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January 6 2020

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94 The Journal of Commerce | Januar y 6 2020 www.joc.com Surface Transportation | In Perspective 2020 ANNUAL REVIEW & OUTLOOK WHEN ALL IS said and done, 2019 will almost certainly go down in intermodal history as an "annus horribilis" — Latin for "horrible year." And what a year it has been. At the end of October, year-over-year growth in movements of international con- tainers via rail, which came in at 5.4 percent in 2018, has stalled, registering a barely mea- surable year-to-date gain of just 0.1 percent, according to figures from the Intermodal Asso- ciation of North America's (IANA) Equipment Type, Size and Ownership (ETSO) database. And that, compared to performance in the domestic intermodal sector, is the good news! Domestic container volume through the end of September was down 6.4 percent year over year. That's quite a cold shower for the industry after enjoying a 7.6 percent year-over-year gain in 2018, due in no small part to a trucking capacity crunch caused by the federal electronic logging device (ELD) mandate. It's fair to point out that comparing this year with last year's inflated results may not be painting a true picture. Indeed, comparing year- to-date international moves through September with the same period from 2017 shows a gain of 6.8 percent. But even against the easier 2017 comparison, domestic volume is still up only 0.6 percent. That's essentially no growth in domestic intermodal for two years, even while the economy was expanding at a fairly brisk pace. It's also fair to characterize this year's drop as unprecedented. Domestic container Will US intermodal escape another 'annus horribilis' in 2020? By Larry Gross loadings declined 5.6 percent in the first 10 months of 2019. Assuming the year remains in the red, it will be the first year-over-year decline in domestic container activity. Even during the Great Recession, domestic container loads declined slightly only for a couple of quarters, and still managed to register a gain for the year. Further, from the peak in the second quarter of 2018, the share of long-haul truck shipments handled via domestic intermodal declined for four straight quarters before stabilizing in the the third quarter of 2019 — another unprece- dented event since 2000. The PSR paradox In discussing the cause for the decline, rail- road quarterly financial presentations point the finger at excess truck capacity. This is certainly true, but it's not the whole story. A big piece of the puzzle is the transition of most of the railroad industry to Precision Scheduled Railroading (PSR). This, along with the attendant relentless focus by the railroads on lowering their operating ratio, has contributed to intermodal volume losses, even as railroad operating and service metrics have improved and profitability largely has been maintained. The structure of international intermodal meshes quite well with the dictates of PSR, which calls for the operation of very large point-to-point trains with minimal intermedi- ate work events. Mega-ships deliver mega-dis- charges of traffic to the railroads, so big trains are a natural inland extension. Service frequen- cy isn't much of an issue when the door-to-door transit time for overseas origin to domestic destination is measured in weeks. But none of this applies to domestic inter- modal. Domestic truckload flows are complex, dispersed, and service sensitive. After expanding the intermodal network throughout the first half of the decade, the railroads under PSR largely have reversed course and embarked on a great simplification effort. Domestic intermodal has shown essentially no growth two years, even while the economy was expanding at a fairly brisk pace.

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