Intermodal Traffic Rises 1.5% in 4th Quarter Despite Labor Issues, Superstorm Sandy

This story appears in the Jan. 28 print edition of Transport Topics.

Intermodal freight growth sagged in the fourth quarter due to disruptions from Superstorm Sandy and labor unrest at ports, industry officials said.

Fourth-quarter U.S. truck/rail volume rose just 1.5% to 3.05 million shipments from a year earlier, based on Association of American Railroads data, after gaining 4.5% in the third quarter and 4% in the second quarter.

At the Ports of Los Angeles and Long Beach, Calif., an eight-day clerks’ strike stacked up freight. And in the East and Gulf Coast regions, a contract extension until February averted a potential strike that could have disrupted freight movements significantly.

“A new record almost certainly would have been set in 2012, if not for the strike by harbor clerks at the Ports of Los Angeles and Long Beach beginning in late November and/or Hurricane Sandy, which severely disrupted rail and port operations on the East Coast beginning in late October,” AAR said in a freight report issued earlier this month.

Until the fourth quarter, rail intermodal was on course to set a record and followed a traditional pattern, including a peak in late September. The U.S. rails’ totaled 12.27 million intermodal loads for all of 2012, missing the record by 0.1%, or 14,685 shipments, AAR said.

“We were impacted by Hurricane Sandy,” CSX Chief Commercial Officer Clarence Gooden said on a conference call, noting that the Port of New York and New Jersey was closed for almost two weeks. “Our growth would have been about 2% higher in the quarter than it actually was.”

A 2% improvement would have boosted CSX’s quarterly intermodal volume by about 12,000 shipments.

Despite the effects of Sandy, CSX managed to boost intermodal volume 4% in the quarter, a performance that was matched by Norfolk Southern Corp., the other New York-area railroad.

Norfolk Southern didn’t comment on Sandy during last week’s earnings presentation, but spokesman Robin Chapman told TT the railroad did handle some freight diverted from New York because of the storm.

Norfolk Southern Executive Vice President Donald Seale said inventory restocking helped to buoy international shipments in the fourth quarter, helping the railroad to set a quarterly record for intermodal revenue of $584 million.

Freight patterns were disrupted to the point that, in the week ended Dec. 15, Norfolk Southern produced its highest truck/rail volume in a year.

“We never see a 52-week high in December,” said Seale, who called that event “highly unusual.”

Western intermodal traffic was weaker. Largest intermodal carrier BNSF Railway’s truck/rail volume fell 0.7%, and Union Pacific’s rose 2%.

“The eight-day clerical workers’ strike at the Port of Los Angeles/Long Beach in late November and early December likely resulted in catch-up volume throughout December,” said Avondale Partners analyst Donald Broughton, “Many shippers looked to bring in as much inventory as possible and push outbound shipments ahead of a potential ILA strike.

“Although the strike has been averted for now with an extension signed through Feb. 6, we believe this could continue to distort what is already a somewhat artificially tight marketplace in the Northeast during January,” he said.

Larry Gross, who heads Gross Transportation Consulting and is a former industry supplier executive, said several factors were at work in December.

Sandy triggered diversions of international cargo to ports other than New York/New Jersey, which bore the brunt of the storm, Gross said. While international cargo was hampered by the port closure, Gross said that “domestic terminals were up and running in a matter of days.”

Gross said he expects a struggle for the railroads to match their full-year intermodal volume growth, which was 3.2% for the year.

He said domestic intermodal growth slowed gradually in 2012, particularly in shorter-haul markets.

One of the reasons, he said, was that fuel prices have been relatively stable, a fact that gives shippers less incentive to use rail as a hedge against diesel cost fluctuations.

Gross isn’t forecasting intermodal growth to resume before the second half of this year because of the sluggish economy.

The effects of added federal regulations on the trucking industry also could stymie trucking Gooden gauged 2013 domestic intermodal growth at 5% to 6%, resting that hope on more conversions of all-truck shipments to intermodal.

“We expect to see continued opportunities for highway conversions,” Seale said.

Independent rail analyst Anthony Hatch told TT he expects that 2013 will bring modest improvement in international intermodal volumes, and domestic routes where new origin/destination pairs are being created.

“The railroads can’t just say our system is working well, so come onboard,” Hatch said. “Their volume will only grow if they can execute.”

The need to be on time and offer services attractive to truckers is particularly important in the East, he said, because shorter lengths of haul require higher service levels.