Carload volumes are stronger than they were last year but remain well below 2015's numbers. Intermodal shipments, meanwhile, are up considerably over last year.
After an extremely difficult 2016, things have improved significantly thus far in 2017 for the nation's railroads. But the popular perception of the strength of the current carload recovery may be overstated, and caution is indicated. Now the question is, where to from here? And what are the implications of the new Trump administration and its policies? Will they help Make Carload Great Again?
Carload: Steady but stagnant
The rail headlines certainly look favorable. According to Association of American Railroads (AAR) data, North American carloads excluding intermodal units were up a very solid 7.6 percent in the first half of 2017 versus the same period in the prior year. But that doesn't necessarily indicate that we're seeing current growth.
Article Figures
[Figure 1] North American carloads (excluding intermodal)Enlarge this image
Figure 1 displays the four-week rolling average North American carloads for all commodities over the past two years. The chart shows clearly the savage drop in carload activity that occurred during the early part of 2016 as well as the relative strength displayed during the first half of this year. The year-over-year comparison shows strong growth. But in fact, the recovery occurred quite some time ago—during the second and third quarters of 2016. Since the beginning of this year (and discounting the normal holiday-season lull), volume has been unusually flat, although there was a small uptick toward the very end of the second quarter. Rather than showing a recovery currently underway, the data indicate that carload activity has been largely stagnant over the past three calendar quarters. A comparison of Q2 carloads to Q1 shows that volume grew only 0.1 percent, or 9,000 units. The bright spots were increased movements of nonmetallic minerals, principally hydraulic fracturing (fracking) sand; metallic ores and metals; and chemicals. These were offset by quarter-on-quarter declines in shipments of coal and agricultural products.
In the near term, we see little catalyst for improvement. Despite its recent losses, coal still remains the single most important commodity in terms of carloads, accounting for one in four originations in the second quarter. The Trump administration has made rejuvenating the coal industry a top priority and has rolled back some federal regulations affecting that industry. Our view is that such actions will have only a very limited effect, because the problem with coal is primarily economic, not regulatory. Well-priced natural gas is displacing coal as the primary fuel for electric-power generation. With the Trump administration also rolling back regulations on fossil fuels in general and fracking in particular, we don't see the fundamental problem for coal changing much. The decline in coal shipments may slow for a while, but any rebound will be short-lived, in our view.
One positive for rail is the elevated demand for the movement of frack sand. More wells are being drilled and more frack sand is being used per well, causing shipments to rise. This dynamic should continue, although a threat is posed by drillers who continue to experiment with the use of cheaper, locally sourced "brown sand" as a lower-cost replacement for the prized, sharp-edged "white sand" that currently is often moved long distances by rail to reach the wellheads.
Another potential plus is the downstream petrochemical activity that is being spurred by the continuing availability of cheap natural gas feedstock. Substantial plastics capacity is beginning to come on stream, mostly on the U.S. Gulf Coast. This presents some opportunities for increased carload volume, but the bulk of this activity will take the form of containerized exports. To the extent that these exports flow out of Gulf Coast ports like Houston, the rail carload benefits will be limited.
Intermodal: Volume on the upswing
Last year was also a tough one for intermodal, with total North American volume declining 2.1 percent versus the prior year, according to data from the Intermodal Association of North America (IANA)—the first such decline since the Great Recession. But the current intermodal picture is brighter.
While reported as one commodity by the railroads, intermodal is actually composed of two segments of roughly equal size: international and domestic. International intermodal, which consists of the movement of ISO international containers that are largely involved in the movement of import and export commodities, declined 3.3 percent in 2016. Domestic intermodal, which moves in 53-foot domestic containers and trailers, also lost ground, but to a lesser degree, registering a small volume decline of 0.7 percent for the year.
The international and domestic intermodal sectors are subject to distinct market influences and don't always move in parallel. While both sectors were weak in 2016, it was for largely different reasons. Normally, international intermodal volume moves in concert with U.S. containerized trade activity, with imports dominating. But in 2016 a disconnect occurred. International intermodal fell even though North American (U.S. plus Western Canada) import 20-foot equivalent units (TEUs) rose by 2.5 percent for the year. The reasons for this change are not completely clear, but in our opinion include alterations in port routing, more intense truck competition, and increased use of transloading at or near seaports.
