Intermodal loadings decline

Intermodal volumes sunk back in January following a strong surge in December. Seasonally adjusted loadings were at 1.015 million in January, a drop of 3.5% from December. The year-over-year growth slowed, up 4.3% – only one month in the last seven was above 5% (December). The decline in January was stronger than our expectations last month, nearly doubling our initial month-over-month estimate. Despite the recent volatility, the outlook for 2012 and beyond remains relatively unaffected.

According to IANA data raw volumes were also down. January is generally the second-weakest month of the year for Domestic. We expect volume to decline from December. International volumes, however, generally run a bit stronger as cargo moves in advance of the Chinese New Year shutdown. International came through with the third positive year-over-year comparison in a row, and the improvement has widened a bit each month.

Data from the Association of American Railroads (AAR) has been jumping about due to mild weather and the timing of the Chinese New Year.

Outlook
Intermodal data being released in early 2012 from both the Intermodal Association of North America (IANA) and the Association of American Railroads (AAR) confirm our near-term expectations. Also, the economy is behaving as expected. Thus, the forecast is basically unchanged with the expectation of growth near 5.0% through 2014.

Intermodal loadings are forecast to continue a string of record-setting levels in 2012, especially in the domestic movements. It will continue growing over the next two years at a similar rate. After dropping 14.3% in 2009, volumes rebounded strongly in 2010 and surged 14.1%. The pace of growth slowed during 2011 but remained above trucking, rising 5.6%. We expect the growth rate to remain near this mark for the next several years, growing 5.0% in 2012, 4.7% in 2013, and 5.0% in 2014.

The growth rate remains above that of trucking, but the gap between the two modes has been narrowed in recent months.

Analysis
Train speed improvement has been spectacular as of late. Speeds took off in November and rose steadily and steeply into January, peaking at 33.5 mph. That speed was last achieved in late 2009, when volume was about 13% lower. Mild winter weather accounts for the favorable year-over-year comparisons, but cannot explain that absolute speeds have increased for two months. Train operations have undoubtedly improved, and the service reliability bodes well for 2012.

Fleet growth looks modest for 2012. So far, the amount of net new units to be added this year looks modest. There is certainly some slack in the fleet due to the large purchases made last year, but the fleets’ approach looks quite conservative. Equipment availability may be an issue if volume surprises on the upside. 53’ domestic container volume was up 15% y/y in January, so things are off to a great start.

AAR weekly data provides the most timely information on recent intermodal activity. Data is issued on Thursday of each week covering the prior week’s movements.

Weekly year-over-year AAR comparisons are currently very volatile. Anomalies including favorable winter weather and an earlier Chinese New Year make drawing judgments problematical from week to week. The pace of improvement appears to be moderating but is still robust.

Comparing the current 4-week moving average volume with the average for the same period for the years 2006 through 2008, North American comparisons are once again advancing and are well ahead of pre-recession levels.

Is Canada outpacing the U.S.? Canadian year-over-year growth rates look much stronger, but this is more a story of difficult winter weather operating conditions depressing last year’s traffic rather than a statement of what is going on right now.

NOTE:
Intermodal is rail intermodal units originated, seasonally adjusted. It contains International and Domestic containers as well as Trailers shipped via rail. The transfer of a container or trailer to another railroad for the purpose of terminating the shipment or passing it to another railroad is only counted as one loading. Intermodal is defined as a movement of a container or trailer via more than one mode of transportation (i.e. rail and truck).