Early holiday shipping accounts for strength and will flatten out, says industry expertBy Peter A. Buxbaum, AJOT
Reports on increases in intermodal traffic have been proliferating lately. The Intermodal Association of North America (IANA) recently released statistics showing that intermodal volumes increased by 17.2 percent in the second quarter of 2010 as compared to the same period last year. Domestic containers rose by 16.4 percent during the quarter, international container volume increased by 20.9 percent, and trailers recorded a 5 percent gain.
Meanwhile, the Association of American Railroads (AAR) reported that rail intermodal volume broke multiple records over the course of recent months. Its most recent report, for the week ending August 21, 2010, showed a new 2010 record for the second consecutive week, with 236,404 total trailers and containers, up 22.4 percent from the same week in 2009, and up 2.6 percent compared with 2008. Weekly container volume was the highest on record, according to the AAR, also for the second consecutive week.
On the face of it, these figures show the signs of a healthy recovery from the depths of the global recession which strangled international trade in 2009. But Thomas Finkbiner, chairman of the Board of Directors of the Intermodal Transportation Institute at the University of Denver, has a different take on the numbers.
He says that a combination of factors caused manufacturers and carriers alike to ship and carry holiday merchandise earlier than normal this year. The result of these early shipments will likely be a flat, if not a depressed, peak holiday shipping season, which usually lasts from late August to early November. These phenomena, according to Finkbiner, reflect conditions which have become endemic to the intermodal industry, such as a chronic container shortage and the long-term effects of the slow sailing strategies implemented by carriers a few years ago. It will take some time before the intermodal industry and the liner carriers can work out these problems, he said.
Finkbiner starts his analysis by indicating that most of the growth in intermodal volumes comes from international rather than domestic shipments. “That is why the intermodal numbers aren’t as significant as they might appear,” he said. “They represent a disproportionate share of international container shipments. These are shipments the big box retailers shipped in advance of the holiday season because of worries about capacity constraints.”
The peak holiday shipping season normally stretches from late August to early November, Finkbiner noted. “These orders that must be made several months in advance,” he explained. “If the goods aren’t in the pipeline, they’re not going to reach the store shelves in time for the Christmas shopping season. The intermodal numbers we are seeing indicate that people ordered early and ordered enough to make sure had inventory to meet demand. Those are the numbers you saw in numbers in July and August.”
On the other hand, it is less likely now that intermodal volumes will spike in September and October, if Finkbiner is right. “There is not a final demand that would sustain that kind of volume,” he said.
The capacity squeeze that is worrying shippers and carriers alike is a worldwide container shortage. The industry is suffering from a double whammy which combined to exacerbate this capacity shortfall.
The first is that carriers took boxes out of service after international trade volumes plummeted in 2007 and 2008. The second is that carriers implemented slow steaming strategies to cope with the lean times during the depths of the recession, and that reduced the number yearly ship turns and increased the utilization of available containers.
“The containers the carriers put in storage tended to be older boxes and those which were in need of repair,” said Finkbiner. “You’re not going to keep a box in service that needs fifteen-hundred dollars in refurbishment. You’d rather put that expense off until