The small decline in domestic intermodal was actually the product of two opposing forces. Domestic container activity moved up 4.1 percent in 2016, while trailer activity plunged 22.1 percent. Much of the trailer decline was due to a one-time event, specifically the decision by Norfolk Southern to terminate most routes operated by its Triple Crown RoadRailer trailer intermodal subsidiary, dropping their reported trailer volumes dramatically. But more generally, domestic intermodal suffered from more intense truck competition as ample trucking capacity led to lower highway rates and created competitive headwinds, particularly on shorter-haul intermodal lanes. Lower diesel prices also made motor carriers more competitive with intermodal.
So far, the intermodal picture looks far better in 2017. Through mid-year, total intermodal volume tracked by AAR was up 3.8 percent, and growth looks to be accelerating. Activity in the second quarter of 2017 was 5.4 percent higher than in the prior year. The IANA data (through June) permits parsing the intermodal market by sector. Most of the strength thus far this year has come on the international side of the house (+4.3 percent year-to-date and +5.6 percent for Q2). The disconnect between intermodal and containerized imports appears to have abated. Inbound container shipments have also been relatively strong, as the consumer appears to be in a buying mood. Inbound U.S. TEUs were up 6.4 percent year-on-year in the first half of this year.
After a very slow start, domestic intermodal activity has also resumed growing. Overall domestic activity was up 2.2 percent year-to-date through June. Domestic container moves were 2.3 percent higher than last year, a bit slower growth than was seen in 2016. But trailer activity was much less of a drag, easing just 1.0 percent year-to-date. Q2 volume showed year-on-year growth of 3.2 percent for domestic containers and (unusually) trailers rose even faster at +3.9 percent, resulting in overall domestic volume growth of 3.3% for the second quarter.
FTR Transportation Intelligence is forecasting a continuing acceleration for domestic intermodal over the balance of 2017. While we don't expect an increase in the pace of growth in the economy, we are projecting that truck capacity will tighten as the implementation date for the electronic logging device mandate in December approaches. How tight things will get and how fast the process will unfold are difficult questions to answer. We believe that capacity will get quite tight but not critically so, with the biggest effects to be felt in 2018. But intermodal should stand to benefit as we roll into the 2017 peak season, as shippers will use the intermodal option to ensure access to well-priced capacity.
The growth dilemma
In the long run, challenges await both rail carload and intermodal. While fully autonomous trucks able to drive themselves all the way from origin to destination are still perhaps decades away, it would be a mistake for the rails to be complacent. Semi-autonomous trucks will bring cost reductions to trucking in the coming years, perhaps in the form of multivehicle platoons with only the lead truck fully manned. The competitive landscape will therefore get more difficult for rail.
In the end, there are only three ways for rail volume to grow. The first is basic growth in the industrial economy. The second is when a new rail-compatible, unit-train-oriented commodity springs forth. A few years ago it was crude-by-rail; today it is frack sand. Neither of these growth factors are within the control of the railroad industry. The only way to ensure that industry activity grows faster than industrial gross domestic product (GDP) is to gain market share—in other words, to take volume off the highway. Intermodal is one tool to accomplish this goal but can't do it alone, because each intermodal unit packs only about one-third the revenue punch of a typical carload. The industry's health in the long run will rest on its ability to address the fundamental dilemma of how to grow the carload franchise.
New Jersey is home to the most congested freight bottleneck in the country for the seventh straight year, according to research from the American Transportation Research Institute (ATRI), released today.
ATRI’s annual list of the Top 100 Truck Bottlenecks aims to highlight the nation’s most congested highways and help local, state, and federal governments target funding to areas most in need of relief. The data show ways to reduce chokepoints, lower emissions, and drive economic growth, according to the researchers.
The 2025 Top Truck Bottleneck List measures the level of truck-involved congestion at more than 325 locations on the national highway system. The analysis is based on an extensive database of freight truck GPS data and uses several customized software applications and analysis methods, along with terabytes of data from trucking operations, to produce a congestion impact ranking for each location. The bottleneck locations detailed in the latest ATRI list represent the top 100 congested locations, although ATRI continuously monitors more than 325 freight-critical locations, the group said.
