Carloads for grain and motor vehicles have risen in recent weeks, a sign that the rail volumes could potentially be past their bottoming out, according to Union Pacific (NYSE: UNP) CEO Lance Fritz.
After “blanking” (canceling) around 20% of Asia-to-U.S. capacity in May and June, it now appears likely that container-ship carriers will cut fewer sailings in July, possibly as low as 10%.
FreightWaves SONAR: Railroads Pin Hopes on Auto Manufacturing as U.S. Carloads Sustain Record Decline
The Class I railroads are closely watching the restart of North American automotive production, hoping that the slow ramp-up will not only grow motor vehicle volumes but also improve demand for supplies such as steel and plastics, according to executives at recent investor conferences. However, a key unknown variable is whether consumer demand will lift volumes for automobiles and other goods, executives said.
Numerous factors are impairing intermodal volume growth. These include blanked sailings, a shift in overall freight demand toward refrigerated, an uncertain outlook for consumer demand and, of course, competition from the highway.
U.S. container imports are on a wild ride. They plunged in March after the initial coronavirus outbreak in Wuhan, China. They bounced back in April when delayed bookings were loaded after China came back online. Beginning in May, they sank again as container carriers “blanked” (canceled) sailings. Now, it looks like there could be at least some momentum in the positive direction.
Directors of the ports at Los Angeles and Savannah agree that the second quarter will be tough on port volumes as both facilities cope with blanked (cancelled) sailings. The lower port volumes, coupled with a loose truck market, could be a double whammy for U.S. Class I railroads.
Container-liner schedules are about to provide a telling clue on U.S. cargo demand.
Throughout last year and year-to-date, the Class I railroads and the truckload-based intermodal companies have highlighted the soft truckload market as one of the major reasons for a lack of intermodal volume growth. The depth of the truckload weakness and how it may be changing can be illustrated from data provided by the FreightWaves SONAR software platform.
The Class I railroads and the truckload-based domestic intermodal marketing companies have all finished reporting their first-quarter 2020 earnings. For the Class I railroads, the theme of their earnings reports was that operational and cost efficiency improvements are continuing, even as steep volume contraction has stopped any thought of revenue growth for the time being.
U.S. ports should see sharply lower container imports in the second quarter, but throughput could pick up in the second half—assuming there is not a major resurgence of coronavirus cases.