The myth of intermodal growth

It has been said so many times that it has become mantra: The future for railroads is intermodal. Bye-bye coal, bye-bye crude oil, bye-bye carload traffic (CSX carload volume is off 20 percent from 2000). All that doesn’t matter, the mantra goes, because we have intermodal, and intermodal is the growth engine that will save us. That promise was Norfolk Southern’s chief line of defense in 2016 when Canadian Pacific tried to nudge it into a merger.

But it appears to me that all this is hokum. Intermodal growth has matured or stalled out. I’ve been mining the numbers, and they suck. In the West, both BNSF Railway and Union Pacific topped out on intermodal volume a dozen years ago, and have gone nowhere since. In the east, CSX and Norfolk Southern did a good job through 2013, and then hit plateaus as well. The same is true of Kansas City Southern after 2012. Canadian National went on a tear starting in 2010, as Pacific Rim containers began pouring into Prince Rupert, B.C.; but now it, too, is treading water. Canadian Pacific’s numbers are too erratic to interpret, but it carried last year less than it did in 2002.

There are seven railroads and seven different stories to tell, but the overriding themes may be these:

First, the international container boom that began about 2003 has about played itself out. The trade that’s to be had has been gotten. To get more international container traffic, we need more international trade—it’s as simple as that.

Second, the industry appears to have run up against a wall on domestic intermodal. It has the easy business. The potential remains enormous, but it is in shorter-haul markets. Something has to happen. Either service has to improve or profit margins railroads demand have to be relaxed. Accept this fact: Low operating ratios do not equal maximum profit. You also get there by hauling more boxes at lower margins, which is pretty much what shorter-haul markets demand and Class I railroads steadfastly refuse to consider. As matters stand, railroads are unwilling to take chances.

Third, maybe we should come up with a new mantra. Perhaps it goes like this: The future of railroads is to work like mad and price aggressively to find new customers, be they carload or intermodal or bulk shippers. There is no easy way out.—Fred W. Frailey