FTR’s Tranausky addresses current rail carload and intermodal market conditions at NEARS

The current state of rail carload and intermodal markets can be viewed as a “good news-bad news story” in a few different ways. That was the word from Todd Tranausky, Vice President of Rail and Intermodal, for Indianapolis-based freight transportation consultancy FTR.

Speaking at the Northeast Association of Railroad Shippers (NEARS) Fall Conference held in Portland, Maine last week, Tranausky set the table for current market conditions by explaining that the GDP for goods transport is currently trailing overall GDP.

“When you are looking for freight growth and where the volume is coming from, it gets harder to find that additional freight demand,” he said. “It is not looking good across all modes, for freight demand. Things will be down in 2023, with a little growth in 2024. For carloads, if you had said at the beginning of the year, there would be 2% growth, people would have taken that and said it was a good year.”

And he added that over all 2023 rail carload volumes have been ahead of 2022, with annual growth for all but of a handful of weeks, while remaining well-below the five- year average.

“We are not back to normal and not back to what anybody would call good or healthy,” he said. “But from a relative perspective, when you get to where we have been, carload volumes have done pretty well for themselves.”

A key driver for that, Tranausky said, is because of what he called economically-sensitive freight, which he defined as the commodities that are going to drive rail volume growth for this year, next year, and through the rest of this decade.

“This is the group that has to show growth if rails are going to grow, it is going to be through [various] of commodities, not including agriculture, coal, and petroleum,” he noted. It is more focused on things more closely tied to the underlying economy, including commodities like metals, lumber, automotive, and non-metallic minerals. These are things that respond more dynamically to changes in the economic environment, not things that are tied to kind of commodity price or traded on exchanges like grain or coal.”

This economically-sensitive rail carload freight is up 4% in 2023, which he called a robust number, especially when compared to all carloads and intermodal volumes, the backdrop of GDP, industrial production, and U.S. freight growth.

“This is a good number, and it says that rail carload is doing better than it appears and it feels for a lot of people in this space,” he said. “And coming out of the Labor Day holiday, carloads have been at their highest levels of the year. That says we are gaining momentum in this sector.

As for intermodal, Tranausky made it clear that current market conditions remain underwhelming, with the sector remaining under a lot of stress and competitive headwinds.

On a positive note, like rail carloads, he said intermodal volumes have seen a bit of a post-Labor Day bump, with the caveat that it is nowhere near what is normally expected, especially as it relates to Peak Season.

“It is not normal to see as muted of a bump as we have seen this year, when you think about blank sailings, lower import levels, lower overall economic activity, and consumer health,” he noted. “It is a muted, at best, Peak Season and well off of last year and the five-year average. There is not a lot of momentum in intermodal.”

What’s more, he pointed to various issues keeping intermodal down, such as import levels and where imports are coming into the U.S. as stakeholders shift away from Southern California and move to Savannah, Houston, or New York/New Jersey, which are not easy to solve.”

“As imports come into places like Savannah or New York/New Jersey, its advantage goes away,” he said. “You're no longer talking about a 2,000-mile length-of-haul. You're talking about a 600- mile length-of-haul. Suddenly, trucks become very competitive and have robust truck competition. Active truck utilization is well below historical normal [levels]. It's probably at the bottom, and it's probably going to start to tighten back up, but it's certainly going to take its time to do that. There are a lot of smaller operators, with one or two trucks, that have a lot of savings built up because of how high rates were over the last couple of years. It's going to take time to work that down and flush those folks from the market. Active truck utilization continues to be below historical normal.”

That is creating a situation in which he explained that the trucking carriers are not “waiting around,” as they have the capacity and the trucks and want to move the freight, coupled with the fact that it will take some time for the market to tighten up.

Looking ahead, Tranausky said it will likely be about a year until the trucking market fully gets back to a level playing field with intermodal and give intermodal a level playing field to compete.

“It has been a long, few years, from the end of 2021 to now, and it will be about another year before you see things really get better and improve going forward,” he said. “Based on our outlook, it really takes until about Peak Season 2024 to see any real upward movement. Even at the peak of 2024 volumes, we're still not back to where we were in 2022 or 2021. It's an improvement over where we had been in the recent past. It is not a historically a great number.”