BNSF Intermodal Snaps Back

Written by Rick Paterson, Managing Director, Loop Capital Markets

BNSF photo

Over the past few weeks we’ve been observing and discussing the unanticipated strength in BNSF domestic intermodal volumes, which began in October, and how the operating team has handled it. We’re using this as an example of good vs. bad outcomes in these situations and as a mini version of what the industry will one day have to deal with when freight demand, more broadly, rebounds.

In the chart below you can see that pessimistic expectations for peak season were misplaced at BNSF as total loads unexpectedly rallied from 90,000 per week to above 100,000 between August and early October. Railroads—like the rest of us—struggle to predict the future, and the operation was left with a high-class problem. Under volume pressure, network speed eroded and bottomed during the week ending Nov. 3; in fact, it hit a 15-month low.

What happens next: bend or break?

Thankfully, we then saw a partial rebound in the two following weeks as crews and power were realigned to match the unforeseen demand, and then of course the volume-light Thanksgiving week accelerated everything and actually propelled BNSF’s intermodal network speed to an 11-month high a couple of weeks ago.

Here’s the same chart, but looking at intermodal on-time performance rather than speed. On-time performance eroded from 90% to 80% through Nov. 3, but has since normalized back to 89%. A 10% swing to the negative is clearly material, but BNSF limited the damage (sub-85%, for example) to weeks, rather than months, and no doubt didn’t lose any customers as a result. (In fact, the BNSF-JB Hunt bromance is getting a bit out of control.)

All of the above is an example of doing it the right way, where the network bends but doesn’t break, critical resources are rallied, and a big public holiday is leveraged to quickly get service back on track without loss of business.

Keep this example in mind because at some point in 2024 or 2025, macro-driven freight demand will likely rebound at uncertain times across multiple business units. Every railroad will need to reproduce what BNSF just did but on a critical mass of their business rather than just one business unit. It will be at that point when we’ll know if the resiliency lessons from 2022 were learned or not. There should be CEO accountability if it’s “not.”