Class I rail executives are hoping anticipated higher North American intermodal volumes will be a moneymaker for their companies in 2021.
The COVID-19 pandemic is continuing to spur high e-commerce levels, with consumer spending expected to remain elevated, executives said over the last two weeks in fourth-quarter earnings calls to investors and analysts. Meanwhile, executives also hope to convert some truck volumes to rail amid the tight truck market.
“Projected strength in consumer spending, low inventory levels, record tightness in the trucking industry and our best-in-class channel partners will continue to spur growth in our robust intermodal franchise,” said Norfolk Southern (NYSE: NSC) Chief Marketing Officer Alan Shaw during his company’s fourth-quarter earnings call Wednesday.
“Goods spending is forecasted to rise 7% in 2021 due to continued pandemic-induced spending patterns and high levels of personal savings triggering increased demand for our intermodal product,” Shaw said.
To encourage more profit from its intermodal segment, Norfolk Southern (NS) is planning to undertake productivity measures on its intermodal trains, including increasing train weights, lengthening trains and improving its ability to double-stack containers on trains.
“We are very focused on our productivity initiatives within intermodal to drive additional business into the existing train structure. … Our train weight increase is about 900 basis points above our train length increase. And so … what we’re doing is we’re just adding that additional business into the existing trains and improving our ability to double-stack,” Shaw said.
NS also plans to limit its exposure to the intermodal spot market, where prices are higher amid tight truck capacity.
“We’ve got long-term deals with our channel partners and we frankly take a long-term approach to the markets. We do not want to interject the volatility associated with the spot market into our intermodal rate base,” Shaw said. “We do have a small percentage of business that’s transactional and we’re adjusting our rate plan there. But for the large part we’re taking measured rate increases.”
Union Pacific (NYSE: UNP) also expects intermodal volumes to grow in 2021. Retail restocking efforts, tight truck capacity and “continued strength in retail sales” should drive domestic intermodal volumes higher, according to Kenny Rocker, the Union Pacific (UP) executive vice president for marketing and sales.
“Retail inventory restocking, along with continued strength in retail sales and a tighter truck supply, should drive domestic intermodal volumes higher in the year,” while international intermodal volume will depend partly on the coronavirus vaccine rollout, U.S. trade policies and consumer spending levels, Rocker said during his company’s fourth-quarter earnings call on Jan. 21.
UP said it aims to improve its trip plan compliance levels for intermodal from 83% for the fourth quarter of 2020.
The company said it is working with customers to improve the timely pickup of containers as a way to improve box turns, and it is seeking to increase parking capacity and create chassis supply.
“We view our intermodal ramps as production facilities that must improve their efficiency in order to drive a more reliable service product,” said Eric Gehringer, UP executive vice president for operations.
Said UP President and CEO Lance Fritz, “Our intermodal product is … becoming more profitable over time and we’re not going to stop on that initiative. And we’re also very, very confident in our ability to leverage growth through productivity.”
Indeed, although U.S. personal consumption expenditures (PCE) fell by 0.2%, or $27.9 billion, in December, personal income rose, which could affect consumer spending in the first quarter of 2021.
The Bureau of Economic Analysis on Friday said while PCE slipped in December, personal income rose by 0.6%, or $116.6 billion, while disposable personal increase also increased by 0.6%, or $111.6 billion.
Weekly US intermodal volumes rise year-over-year
Although peak season has passed, U.S. intermodal traffic on a weekly basis is still higher year-over-year, according to data from the Association of American Railroads.
Weekly U.S. intermodal volumes rose 17.8% to 298,051 containers and trailers for the week ending Saturday. Year-to-date, U.S. intermodal traffic is up 13.6% to 883,897 intermodal units.
Meanwhile, U.S. carloads on a weekly basis were down by 0.7% to 230,979 carloads, while year-to-date volumes were down 1.4% to 698,933 carloads.
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