Carload volumes are stronger than they were last year but remain well below 2015's numbers. Intermodal shipments, meanwhile, are up considerably over last year.
After an extremely difficult 2016, things have improved significantly thus far in 2017 for the nation's railroads. But the popular perception of the strength of the current carload recovery may be overstated, and caution is indicated. Now the question is, where to from here? And what are the implications of the new Trump administration and its policies? Will they help Make Carload Great Again?
Carload: Steady but stagnant
The rail headlines certainly look favorable. According to Association of American Railroads (AAR) data, North American carloads excluding intermodal units were up a very solid 7.6 percent in the first half of 2017 versus the same period in the prior year. But that doesn't necessarily indicate that we're seeing current growth.
Article Figures
[Figure 1] North American carloads (excluding intermodal)Enlarge this image
Figure 1 displays the four-week rolling average North American carloads for all commodities over the past two years. The chart shows clearly the savage drop in carload activity that occurred during the early part of 2016 as well as the relative strength displayed during the first half of this year. The year-over-year comparison shows strong growth. But in fact, the recovery occurred quite some time ago—during the second and third quarters of 2016. Since the beginning of this year (and discounting the normal holiday-season lull), volume has been unusually flat, although there was a small uptick toward the very end of the second quarter. Rather than showing a recovery currently underway, the data indicate that carload activity has been largely stagnant over the past three calendar quarters. A comparison of Q2 carloads to Q1 shows that volume grew only 0.1 percent, or 9,000 units. The bright spots were increased movements of nonmetallic minerals, principally hydraulic fracturing (fracking) sand; metallic ores and metals; and chemicals. These were offset by quarter-on-quarter declines in shipments of coal and agricultural products.
In the near term, we see little catalyst for improvement. Despite its recent losses, coal still remains the single most important commodity in terms of carloads, accounting for one in four originations in the second quarter. The Trump administration has made rejuvenating the coal industry a top priority and has rolled back some federal regulations affecting that industry. Our view is that such actions will have only a very limited effect, because the problem with coal is primarily economic, not regulatory. Well-priced natural gas is displacing coal as the primary fuel for electric-power generation. With the Trump administration also rolling back regulations on fossil fuels in general and fracking in particular, we don't see the fundamental problem for coal changing much. The decline in coal shipments may slow for a while, but any rebound will be short-lived, in our view.
One positive for rail is the elevated demand for the movement of frack sand. More wells are being drilled and more frack sand is being used per well, causing shipments to rise. This dynamic should continue, although a threat is posed by drillers who continue to experiment with the use of cheaper, locally sourced "brown sand" as a lower-cost replacement for the prized, sharp-edged "white sand" that currently is often moved long distances by rail to reach the wellheads.
Another potential plus is the downstream petrochemical activity that is being spurred by the continuing availability of cheap natural gas feedstock. Substantial plastics capacity is beginning to come on stream, mostly on the U.S. Gulf Coast. This presents some opportunities for increased carload volume, but the bulk of this activity will take the form of containerized exports. To the extent that these exports flow out of Gulf Coast ports like Houston, the rail carload benefits will be limited.
Intermodal: Volume on the upswing
Last year was also a tough one for intermodal, with total North American volume declining 2.1 percent versus the prior year, according to data from the Intermodal Association of North America (IANA)—the first such decline since the Great Recession. But the current intermodal picture is brighter.
While reported as one commodity by the railroads, intermodal is actually composed of two segments of roughly equal size: international and domestic. International intermodal, which consists of the movement of ISO international containers that are largely involved in the movement of import and export commodities, declined 3.3 percent in 2016. Domestic intermodal, which moves in 53-foot domestic containers and trailers, also lost ground, but to a lesser degree, registering a small volume decline of 0.7 percent for the year.
The international and domestic intermodal sectors are subject to distinct market influences and don't always move in parallel. While both sectors were weak in 2016, it was for largely different reasons. Normally, international intermodal volume moves in concert with U.S. containerized trade activity, with imports dominating. But in 2016 a disconnect occurred. International intermodal fell even though North American (U.S. plus Western Canada) import 20-foot equivalent units (TEUs) rose by 2.5 percent for the year. The reasons for this change are not completely clear, but in our opinion include alterations in port routing, more intense truck competition, and increased use of transloading at or near seaports.
The small decline in domestic intermodal was actually the product of two opposing forces. Domestic container activity moved up 4.1 percent in 2016, while trailer activity plunged 22.1 percent. Much of the trailer decline was due to a one-time event, specifically the decision by Norfolk Southern to terminate most routes operated by its Triple Crown RoadRailer trailer intermodal subsidiary, dropping their reported trailer volumes dramatically. But more generally, domestic intermodal suffered from more intense truck competition as ample trucking capacity led to lower highway rates and created competitive headwinds, particularly on shorter-haul intermodal lanes. Lower diesel prices also made motor carriers more competitive with intermodal.
So far, the intermodal picture looks far better in 2017. Through mid-year, total intermodal volume tracked by AAR was up 3.8 percent, and growth looks to be accelerating. Activity in the second quarter of 2017 was 5.4 percent higher than in the prior year. The IANA data (through June) permits parsing the intermodal market by sector. Most of the strength thus far this year has come on the international side of the house (+4.3 percent year-to-date and +5.6 percent for Q2). The disconnect between intermodal and containerized imports appears to have abated. Inbound container shipments have also been relatively strong, as the consumer appears to be in a buying mood. Inbound U.S. TEUs were up 6.4 percent year-on-year in the first half of this year.
After a very slow start, domestic intermodal activity has also resumed growing. Overall domestic activity was up 2.2 percent year-to-date through June. Domestic container moves were 2.3 percent higher than last year, a bit slower growth than was seen in 2016. But trailer activity was much less of a drag, easing just 1.0 percent year-to-date. Q2 volume showed year-on-year growth of 3.2 percent for domestic containers and (unusually) trailers rose even faster at +3.9 percent, resulting in overall domestic volume growth of 3.3% for the second quarter.
FTR Transportation Intelligence is forecasting a continuing acceleration for domestic intermodal over the balance of 2017. While we don't expect an increase in the pace of growth in the economy, we are projecting that truck capacity will tighten as the implementation date for the electronic logging device mandate in December approaches. How tight things will get and how fast the process will unfold are difficult questions to answer. We believe that capacity will get quite tight but not critically so, with the biggest effects to be felt in 2018. But intermodal should stand to benefit as we roll into the 2017 peak season, as shippers will use the intermodal option to ensure access to well-priced capacity.
The growth dilemma
In the long run, challenges await both rail carload and intermodal. While fully autonomous trucks able to drive themselves all the way from origin to destination are still perhaps decades away, it would be a mistake for the rails to be complacent. Semi-autonomous trucks will bring cost reductions to trucking in the coming years, perhaps in the form of multivehicle platoons with only the lead truck fully manned. The competitive landscape will therefore get more difficult for rail.
In the end, there are only three ways for rail volume to grow. The first is basic growth in the industrial economy. The second is when a new rail-compatible, unit-train-oriented commodity springs forth. A few years ago it was crude-by-rail; today it is frack sand. Neither of these growth factors are within the control of the railroad industry. The only way to ensure that industry activity grows faster than industrial gross domestic product (GDP) is to gain market share—in other words, to take volume off the highway. Intermodal is one tool to accomplish this goal but can't do it alone, because each intermodal unit packs only about one-third the revenue punch of a typical carload. The industry's health in the long run will rest on its ability to address the fundamental dilemma of how to grow the carload franchise.
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.”