E-commerce freight contributes to West Coast port congestion; intermodal volumes rise

U.S. imports from Asia continued to rise in January while intermodal freight volumes posted double-digit increases through the first six weeks of the year. The import surge can be attributed to the continued demand for e-commerce freight.

Imports from Asia rose 14% in January, from the same month in 2020. If import volumes remain near the January level of 1.59 million twenty-foot equivalent units, this could contribute to long-term strain at West Coast ports, according to the Journal of Commerce.

Meanwhile, through the first six weeks of 2021, U.S. intermodal volumes have risen 10.3% to 1.71 million containers and trailers, from the same period in 2020, according to the Association of American Railroads.

Intermodal volumes were strong at the end of 2020 and remained robust at the start of 2021, according to the Cass Transportation Index Report for January. The rise in the shipment component of the index is consistent with the improving trends in the railroad sector. The shipments component of the Cass Freight Index rose 8.6% in January, from the same month in 2020. The component also increased 6.7% from December.

“This acceleration takes us another step closer to the strong growth environment which we expect to continue in 2021, due in no small part to easy comparisons,” according to the report completed by Tim Denoyer of ACT Research.

He noted the slower rail volume trends in recent weeks can be partly attributed to constraints at U.S. ports, where long lines of ships are waiting to unload. The unloading times have been extended because of a shortage of dockworkers as COVID-19 infection rates rise.

“Freight demand is clearly still strong, but there is significant near-term risk that truck manufacturers will not be able to meet that demand from parts shortages in semiconductors, steel and likely other parts stuck on those containerships,” Denoyer wrote. “We continue to forecast very strong GDP growth this year with more stimulus on the way in the coming weeks. While we expect rising vaccination rates to become a headwind to freight demand over time as services resume, the near-term outlook for freight demand remains extraordinarily strong.”

In a recent Citi webinar, John Roberts, president and CEO of Lowell-based carrier J.B. Hunt Transport Services Inc., said wait times at the West Coast ports have been about twice what they were and that the issue might not be resolved until June.

“That demand is sitting there waiting to be moved, so we will try to continue to better understand how to facilitate that every way that we can for customers,” Roberts said. “Longer-term does that mean considering work on with our customers on trans loading, for instance, or anything that might help unclog all that out there.

“The bottom line is, there’s a lot of pent-up demand that we should be participating in,” he said. “How efficiently and how aggressively we can do that is to be seen in the next several months.”

Roberts said he’s optimistic about the continued strength of freight demand, and highlighted the resiliency of the consumer and the stimulus packages and monetary policies that have helped the economy.

“There’s a lot of pain in the smaller businesses, and in those workforces that’s to be concerning,” he said. “But the macro feels like it’s fairly positive and should continue. With the vaccines coming, and there’s sort of a light at the end of the tunnel, it feels like, maybe, we’re going to have a celebratory resurgence, if we get through the winter and get enough shots out there where people are going to want to go and have some fun. And that will probably be good for us all.”

Regarding the carrier’s intermodal segment, Roberts said it hasn’t reached its margin targets for several years. They have been 11%-13% for intermodal.

In 2020, the segment accounted for 48%, or $4.67 billion, of the company’s revenue and 60%, or $428.4 million, of its operating income. That’s down from 52%, or $4.74 billion, in revenue and 61%, or $447.47 million, in operating income in 2019.

The company is evaluating the performance of its bid work this season to determine whether the rates can support a return to those margin targets, said Roberts, adding the company will know more at the end of the bidding season whether it can meet those margins or they need to be updated.

Roberts said more intermodal business is available, but issues in the segment have led the company to not increase its fleet for the first time. The company looks to segment growth in the East. He said the freight is there, but questions remain on whether the company can receive a proper rate for it and whether it can be shipped in a timeframe that keeps the customers coming back.

“From a holistic standpoint, intermodal is a vital part of what we do,” Roberts said. “It’s really kind of a center offering.” He noted the carrier’s other business segments, such as brokerage, Final Mile and Dedicated Contract Services, complement customers’ supply chain needs. “No one part of the offerings that we have, other than their current size, necessarily is more important,” he added. “They’re really all important to us, but because intermodal is so big and so unique, it continues to be a very important part of what we’re doing, and we believe it will be going forward.”

The company plans to add 6,000 containers to its fleet in 2021. The intermodal segment had 98,689 intermodal containers and trailers at the end of 2020. Roberts said it might be playing some catch up for not adding equipment last year, but the growth is based on rates and container use.

The railroad industry recently completed positive train control systems that are expected to not only improve safety but also lead to improved efficiency on railroads. And the efficiency improvements could contribute to more freight conversions from the highway to rail, Roberts said.

“It really gets down to reliable service,” he said. “In the absence of that, our customers, who are inventory managers substantially, just can’t afford to have erratic service, and they won’t tolerate it. I think that’s something railroads may have to learn a little bit more about because of their history. They have long had so much control over what they do and what they don’t do, and their shippers have been typically captive. The people we deal with aren’t captive, and we’ve got to take good care of them. And we hope they’ll hear that and address it.”

Also in the webinar, J.B. Hunt executives addressed the environmental value of intermodal regarding reducing emissions and waste.

Brad Delco, vice president of investor relations for J.B. Hunt, said eliminating waste will help to reduce its carbon footprint. He noted European customers are more focused on environmental, social and governance issues than some of its other customers.

“But I think there will be a day where you can essentially decouple the cost of intermodal base rates versus truckload base rates,” Delco said. “So if a truckload base rate is $1,000, but they are going to have to spend $300 for carbon offset, and the total cost is $1,300. Well, maybe the cost of intermodal base rate is actually higher than truckload at $1,100, but the carbon offset is only $100. So your all-in rate is $1,200.”

While this might not happen over the next 12 months, Delco said as more companies consider the importance of their carbon footprint across the supply chain, this could drive more freight from trucks to rails.