13% lower than in 2018. Through October, total intermodal revenue moves were down 7.9% year over year, with domestic container and trailer loads slipping 4.7% and movements of ocean containers down more than 11%.

This is not a pretty picture, but drilling down into the numbers reveals some green shoots sprouting.

As the summer came to a close, some industry observers were already writing the obituary for the 2023 peak season. In fact, there was indeed a peak in 2023, and compared with the preceding months, it was a bit stronger than normal, albeit somewhat later than usual.

International and domestic volumes have both been rising since mid-year. Domestic loads actually moved ahead of the prior year in September and stayed ahead in October. However, in late 2022, volume was dropping fast, so the year-over-year comparisons were getting ever easier. More importantly, volume was rising sequentially.

The fundamentals for intermodal demand in 2024 appear to be improving in several important respects. With the US West Coast port labor contract talks settled, import volumes have begun to swing back west in a meaningful way. There is a substantial amount of cargo destined for the nation’s heartland, for which intermodal routing from the West Coast offers the best combination of rates and service. A good chunk of this cargo was diverted to eastern routings during the labor unrest, but now that the strike threat has ended, it is returning. This is a tailwind for intermodal because intermodal’s share of imports coming off the West Coast is substantially higher than off the East Coast.

In addition to this natural return to the West Coast, there will be two important additional factors at work. First will be the drought restrictions at the Panama Canal, which are eroding the economics of all-water transport from North Asia to the East Coast. In addition, importers will be factoring in the potential for labor disruption in the east as the International Longshoremen’s Association dockworker contract nears its expiration in September 2024. If the situation is not resolved by the beginning of the summer, we can expect to see a mirror image of 2022–23, with cargo diversions to the West Coast, rather than away from it.

The result will be a higher-than-normal share of cargo landing on the West Coast and significant flows inland. Indeed, peak season 2024 could prove to be quite challenging for the West Coast ports and western railroads from a capacity and congestion standpoint.

Yesterday’s loss is today’s opportunity

However, while 2024 may prove to be a stronger year for international intermodal, some adverse long-term fundamentals remain in place. US importers’ disengagement from China continues, and sourcing continues to move away from North Asia toward locales that are better suited to East Coast routings.

Further, although globalization is by no means dead, the era of substantial increases in outsourcing is over, and nearshoring is slowly becoming a reality. The upshot from an intermodal perspective is that import TEUs can no longer be counted on to grow any faster than the demand for domestic intermodal and truckload freight.

The potential for growth is higher on the domestic side of the intermodal house, but much depends on whether the significant share losses of recent years can be reversed. Since 2018, domestic intermodal’s share of the US long-haul trucking market has declined from 6.7% down to a low of 5.6% in the first quarter of this year. Since then, intermodal’s share has risen to just 5.7% in the third quarter. At that rate, it will take another five years to make up the ground lost in the previous five.

There are multiple reasons for the decline in share, including network cutbacks and negative service effects stemming from precision scheduled railroading, inadequate savings versus trucking, and service and congestion issues during the COVID-19 pandemic. But yesterday’s loss is today’s opportunity. Simply restoring domestic intermodal share to 2018 levels would result in a volume gain of more than 17%.

Of course, we cannot predict anything close to that kind of gain. The increase in demand for long-haul trucking is projected to be very modest in 2024, in the low single-digit percentages. There is no reason to expect greater gains for domestic intermodal, unless and until it demonstrates the ability to regain share.

For gains to occur, growth in the loads carried in privately owned 53-foot containers will have to overcome volume losses by the rail-owned fleet and trailer-on-flatcar (TOFC). Private domestic container loads ticked up 3.5% year over year in the first 10 months of 2023, while rail-owned container loads and TOFC dropped 21% and 24%, respectively.

A good number of new intermodal offerings have been announced in recent months, lending credence to the belief that the railroads’ oft-announced “pivot to growth” will be more than just talk. It is a welcome change from the retrenchment and stagnation in intermodal seen since the beginning of the PSR era.

Contact Larry Gross at lgross@intermodalindepth.com.