Container volume is finally settling, and just like the churning of sediment in water, once it settles you have more clarity.
The impact of the movement of trade to the East Coast and Gulf ports can no longer be denied in the railroad data. Anyone following the flow of trade through ocean freight orders would not be surprised. There is always a delay in forward-looking information like ocean freight orders, and this delay took longer to work through because of the historic volumes being processed at the ports.
While, yes, volumes are still up compared to 2019, the messaging comb over West Coast railroads have been using to cover their receding revenue line is now useless. There are no historic volumes to talk about anymore. The toxic triple economic threat of weak consumer spending, inflation and bloated inventories was addressed on Union Pacific’s (NYSE: UNP) earnings call last week, where it was labeled a “near-term challenge.”
This is in sharp contrast to the railroads servicing the East Coast, CSX (NASDAQ: CSX) and Norfolk Southern (NYSE: NSC), which both reported increased freight volume of merchandise and coal. So what is a good way to track this data? Rail ramp trucking demand.
Data from ITS Logistics shows this frightening freight reality.
The tapering down in freight volumes has impacted not only the railroads but trucking, as well. This has created a truck driver dislocation for some. In response to the decrease in West Coast freight, ITS told American Shipper the company is “rebalancing” its workforce — moving away from California and moving to areas where there is growth.
“We are actively hiring in Texas and the Midwest to respond to the increasing need to move containers coming into Houston, Southeast and Midwest,” said Paul Brashier, vice president of drayage and intermodal at ITS Logistics. “Trucking is needed for both container pickup at the ocean terminals and rail ramps. We’ve also seen an increase in containers traveling inland into Chicago, Dallas and Atlanta.”
This chart from ITS Logistics for April shows the current reality of freight demand.
Not only can you track the rail freight migration out of the East Coast and Gulf ports with this chart, you can also see how this diversion has impacted inland rail flows. Inland rail originating from the West is down as a result of the precipitous drop in Pacific Ocean region flows. The pipes of trade do not lie when it comes to telling the story of freight. The noise of historic volumes masking the decline in freight is over.
“East Coast and Gulf ramp and terminal investment into infrastructure continues to seriously eclipse their west coast counterparts,” Brashier said. “The superior private / public partnership in these regions have led to investment and modernization into the surrounding commercial real estate, terminal footprints, equipment and ramps to handle larger volumes of container traffic supporting existing BCO’s.”
Brashier said they are also seeing a significant uptick of new industries starting operations in those regions.
Drilling down into the Atlantic Ocean region data, you can see the increase in volumes out of the Ports of Savannah and Baltimore, which have been in a race of rail expansion. While the Port of New York and New Jersey dominates the field, the uptick in demand for Savannah and Baltimore is there.
Normally, efficiency is a key strategy when revenues are declining, but with precision railroading under the microscope, extending the lengths of trains is not a solution.
While there is uncertainty as to how much trade will go back to the West Coast once a deal between the Pacific Maritime Association and the International Longshore and Warehouse Union is signed, the one thing you can bank on is the flow of trade has thinned out. Until then, we’ll just have to watch the pattern of trade diversion.