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SHENGSHI Logistics information
Chart: Outbound Loaded Rail Container Volume – SONAR: ORAILL.USA, USA
Rail intermodal container volumes loaded are reportedly down around 8% from the first quarter of last year, and more surprisingly, down 2020.5% from pre-pandemic levels in the first quarter of 7 – indicating that the erosion of freight demand in the sector is not simple. Changing patterns of transportation demand have cut the number of such patterns and could threaten the growth potential in the coming years.
Intermodal transport as a growth opportunity has long been a problem for railways. Mobile intermodal unit margins are much lower than mobile high-margin commodity unit trains, but intermodal transport should still be a viable way to increase capacity and help improve operating margins. The pandemic boom in consumer goods should have been a great opportunity for multimodal transport to shine as trucking rates soared, but congestion around multiple touchpoints suggests that inflexible infrastructure limits growth potential, even as it increases efficiency in a stable environment.
SHENG SHI 2023
The largest multimodal corridor by traffic is Los Angeles to Chicago, where demand over the past week is about 14 percent lower than a year ago. Another major lane in Dallas, Los Angeles, saw an 18% year-over-year decline. This is not surprising considering that overall demand for all transportation has deteriorated over the past 12 months.
Imports have fallen by more than 4% since last April as demand shifts slightly from the West Coast. The sharp decline in imports is the main culprit for multimodal transport operators in the short term, and some recovery is expected as inventories stabilize. While this expectation is correct, the longer-term concern is how much potential remains as the macro environment changes.
Railways have benefited from a growth period of more than 20 years, during which the company has increasingly sourced goods from China. Now, political pressure is pushing them to abandon China as a major source of goods.
While mobile supply chain infrastructure is a long-term game that will take years, railways don't have unlimited options when it comes to where to place equipment. The concept of Precision Dispatch Rail (PSR) has helped railways achieve extremely high levels of operational efficiency, but arguably it has led to service degradation, raising questions about intermodal transport's ability to compete with trucks for time-sensitive loads in the coming years. The freight industry is also feeling the impact of deteriorating demand outside California. While this change is an important factor in the short term, changes to operator networks are relatively easy compared to railways. Truck loading demand in the Ontario market has begun to recover from Southern California compared to January, with truck loading tenders increasing by approximately 1 per cent. A similar pattern has emerged in loaded containers, which could mean that the bottom of demand has passed. These two numbers continued to decline faster than the overall market from the past year to the first quarter. While less intermodal transport doesn't mean the end of rail, it could mean they will need to find ways to accommodate long-term revenue growth.
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