Although intermodal continues to grow, railcar traffic is slumping. Secular and cyclical trends suggest the outlook for the two segments is unlikely to change much in the near term.
After a strong performance in 2014, the U.S. rail industry's picture has changed considerably during the first half of 2015. Intermodal has continued on its upward (albeit somewhat bumpy) trajectory. Meanwhile, the carload rail segment has diverged from that path, and volumes are substantially down. The outlook for both segments is fairly complex, involving both secular (longer-term) changes, such as declines in shipments of coal and crude oil by rail, and cyclical changes as the economic recovery continues to sputter.
Carloads down for many commodities
For carload rail, the growth trend that had been well established in 2014 continued during the first quarter of 2015, with overall volume up 1.1 percent year-on-year and 14 of 20 major commodities notching gains in shipment volumes. That's no longer the case, however. At this writing, with one week left in the second quarter, overall volume is down a striking 7.0 percent year-on-year, and 17 of 20 major commodities have posted losses. Figure 1 provides a breakout of the Q2-to-date performance, showing the year-on-year percentage change for each major commodity in yellow, and the same information in terms of the year-on-year number of cars gained (or lost) in blue.
Article Figures
[Figure 1] Year-on-year change in carloads by commodityEnlarge this image
Secular changes in the marketplace account for much of the volume decline. Coal looms largest. Shipment volume has been plunging as both the economics of cheap natural gas as well as environmental issues associated with the burning of coal have led utilities to switch from coal to natural gas. Of the 335,000 fewer carloads handled thus far in Q2 versus last year, the shortfall in coal shipments accounted for 226,000. The troika of 2014 growth stars—grain, crushed stone/sand/gravel, and petroleum products—all have seen declines in Q2. Demand for grain movements this year is not sufficient to clear out last year's bumper crop, and exports have been hurt by the strong U.S. dollar. Crushed stone/sand/gravel shipments have been hampered by reduced drilling activity due to lower oil prices, trimming the need for carloads of sand used in hydraulic fracturing. At the same time, shipments of petroleum products have also been dropping as production from existing wells tapers and fewer new wells are being drilled.
If we exclude coal, grain, petroleum, and crushed stone/sand/gravel, we can look at the balance of rail commodities to get an idea of trends in the industrial side of the U.S. economy. The news is still not very good. During the first quarter of 2015, volume in the remaining 16 major commodities was up 1.8 percent versus the prior year, but so far in the second quarter volume is down by 3.0 percent.
In 2008, North American railroads handled 20.9 million carloads. The next year, volume tumbled to 17.6 million carloads. Five years later, the industry still has not recovered that lost volume, and total carloads in 2014 were still 1.5 percent behind those seen in 2008. It's possible that the former level won't be achieved at all during this economic cycle.
What's going on? In 2014 the rails handled about 322,000 fewer carloads than in 2008, but the composition of those loads changed dramatically during that time frame. Coal volume plunged by almost 1.6 million cars per year. Pulp and paper (down 112,000 cars) was the next biggest loser—another secular story, as digital media continue to replace printed materials. Grain movements were down by 90,000 carloads, and various other commodities added about 237,000 carloads to the deficit, creating a 2.02-million-carload "hole" that had to be filled.
The railroads were able to eliminate most of that deficit for several reasons. For one thing, even as the shift in energy production to hydraulic fracturing and other new methods of extracting oil and gas hurt the rails by reducing coal shipments, it also helped them by increasing movements of petroleum products (+655,000 cars) and boosting demand for crushed stone, sand, and gravel used in energy production (+299,000 cars). For another, cheap energy and economic growth have boosted chemical shipments (+171,000 cars), and the domestic auto business has more than recovered (+217,000 cars). These four commodities made up for two-thirds of the deficit.
These figures tell us that the current "rail renaissance" can be attributed in large part to lower operating costs and stronger pricing rather than to growth. But the changing traffic mix presents some challenges. The 20 percent plunge in coal activity has left the railroads with surplus track in the coal regions. At the same time, unit trains of crude oil, traveling entirely different east-west routes that were often congested, created a need for more capacity at various chokepoints, such as Chicago. Adding permanent capacity—by laying additional track, for example—is expensive and costly to maintain. The railroads are therefore approaching this type of investment with caution.
Intermodal upswing continues
Intermodal has been the railroads' most successful business segment in terms of growth. During the recovery, intermodal shipment growth has exceeded that of both carload and truck. In 2008, according to the Intermodal Association of North America (IANA), the railroads handled 13.6 million containers and trailers. Volume plunged 15 percent the next year but by 2014 had more than fully recovered, reaching 16.3 million, or almost 14 percent above figures for 2008.
Intermodal's story is really a tale of two markets, international and domestic. Each accounts for roughly half of all intermodal activity. International, the carriage of International Standards Organization (ISO) boxes containing import and export cargo, actually peaked in 2006 and has yet to fully regain those heights. Changes in port routing patterns, including less reliance on West Coast ports, has reduced intermodal use. Domestic intermodal, the movement of trailers and 53-foot domestic containers, has been the growth star. While international shipments have grown only 5 percent since 2008, domestic shipments have shot up by 37 percent. FTR estimates that in Q1/2015, intermodal handled a bit less than 18 percent of all U.S. dry-van-type movements of 550 miles or greater, and that intermodal's share of this long-haul truck market has been growing long-term at about 0.1 percent per calendar quarter. This conversion from highway has boosted intermodal growth by between 3 and 4 percent per year.