For the seventh straight year, the intersection of I-95 and State Route 4 near the George Washington Bridge in Fort Lee, New Jersey, is the top freight bottleneck in the country. The remaining top 10 bottlenecks include: Chicago, I-294 at I-290/I-88; Houston, I-45 at I-69/US 59; Atlanta, I-285 at I-85 (North); Nashville: I-24/I-40 at I-440 (East); Atlanta: I-75 at I-285 (North); Los Angeles, SR 60 at SR 57; Cincinnati, I-71 at I-75; Houston, I-10 at I-45; and Atlanta, I-20 at I-285 (West).
ATRI’s analysis, which utilized data from 2024, found that traffic conditions continue to deteriorate from recent years, partly due to work zones resulting from increased infrastructure investment. Average rush hour truck speeds were 34.2 miles per hour (MPH), down 3% from the previous year. Among the top 10 locations, average rush hour truck speeds were 29.7 MPH.
In addition to squandering time and money, these delays also waste fuel—with trucks burning an estimated 6.4 billion gallons of diesel fuel and producing more than 65 million metric tons of additional carbon emissions while stuck in traffic jams, according to ATRI.
On a positive note, ATRI said its analysis helps quantify the value of infrastructure investment, pointing to improvements at Chicago’s Jane Byrne Interchange as an example. Once the number one truck bottleneck in the country for three years in a row, the recently constructed interchange saw rush hour truck speeds improve by nearly 25% after construction was completed, according to the report.
“Delays inflicted on truckers by congestion are the equivalent of 436,000 drivers sitting idle for an entire year,” ATRI President and COO Rebecca Brewster said in a statement announcing the findings. “These metrics are getting worse, but the good news is that states do not need to accept the status quo. Illinois was once home to the top bottleneck in the country, but following a sustained effort to expand capacity, the Jane Byrne Interchange in Chicago no longer ranks in the top 10. This data gives policymakers a road map to reduce chokepoints, lower emissions, and drive economic growth.”
It’s getting a little easier to find warehouse space in the U.S., as the frantic construction pace of recent years declined to pre-pandemic levels in the fourth quarter of 2024, in line with rising vacancies, according to a report from real estate firm Colliers.
Those trends played out as the gap between new building supply and tenants’ demand narrowed during 2024, the firm said in its “U.S. Industrial Market Outlook Report / Q4 2024.” By the numbers, developers delivered 400 million square feet for the year, 34% below the record 607 million square feet completed in 2023. And net absorption, a key measure of demand, declined by 27%, to 168 million square feet.
Consequently, the U.S. industrial vacancy rate rose by 126 basis points, to 6.8%, as construction activity normalized at year-end to pre-pandemic levels of below 300 million square feet. With supply and demand nearing equilibrium in 2025, the vacancy rate is expected to peak at around 7% before starting to fall again.
Thanks to those market conditions, renters of warehouse space should begin to see some relief from the steep rent hikes they’re seen in recent years. According to Colliers, rent growth decelerated in 2024 after nine consecutive quarters of year-over-year increases surpassing 10%. Average warehouse and distribution rents rose by 5% to $10.12/SF triple net, and rents in some markets actually declined following a period of unprecedented growth when increases often exceeded 25% year-over-year. As the market adjusts, rents are projected to stabilize in 2025, rising between 2% and 5%, in line with historical averages.
In 2024, there were 125 new occupancies of 500,000 square feet or more, led by third-party logistics (3PL) providers, followed by manufacturing companies. Demand peaked in the fourth quarter at 53 million square feet, while the first quarter had the lowest activity at 28 million square feet — the lowest quarterly tally since 2012.
In its economic outlook for the future, Colliers said the U.S. economy remains strong by most measures; with low unemployment, consumer spending surpassing expectations, positive GDP growth, and signs of improvement in manufacturing. However businesses still face challenges including persistent inflation, the lowest hiring rate since 2010, and uncertainties surrounding tariffs, migration, and policies introduced by the new Trump Administration.
