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.
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[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.
ReposiTrak, a global food traceability network operator, will partner with Upshop, a provider of store operations technology for food retailers, to create an end-to-end grocery traceability solution that reaches from the supply chain to the retail store, the firms said today.
The partnership creates a data connection between suppliers and the retail store. It works by integrating Salt Lake City-based ReposiTrak’s network of thousands of suppliers and their traceability shipment data with Austin, Texas-based Upshop’s network of more than 450 retailers and their retail stores.
That accomplishment is important because it will allow food sector trading partners to meet the U.S. FDA’s Food Safety Modernization Act Section 204d (FSMA 204) requirements that they must create and store complete traceability records for certain foods.
And according to ReposiTrak and Upshop, the traceability solution may also unlock potential business benefits. It could do that by creating margin and growth opportunities in stores by connecting supply chain data with store data, thus allowing users to optimize inventory, labor, and customer experience management automation.
"Traceability requires data from the supply chain and – importantly – confirmation at the retail store that the proper and accurate lot code data from each shipment has been captured when the product is received. The missing piece for us has been the supply chain data. ReposiTrak is the leader in capturing and managing supply chain data, starting at the suppliers. Together, we can deliver a single, comprehensive traceability solution," Mark Hawthorne, chief innovation and strategy officer at Upshop, said in a release.
"Once the data is flowing the benefits are compounding. Traceability data can be used to improve food safety, reduce invoice discrepancies, and identify ways to reduce waste and improve efficiencies throughout the store,” Hawthorne said.
Under FSMA 204, retailers are required by law to track Key Data Elements (KDEs) to the store-level for every shipment containing high-risk food items from the Food Traceability List (FTL). ReposiTrak and Upshop say that major industry retailers have made public commitments to traceability, announcing programs that require more traceability data for all food product on a faster timeline. The efforts of those retailers have activated the industry, motivating others to institute traceability programs now, ahead of the FDA’s enforcement deadline of January 20, 2026.
Inclusive procurement practices can fuel economic growth and create jobs worldwide through increased partnerships with small and diverse suppliers, according to a study from the Illinois firm Supplier.io.
The firm’s “2024 Supplier Diversity Economic Impact Report” found that $168 billion spent directly with those suppliers generated a total economic impact of $303 billion. That analysis can help supplier diversity managers and chief procurement officers implement programs that grow diversity spend, improve supply chain competitiveness, and increase brand value, the firm said.
The companies featured in Supplier.io’s report collectively supported more than 710,000 direct jobs and contributed $60 billion in direct wages through their investments in small and diverse suppliers. According to the analysis, those purchases created a ripple effect, supporting over 1.4 million jobs and driving $105 billion in total income when factoring in direct, indirect, and induced economic impacts.
“At Supplier.io, we believe that empowering businesses with advanced supplier intelligence not only enhances their operational resilience but also significantly mitigates risks,” Aylin Basom, CEO of Supplier.io, said in a release. “Our platform provides critical insights that drive efficiency and innovation, enabling companies to find and invest in small and diverse suppliers. This approach helps build stronger, more reliable supply chains.”
Logistics industry growth slowed in December due to a seasonal wind-down of inventory and following one of the busiest holiday shopping seasons on record, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The monthly LMI was 57.3 in December, down more than a percentage point from November’s reading of 58.4. Despite the slowdown, economic activity across the industry continued to expand, as an LMI reading above 50 indicates growth and a reading below 50 indicates contraction.
The LMI researchers said the monthly conditions were largely due to seasonal drawdowns in inventory levels—and the associated costs of holding them—at the retail level. The LMI’s Inventory Levels index registered 50, falling from 56.1 in November. That reduction also affected warehousing capacity, which slowed but remained in expansion mode: The LMI’s warehousing capacity index fell 7 points to a reading of 61.6.
December’s results reflect a continued trend toward more typical industry growth patterns following recent years of volatility—and they point to a successful peak holiday season as well.
“Retailers were clearly correct in their bet to stock [up] on goods ahead of the holiday season,” the LMI researchers wrote in their monthly report. “Holiday sales from November until Christmas Eve were up 3.8% year-over-year according to Mastercard. This was largely driven by a 6.7% increase in e-commerce sales, although in-person spending was up 2.9% as well.”
And those results came during a compressed peak shopping cycle.
“The increase in spending came despite the shorter holiday season due to the late Thanksgiving,” the researchers also wrote, citing National Retail Federation (NRF) estimates that U.S. shoppers spent just short of a trillion dollars in November and December, making it the busiest holiday season of all time.
The LMI is 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).
As U.S. small and medium-sized enterprises (SMEs) face an uncertain business landscape in 2025, a substantial majority (67%) expect positive growth in the new year compared to 2024, according to a survey from DHL.
However, the survey also showed that businesses could face a rocky road to reach that goal, as they navigate a complex environment of regulatory/policy shifts and global market volatility. Both those issues were cited as top challenges by 36% of respondents, followed by staffing/talent retention (11%) and digital threats and cyber attacks (2%).
Against that backdrop, SMEs said that the biggest opportunity for growth in 2025 lies in expanding into new markets (40%), followed by economic improvements (31%) and implementing new technologies (14%).
As the U.S. prepares for a broad shift in political leadership in Washington after a contentious election, the SMEs in DHL’s survey were likely split evenly on their opinion about the impact of regulatory and policy changes. A plurality of 40% were on the fence (uncertain, still evaluating), followed by 24% who believe regulatory changes could negatively impact growth, 20% who see these changes as having a positive impact, and 16% predicting no impact on growth at all.
That uncertainty also triggered a split when respondents were asked how they planned to adjust their strategy in 2025 in response to changes in the policy or regulatory landscape. The largest portion (38%) of SMEs said they remained uncertain or still evaluating, followed by 30% who will make minor adjustments, 19% will maintain their current approach, and 13% who were willing to significantly adjust their approach.
Specifically, the two sides remain at odds over provisions related to the deployment of semi-automated technologies like rail-mounted gantry cranes, according to an analysis by the Kansas-based 3PL Noatum Logistics. The ILA has strongly opposed further automation, arguing it threatens dockworker protections, while the USMX contends that automation enhances productivity and can create long-term opportunities for labor.
In fact, U.S. importers are already taking action to prevent the impact of such a strike, “pulling forward” their container shipments by rushing imports to earlier dates on the calendar, according to analysis by supply chain visibility provider Project44. That strategy can help companies to build enough safety stock to dampen the damage of events like the strike and like the steep tariffs being threatened by the incoming Trump administration.
Likewise, some ocean carriers have already instituted January surcharges in pre-emption of possible labor action, which could support inbound ocean rates if a strike occurs, according to freight market analysts with TD Cowen. In the meantime, the outcome of the new negotiations are seen with “significant uncertainty,” due to the contentious history of the discussion and to the timing of the talks that overlap with a transition between two White House regimes, analysts said.