So far this year the intermodal situation has been turbulent. International loadings were badly affected first by the West Coast port congestion, and then by a big surge of volume when the backlog of containers trapped in ports and intermodal yards broke loose. But the underlying growth in the international segment, powered by consumer spending and a strong dollar, looks relatively robust. Domestic intermodal growth, meanwhile, has been easing for several reasons. One is that truck capacity is relatively abundant—for now. Although capacity is tight by historical standards, we are in a short period when it is more available than it has been; capacity is expected to tighten significantly next year, though. Another is that intermodal service speed and reliability declined markedly in 2014, and that situation has only been partially corrected to date. And finally, lower fuel prices are reducing intermodal's cost advantage over truck.
What is the outlook for the balance of the year? FTR's current forecast calls for a reduction of 3.9 percent in the number of rail carloads moved in 2015 versus 2014, with only a portion of that drop being made up in 2016. Meanwhile, intermodal will continue to grow at about 4.5 percent in 2015, with a slight deceleration going into 2016.
The combination of sagging volume and the shift in traffic mix from higher-margin carload traffic to lower-margin intermodal will put pressure on the railroads' operating ratios. Expect price hikes to continue at a brisk pace in the coming months as the carriers attempt to maintain their profitability.
The venture-backed fleet telematics technology provider Platform Science will acquire a suite of “global transportation telematics business units” from supply chain technology provider Trimble Inc., the firms said Sunday.
Trimble's other core transportation business units — Enterprise, Maps, Vusion and Transporeon — are not included in the proposed transaction and will remain part of Trimble's Transportation & Logistics segment, with a continued focus on priority growth areas following completion of the proposed transaction.
Terms of the deal were not disclosed but as part of this agreement, Colorado-based Trimble will become a shareholder in Platform Science's expanded business. Specifically, Trimble will have a 32.5% stake in the newly expanded global Platform Science business and will receive a Platform Science board seat. The company joins C.R. England, Cummins, Daimler Truck, PACCAR, Prologis, RyderVentures, and Schneider as a key strategic investor in Platform Science along with financial investors 8VC, Activant Capital, BDT & MSD Partners, Softbank, and NewRoad Capital Partners.
According to San Diego-based Platform Science, the proposed transaction aims to enhance driver experience, fleet safety, efficiency, and compliance by combining two cutting-edge in-cab commercial vehicle ecosystems, which will give customers access to more applications and offerings.
From Trimble customers’ point of view, they will continue to enjoy the benefits of their Trimble solutions, with the added flexibility of the Virtual Vehicle platform from Platform Science. That means Virtual Vehicle-enabled fleets will receive access to the Virtual Vehicle Marketplace, offering hundreds of new and expanded applications, software, and solution providers focused on innovating and improving drivers' quality of life and fleet performance.
Meanwhile, Platform Science customers will enjoy the added choice of Trimble's remaining portfolio of transportation solutions which will be available on the Virtual Vehicle platform, the partners said.
"We believe combining our global transportation telematics portfolio with Platform Science's will further advance fleet mobility and provide our customers with a broader portfolio of solutions to solve industry problems," Rob Painter, president and CEO of Trimble, said in a release. "Increased collaboration between the new Platform Science business and Trimble's remaining transportation businesses will enhance our ability to provide positive outcomes for our global customers of commercial mapping, transportation management, freight procurement, and visibility solutions. This deal will result in significant synergies along with tremendous opportunities for employees to continue to grow in a more-competitive business."
The acquisition comes just five months after Platform Science raised $125 million in growth capital from some of the biggest names in freight trucking, saying the money would help accelerate innovation in the commercial transportation sector.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
Economic activity in the logistics industry expanded in August, though growth slowed slightly from July, according to the most recent Logistics Manager’s Index report (LMI), released this week.
The August LMI registered 56.4, down from July’s reading of 56.6 but consistent with readings over the past four months. The August reading represents nine straight months of growth across the logistics industry.
The LMI is a monthly gauge of economic activity across warehousing, transportation, and logistics markets. An LMI above 50 indicates expansion, and a reading below 50 indicates contraction.
Inventory levels saw a marked change in August, increasing more than six points compared to July and breaking a three-month streak of contraction. The LMI researchers said this suggests that after running inventories down, companies are now building them back up in anticipation of fourth-quarter demand. It also represents a return to more typical growth patterns following the accelerated demand for logistics services during the Covid-19 pandemic and the lows of the recent freight recession.
“This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID,” the researchers wrote in the monthly LMI report, published Tuesday, adding that the buildup is somewhat tempered by increases in warehousing capacity and transportation capacity.
The LMI report is based on a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
That hiring surge marks a significant jump in relation to the company’s nearly 17,000 current employees across North America, adding 21% more workers.
That increase is necessary because U.S. holiday sales in 2023 increased 3.9% year-over-year as consumer spending grew even amidst uncertain economic times and trends like inflation and consumer price sensitivity. Looking at the coming peak, a similar pattern is projected for this year, with shoppers forecasted to drive a 4.8% increase in holiday retail sales for 2024, Geodis said, citing data from Emarketer.
To attract the extra workforce, Geodis says it will offer competitive wages, peak premium pay incentives, peak and referral bonuses, an expedited payment option, and flexible schedules. And it’s using an AI-powered chatbot named Sophie to serve as a virtual recruiting assistant.
“We acknowledge the immense responsibility we have to our customers to deliver exceptional service every day, and this is especially true during peak season,” Anthony Jordan, GEODIS in Americas Executive Vice President and Chief Operating Officer, said in a release. “Because peak season is the most business-critical sales period of the year for many of our retail clients, expanding our workforce is vital to ensure we have a flexible, dynamic team that can handle anticipated surges in demand.”