Intermodal is growing as volumes continue to rise led by international containers.
Intermodal is continuing growth in 2024, according to the Intermodal Quarterly report from the Intermodal Association of North America (IANA). Total intermodal volume rose 7.9% year-over-year (YoY) in Q2 2024 – the third consecutive quarter of YoY growth, including an 8.8% increase reported last quarter.
International volume showed the greatest intermodal gains in Q2, with international containers adding 13.3%. “With containerized imports on the rise, especially on the U.S. West Coast, the outlook for international containers moving by rail is forecast to move up 13.8% for full-year 2024, notwithstanding the tougher comparisons that lie ahead,” the IANA report states. “Transload volume from those imports and steady production volume will be an opportunity, albeit limited by excess trucking capacity, for domestic intermodal providers.”
In addition, nine out of ten IANA regions saw growth in Q2, including U.S., Mexico and Western Canada. Volumes increased 16.5% in the Northwest and 13.4% in the Southwest, the largest gains, driven by import growth via the regional ports. Only Eastern Canada experienced a decline, which was minimal at 0.5%. In addition, the seven highest-density trade corridors, representing more than 60% of total volume, were all up in Q2 – with the highest gains in Midwest-Northwest (21.5%) and South Central-Southwest (20.1%).
Intermodal Vs. Trucking
“Rail intermodal is a critical, cost-effective transportation solution, especially as the trucking industry faces truck driver shortages, rising fuel costs, and congestion on the nation’s aging highways,” says Jessica Kahanek, Assistant VP, Communications, Association of American Railroads (AAR). “Intermodal shipments allow businesses greater flexibility and reliability, allowing for easier transfer of cargo between different modes of transport.”
One of the strongest drivers of intermodal is trucking rates, and IANA reports that intermodal’s competitive position versus trucking is not as weak as last year but warns that the prolonged stagnation in trucking is an issue. Although active truck utilization has increased in 2024, it has not reached a level that would produce rate pressure and drive resulting opportunities for intermodal as an alternative.
“In the near term, trucking might even prove to be a slightly stronger competitor simply because it offers ample excess capacity and attractive rates,” the IANA report adds. “Intermodal volumes have been outpacing truck volumes this year in large part due to the recovery in container imports. If this trend continues, intermodal might see some uptick in diversion to trucking unless truck spot rates strengthen significantly in the near term.” But IANA does not expect this to happen until the start of 2025 at the earliest.
It’s The Economy ...
“Intermodal traffic is the rail segment most closely tied to consumer spending, which has remained resilient despite the impacts of inflation and interest rates,” says Kahanek of AAR. “In the months ahead, trends in consumer spending are a key indicator to watch as we think about where intermodal traffic could be headed.”
With this in mind, IANA warns that a potential slowdown in consumer spending – based on indicators such as lower real disposable income growth, rising credit card debt, less discretionary spending, reduction in the personal savings rate, wage growth leveling off, and a slight increase in unemployment – could be a problem for intermodal.
On the flip side, however, IANA says some of these indicators could be the final step toward moderating inflation, in line with the Federal Reserve’s goal of 2%. Domestic manufacturing is one of the main intermodal drivers, and manufacturers are waiting for an interest rate cut that will stimulate economic activity.
“Lower interest rates would also have profound effects on consumers in the form of lower mortgage rates and car payments, laying the groundwork for domestic intermodal growth,” the IANA report adds.
On another optimistic note, AAR’s Freight Rail Index (FRI) for July 2024 indicates continued stability, countering fears of a significant economic slowdown. AAR’s Rail Industry Overview for August 2024 explains, “The FRI, which tracks movement of economically sensitive rail commodities, reached 110.0 in July, marking a 0.6% increase from June 2024 and a 6.0% rise from its level in July 2023. Historically, slowdowns in the FRI have preceded broader economic downturns, underscoring its reliability as an indicator of future economic trends.”
The AAR August report adds that the current stability in the FRI suggests sustained demand for goods, which supports economic resilience, in contrast to declines exhibited during economic slowdowns.
Border Crossings
Nearshoring – the practice of moving overseas production to Mexico in order to be closer to U.S. consumers – is increasingly seen as an intermodal driver. “The impact of nearshoring can be seen in the recent strong growth in Mexican intermodal traffic,” says David Garofalo, IANA Assistant VP, Membership & Communications. “Originations from Mexico rose 22.6% compared to the second quarter of 2023.”
Nearshoring offers several advantages including reduced transportation costs, shorter lead times and improved supply chain resilience, according to Schneider SVP and GM of Intermodal Michael Baumgardt. Proximity to the U.S. market allows for quicker response times and more flexible production schedules, to achieve operational efficiency while maintaining control over projects in terms of cost-effectiveness, logistics and risk mitigation.
“Intermodal is a game-changer for customers nearshoring their operations to Mexico,” Baumgardt asserts. “By leveraging a combination of rail and truck transportation, intermodal provides an efficient solution for moving goods across borders. This reduces transit times and minimizes handling, which is crucial for maintaining the integrity of products.”
Baumgardt says that intermodal also offers greater flexibility and capacity, allowing businesses to scale their operations seamlessly as they transition their supply chains closer to home.
“Perhaps one of the biggest advantages of intermodal in cross-border transportation is the ability to gain access to more equipment due to the efficiency of intermodal and the inherent imbalance between northbound and southbound shipments,” Baumgardt says. “It is significantly easier to send hundreds of boxes at once via train to supply capacity needs than it is for hundreds of drivers and trucks to move one container, truck and driver at a time.”
To support nearshoring, Schneider offers intermodal cross-border capabilities. Last year, Schneider expanded these services by becoming a strategic intermodal carrier on CPKC’s flagship north-south route, adding more options for customers and improving efficiency by increasing reliability, security and capacity.
“In the past, service reliability for cross-border transportation was questionable as there were many challenges to meeting consistent transit times,” says Baumgardt. “Since selecting CPKC as our primary cross-border intermodal partner last year, we have seen consistent, fast, secure and reliable service. Additionally, transit times to and through Kansas City and Chicago have been reduced by days and now compete with truck.”
Bypassing Disruptions
Nearshoring and intermodal work together as a compelling option to bypass the supply chain disruptions impacting today’s unpredictable trading environment. “The North American intermodal network provides coverage in all three countries – Mexico, Canada and the U.S. – so that a supply chain challenge in one area can be addressed by another,” Garofalo of IANA assures.
Baumgardt concurs, explaining that intermodal helps solve supply chain challenges by easing capacity issues, reducing disruptions through diversified routes, increasing efficiency with standardized schedules, and enhancing resilience to adapt to disruptions.
“Intermodal is vital to the North American supply chain as it combines the strengths of multiple transportation modes to create a more resilient and efficient logistics network,” Baumgardt concludes. “By integrating rail and truck services, intermodal reduces congestion on highways, lowers transportation costs, boosts efficiency and enhances the overall capacity of the supply chain. This approach also provides greater flexibility and reliability, which are essential for meeting the dynamic demands of today’s market. As supply chains become more complex, intermodal will continue to play a crucial role in ensuring the smooth flow of goods across the continent.”
