West-to-east shift of cargo share has little impact on intermodal

Lawrence J. Gross, president, Gross Transportation Consulting | Jul 23, 2016 9:00AM EDT

Lawrence J. Gross

Each calendar quarter, I calculate intermodal market share as part of my work on my monthly Intermodal Update newsletter. I normally track the percentage of long-haul movements of dry van-type cargo being handled by intermodal versus truck. But given the share shifts we’ve seen between the U.S. West Coast and other port regions, I’ve been wondering what effect this is having on intermodal’s participation in the movement of international cargo. 

The suspicion was that volume coming into the East Coast would be shorter-haul and therefore less intermodal-friendly and more inclined to move via truck versus intermodal.

I decided to see if there were any clear trends in the available data. First, I used data from PIERS, a sister product of The Journal of Commerce within IHS, to identify the number of import and export containers transiting U.S. ports. I then added monthly data measured in 20-foot-equivalent units for the western Canadian ports of Prince Rupert and Vancouver.

I then looked at data from the Intermodal Association of North America’s ETSO report, which identifies revenue movements by equipment type handled by the railroads. Specifically, I pulled inbound and outbound revenue movements of ISO 20-, 40- and 45-foot containers involving the IANA regions that include the ports (Northeast, Southeast, South Central, Southwest, Northwest and western Canada). To this, I added an estimate for the considerable transload volume coming out of California in domestic intermodal equipment. I then adjusted all the IANA data to TEUs and laid this up against the import-export TEUs to see if there was any trend in the percentage of international-related intermodal TEUs moving via rail versus the number of TEUs entering and exiting by ship.

What I found surprised me and is presented in Exhibit 1. In the first quarter of 2009, international-related TEUs handled on the rail into and out of the port-related regions were about 65.5 percent of the total import and export TEUs handled through those regions’ ports. The percentage then plunged as the Great Recession took hold, before recovering partially. There was then a period of stability through the end of 2013, but the percentage has been rising since — the exact opposite of what I expected.

Taking a closer look, I tried to separate the directional flows. First, I looked at import TEUs arriving at our shores and the international-related TEUs originating in the regions adjacent to the ports, including California-originated transloads. The results, presented in Exhibit 2, showed a more expected — and sobering — picture.

As before, the intermodal percentage plunged during the Great Recession, but then fully recovered. This situation lasted until early 2014. when the intermodal percentage began to decline rapidly, losing a full 2 percentage points by this year’s first quarter.

Thus, the changes in import routings seem to be having the expected negative effect on intermodal. But how big a deal is this? Each percentage point lost represents about 55,000 TEUs per calendar quarter, translating to about 11,000 lost intermodal revenue moves per month, or a reduction in total North American intermodal volume of a bit less than 1 percent. So, although it’s not helpful to the rails, it’s not a game-changer by any means.

I then looked at the reverse — that is, the revenue movements of ISO containers, measured in TEUs, into the port-adjacent regions versus the number of export TEUs. The percentage has been rising steadily since late 2013 and was up by more than 12 percent through this year’s first quarter.

There are a number of possible explanations. One is that, in fact, the railroads are handling a higher percentage of export movements. A second is that more ISO containers are being repositioned under load into the port regions with domestic freight. A third possibility: Just because a container represents a revenue move for the railroad, it doesn’t necessarily mean there is freight inside the box. It just means the railroad is getting paid to move the container. So the increase simply could represent a greater determination on the part of the railroads to get paid for the containers they move, loaded or empty.

Lastly, just because an ISO container terminates in a port region doesn’t necessarily mean it’s handling export cargo. For instance, a 40-foot container might terminate in the Southeast after carrying import cargo from California. We just can’t tell from the numbers, and the situation is a bit murky.

What we can conclude is that the railroads have effectively dealt with the changes roiling our international trade patterns. The move from west to east has had a small depressing effect on intermodal volume, but this has been more than offset by improvement elsewhere in the system, at least from the perspective of intermodal revenue movements.