However, the situation began to change in 2016. The growth gap between intermodal and truck stabilized and even began to shrink. It took the great electronic logging device (ELD)-triggered trucking shortage of 2018 for intermodal to regain its growth mojo, but those who thought 2018 was ushering in a new intermodal growth era were in for a disappointment. Truck capacity was quickly right-sized and truck activity rose from Q4 2018 to Q1 2019 even as domestic intermodal volume fell, resulting in the biggest Q/Q reduction in the volume gap yet seen.

Growth by itself is neither good nor bad. Chasing volume at the expense of profitability is a problematic recipe, as the ocean container carriers have discovered time and time again. Yet, something fundamental appears to have changed at the railroads in recent years. For the moment, the intermodal story is of shrinking horizons. The focus is on cost reduction through operational simplification while attempting to hold the line on pricing to improve margins, even in the face of adverse market conditions.

During the growth era, the intermodal news was all about new corridors, new terminals, and new services. The intermodal network’s reach was expanded from the core lanes into the intermodal hinterlands with terminals and services being established to serve secondary locations. Now the industry appears to have concluded that this effort introduced too much complexity into the intermodal equation. The industry has embarked on a “back to the future” effort in which the intermodal network is being returned to its earlier, simpler, and more streamlined form.

The news is now all about terminal closures, route and service eliminations and tighter operating requirements. The intermodal portfolio is being reviewed with a sharp pencil, and the big question appears to be “how can we make intermodal more friendly to rail operations?”

Steel-wheel interchange is now a memory for many east-west lanes. This makes the railroads’ operating task much simpler, but introducing a second waybill, a chassis requirement, two additional terminal/gate events, and a cross-town dray into the door-to-door equation hardly makes intermodal easier to use or more shipper friendly. The emphasis is on reducing rail line-haul costs, but this often comes at the expense of increasing a raft of non-rail auxiliary inputs, resulting in higher door-to-door costs.

The next frontier is the remaining trailer on flatcar (TOFC) lanes. How much simpler intermodal terminal operations would be if they were container-only — train productivity would improve, and railcar management would be simplified. But the fact is that the remaining volume moving TOFC is generally still in trailers for good reasons, and it would be a mistake to assume this freight can be forced into containers without significant volume leakage back to the highway.

The theory is that by concentrating on the optimal markets for intermodal, the quality of the service product will improve, and this will, in time, result in more volume. The open question is how much further intermodal can penetrate the core big-city to big-city lanes, even if service returns to previous standards. By concentrating on core lanes and longer lengths of haul, intermodal is flying in the face of prevailing e-commerce-driven supply chain trends, which are creating more fragmented and generally shorter-haul flows with inventory moving to more locations to position it closer to the customer for quicker response.

Last year, intermodal benefited from the ELD crisis. Demand was inexhaustible no matter what changes the railroads made. But as quickly as they arrived, those days are now gone. While drivers will always remain hard for truckers to find and driver wages may continue to rise, there’s going to be enough truck capacity so that anyone who wants to find a truck will be able to do so. That situation is not going to change in the foreseeable future. In this “returned-to-normal” world, intermodal is going to have to earn its place at the shipper table by out-competing truck and offering a price/service package that entices the customer and meets the BCO’s needs. Changes to the intermodal offering that reduce reach or make intermodal less user friendly need to be undertaken with a clear-eyed view towards possible adverse market reactions. It’s so much harder to regain volume than to retain it.

If history is any guide, then in time the pendulum will swing. We have seen this already occurring in Canada, where the railroads have already undergone the full precision scheduled railroading (PSR) treatment and now, using that firm operational foundation, have returned to the task of trying to grow the business. The current era of the dominance of operational considerations for the US railroads will also run its course and the marketers will eventually regain a full-sized seat at the strategic table. When that will happen and how the industry will be re-shaped in the meantime is open to debate.

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