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September 18, 2019 12:00 PM, EDT

Intermodal Industry Faces Uncertainties After Strong 2018

Intermodal industry look ahead as tariffs, economic issues loom.From left to right: Strauss, Armstrong, Gross, Jensen and Ross (Mindy Long/Transport Topics)

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LONG BEACH, Calif. — After a banner year in 2018, the intermodal industry is being challenged by a variety of issues, but it remains resilient despite uncertainties.

Joni Casey, president of the Intermodal Association of North America, shared those thoughts as she welcomed attendees to the IANA Intermodal Expo 2019 here Sept. 16. More than 1,800 members of the transportation and intermodal communities gathered for the event. They were joined by 300 exhibitors.

Bill Strauss, senior economist at the Federal Reserve Bank of Chicago and the moderator of a panel discussion on the current and future state of intermodal, told attendees that gross domestic product growth, although slower than 2018, still is doing fairly well.

However, the industry is likely looking at negative demand growth on the container side when compared with 2018, SeaIntelligence Consulting CEO Lars Jensen said. That is largely due to the frontloading of cargo last year and shouldn’t be seen as the market going backward, he said.

Overall in 2018, the third-party logistics market grew to $213.5 billion, which marked the best year since 2010, said Evan Armstrong, president of Armstrong & Associates.

“That makes everybody’s year-over-year comparables very hard to beat, especially on the domestic transportation management side,” he said.

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Larry Gross, president of Gross Transportation Consulting, agreed that 2019 is more challenging than 2018. Year-to-date with North American revenue movements of intermodal units, there has been a 0.3% increase in international growth, a 6.3% decrease in domestic growth, a 12% decrease in trailers and a 5.3% decrease in domestic containers when compared with 2018. 

However, because 2018 was an unusual year, it makes more sense to compare 2019’s performance with 2017, Gross said. In that scenario, international is up 6.8%, domestic is up 1.1%, trailers are up 3.2% and domestic containers are up a fraction of a percent.

“We’re not seeing a drop in basic demand in truck freight,” he said.

Dave Ross, managing director of equity research, global transportation and logistics for Stifel, said the spot market has been somewhat stable, but there is uncertainty about whether capacity will come out of the market as the final transition from automatic onboard recording devices to ELDs takes place in December and as the Alcohol and Drug Clearinghouse comes online in January.

California’s recent passage of Assembly Bill 5 also could pull capacity out of the market.

“Each one of these disruptions are moderate to severe,” said Jim Filter, senior vice president of intermodal at Schneider. “It is the confluence of multiple disruptors and understanding in totality what is going to happen.”

Intermodal industry look ahead as tariffs, economic issues loom.

A Schneider truck and intermodal containers. (Schneider)

Armstrong said gross margins are increasing a little on the freight brokerage as brokers can pay carriers less but charge shippers more. With warehousing, everyone had a good year last year.

“Now most of what we’re seeing on the warehousing side is getting calls from shippers asking us to benchmark their current pricing because they think they’re on the high side,” he said.

Gross said the competitive pressures the industry is under are not going to let up.

“For the rest of 2019, it is going to end up feeling like it does right now. For 2020, I’m cautious about where the economy is going,” he said, citing uncertainty with trade wars and the election. “From a freight standpoint, I’m predicting a little bit of a slowdown.”

Tariffs remain a concern for many, but Jensen said they may not decrease freight volumes.

“As the tariffs bite, consumers need to spend more. Instead of a $100 T-shirt, they go to a $10 T-shirt. From a cargo side, that T-shirt takes up the same amount of space,” he said.

Gross added that the danger is if there is a replay of the 2001 recession, which was inventory-driven and had a huge impact on growth.

“If we see that inventory recession, carriers will be very fast to pull out capacity,” he said.

Even if shippers want to shift their supply chains to avoid tariffs, it is difficult to pick up a supply chain and move it in the short term, Gross said. However, he expects to see a long-term approach to diversification.

Armstrong said a lot of the logistics challenges, especially in places such as Vietnam and Cambodia, are daunting.

“Trying to uplift a supply chain in the People’s Republic of China is a challenge,” he said, adding that means people are stuck paying duties.

SeaIntelligence’s Jensen said there may be limitations to how much shippers can diversify given the increased use of megavessels. He told attendees that within the European market, the only place it makes sense to use megavessels is Asia.

“I see a diversification of where you source in Asia, but you will just have more feeder services to where you consolidate,” he said.

Filter told Transport Topics that Schneider doesn’t have a clear view at this point of whether or not shippers are pulling freight ahead or if they will due to tariffs. “We have a lot of unknowns right now, and you can add that one to the soup,” he said.

Going forward, freight characteristics are going to matter a lot, Filter said. “The customers or shippers that treat our drivers well and paid appropriately, their loads got moved,” he said, adding that freight with poor freight characteristics that shippers are trying to move at a lower rate will find it harder to get capacity. “Eventually the freight will move. It just might not move at the time that you thought.”