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February 3 2020

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Februar y 3 2020 | The Journal of Commerce 29 Land Lines Lawrence Gross A MIGRATION OF cargo import routings into North America from west to east has been underway for more than a decade. This is gen- erally regarded as unfavorable for intermodal, but how strong is the connection? The underlying data confirms the general impression — albeit with some caveats — and with the west-to-east shift showing recent signs of acceleration, the implications could be negative for Inland Point Intermodal (IPI). Looking at the market share of inbound container volumes on the West Coast of North America (US and Canada) over the past 10 years, the trend has been stable and relentlessly negative, despite the occasional per- turbation due to congestion and/or labor issues. Ports on the West Coast have ceded 7.1 percent of the total import market to the East and Gulf coasts during that time, just over 0.7 percent a year on average. But the trend has accelerated recently: Over the last 12 months, market share has shifted by 1.1 per- cent — about 50 percent greater than the long-term trend. Data from the Intermodal Asso- ciation of North America (IANA) allows us to determine the total number of ISO containers moving in North America — that is, IPI. It also tells us the length of those contain- ers so we can translate the volumes into the actual number of TEU being moved. By comparing these numbers with port statistics, we can gain an idea of the degree of inter- modal participation in import — and export — volumes. Over the past nine years, roughly 0.64 to 0.72 TEU moved on rail for every import TEU received at a North American port. The heavy blue line is the 12-month moving average, which factors out the volatile month-to- month movements in this ratio. The correlation between the west-to-east import migration and IPI-to-import ratio is strong, particu- larly in recent years. In general, IPI's share of import TEU has moved down in concert with the West Coast's share of inbound cargo. The primary exception was in 2014, when IPI participation rose even as West Coast share continued to decline. But by 2017, IPI had realigned with North American west coast market share, and since then, the two again have been moving in par- allel. From the beginning of 2011 to the end of 2019, the intermodal rail- to-import TEU ratio declined from about 0.69 to a bit below 0.64. Each 0.01-point decline represents about 260,000 fewer IPI moves across the North American rail network, a reduction of just under 3 percent. Transloading is undoubtedly part of the IPI story. To gauge its impact, we can conduct a similar analysis that also includes our estimate of Southern California transload TEU moving on the intermodal network. This changes the pre-2016 story and moderates — but does not negate — that of the past four years. North American West Coast market share and IPI/transload TEU still have shown a strong correlation. But intermodal activity has yet to reflect the recent acceleration in the loss of North America West Coast share, causing the two trendlines to diverge a bit. From this, we can con- clude that transload cargo is stickier than IPI and adds stability to the intermodal picture. The big question now is whether this divergence will be sustained or is simply reflecting a time lag in intermodal's response. In other words, is the correlation that has held for the past four years begin- ning to break down? If not, then we can expect further weakness in international intermodal activity to exceed any declines in import TEU in the coming months. JOC email: twitter: @intermodalist Intermodal fortunes tied to coastal import share? 50% 52% 54% 56% 58% 60% 0.60 0.62 0.64 0.66 0.68 0.70 0.72 0.74 May- 10 Nov- 10 May- 11 Nov- 11 May- 12 Nov- 12 May- 13 Nov- 13 May- 14 Nov- 14 May- 15 Nov- 15 May- 16 Nov- 16 May- 17 Nov- 17 May- 18 Nov- 18 May- 19 Nov- 19 USWC Share of NA Import TEU IPI TEU vs NA Import TEU IM Ratio US WC Share 12 per. Mov. Avg. (IM Ratio ) Linear ( US WC Shar e) IPI volume declines along with North America West Coast import share Source: Intermodal Association of North America © 2020 IHS Markit Correlation between IPI TEU volume and US West Coast share

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