As U.S. businesses count down the days until the expiration of the Trump Administration’s monthlong pause of tariffs on Canada and Mexico, a report from Uber Freight says the tariffs will likely be avoided through an extended agreement, since the potential for damaging consequences would be so severe for all parties.
If the tariffs occurred, they could push U.S. inflation higher, adding $1,000 to $1,200 to the average person's cost of living. And relief from interest rates would likely not come to the rescue, since inflation is already above the Fed's target, delaying further rate cuts.
A potential impact of the tariffs in the long run might be to boost domestic freight by giving local manufacturers an edge. However, the magnitude and sudden implementation of these tariffs means we likely won't see such benefits for a while, and the immediate damage will be more significant in the meantime, Uber Freight said in its “2025 Q1 Market update & outlook.”
That market volatility comes even as tough times continue in the freight market. In the U.S. full truckload sector, the cost per loaded mile currently exceeds spot rates significantly, which will likely push rate increases.
However, in the first quarter of 2025, spot rates are now falling, as they usually do in February following the winter peak. According to Uber Freight, this situation arose after truck operating costs rose 2 cents/mile in 2023 despite a 9-cent diesel price decline, thanks to increases in insurance (+13%), truck and trailer costs (+9%), and driver wages (+8%). Costs then fell 2 cents/mile in 2024, resulting in stable costs over the past two years.
Fortunately, Uber Freight predicts that the freight cycle could soon begin to turn, as signs of a recovery are emerging despite weak current demand. A measure of manufacturing growth called the ISM PMI edged up to 50.9 in December, surpassing the expansion threshold for the first time in 26 months.
Accordingly, new orders and production increased while employment stabilized. That means the U.S. manufacturing economy appears to be expanding after a prolonged period of contraction, signaling a positive outlook for freight demand, Uber Freight said.
The surge comes as the U.S. imposed a new 10% tariff on Chinese goods as of February 4, while pausing a more aggressive 25% tariffs on imports from Mexico and Canada until March, Descartes said in its “February Global Shipping Report.”
So far, ports are handling the surge well, with overall port transit time delays not significantly lengthening at the top 10 U.S. ports, despite elevated volumes for a seventh consecutive month. But the future may look more cloudy; businesses with global supply chains are coping with heightened uncertainty as they eye the new U.S. tariffs on China, continuing trade policy tensions, and ongoing geopolitical instability in the Middle East, Descartes said.
“The impact of new and potential tariffs, coupled with a late Chinese Lunar New Year (January 29 – February 12), may have contributed to higher U.S. container imports in January,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “These trade policy developments add significant uncertainty to global supply chains, increasing concerns about rising import costs and supply chain disruptions. As trade tensions escalate, businesses and consumers alike may face the risk of higher prices and prolonged market volatility.”
New York-based Cofactr will now integrate Factor.io’s capabilities into its unified platform, a supply chain and logistics management tool that streamlines production, processes, and policies for critical hardware manufacturers. The combined platform will give users complete visibility into the status of every part in their Bill of Materials (BOM), across the end-to-end direct material management process, the firm said.
Those capabilities are particularly crucial for Cofactr’s core customer base, which include manufacturers in high-compliance, highly regulated sectors such as defense, aerospace, robotics, and medtech.
“Whether an organization is supplying U.S. government agencies with critical hardware or working to meet ambitious product goals in an emerging space, they’re all looking for new ways to optimize old processes that stand between them and their need to iterate at breakneck speeds,” Matthew Haber, CEO and Co-founder of Cofactr, said in a release. “Through this acquisition, we’re giving them another way to do that with acute visibility into their full bill of materials across the many suppliers they work with, directly through our platform.”
“Poor data quality in the supply chain has always been a root cause of delays that create unnecessary costs and interfere with an organization’s speed to market. For manufacturers, especially those in regulated industries, manually cross-checking hundreds of supplier communications against ERP information while navigating other complex processes and policies is a recipe for disaster,” Shultz said. “With Cofactr, we’re now working with the best in the industry to scale our ability to eliminate time-consuming tasks and increase process efficiencies so manufacturers can instead focus on building their products.”