Navigating the Calm: Analyzing the Subdued Intermodal Landscape Amidst Slackened Demand

As 2023 transitions from summer to fall, intermodal rail shippers find solace in the fading memories of congestion at West Coast ports and Midwest rail yards experienced in 2022. However, the current state of the rail freight industry paints a less optimistic picture, with a prolonged slump projected and weak demand persisting well into the latter half of 2024.

This year has proven to be a challenging one for America’s railroads. According to the Association of American Railroads (AAR), intermodal traffic, encompassing the movement of both ocean and domestic containers via stack trains, as well as trailer-on-flatcar traffic on U.S. railroads, has suffered a significant 9.2% decline over the first eight months of 2023 compared to the same period last year. The primary culprit behind this decline is the decrease in international container volumes, particularly through West Coast ports, which typically contribute around 60% of the intermodal box traffic on U.S. railroads.

With domestic destocking trends persisting and international ocean traffic remaining lackluster, relief from the current downturn seems unlikely. Analysts foresee no signs of improvement until late 2024, leaving the intermodal rail industry grappling with subdued demand and softness for the foreseeable future.

Ports of Los Angeles and Long Beach Experience Substantial Decline in Container Volumes, Raising Concerns for Intermodal Rail

The nation’s largest port complex, comprising Los Angeles and Long Beach, has witnessed a notable decrease in container volumes compared to the previous year. During the first half of 2023, Long Beach handled approximately 3.72 million TEUs (20-foot equivalent units), a significant drop from the over 5 million containers handled in the first half of 2022. Similarly, Los Angeles saw a decline in container traffic, with around 4.14 million TEUs moving through the port in the first half of 2023, compared to 5.41 million units during the same period last year.

Adding to the concerns, the total number of empty containers being returned for export from Los Angeles experienced a staggering decrease of over 39% in July compared to the previous year. This decline raises alarming signals about future factory output in Asia, as fewer empty containers being returned may indicate lower production levels and, consequently, reduced imports later in the year. Such a scenario could potentially result in fewer ocean containers available for rail intermodal transportation.

Furthermore, the ongoing drought conditions and low water levels in the Panama Canal pose an additional challenge. As of early September, the canal’s restricted through traffic to 32 vessels per day may have implications for the final destinations of intermodal containers in the United States.

These combined factors contribute to the complex landscape faced by the intermodal rail industry, presenting obstacles in terms of container availability, trade patterns, and transportation routes.