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August 17 2020

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56 The Journal of Commerce | August 17 2020 Surface Transportation AFTER THE YO-YO effect seen in inter- modal volumes in the second quarter, CSX and Union Pacific (UP) said the volume recovery continued into July, but both railroads expressed uncer- tainty about demand into the peak season because of the ongoing disrup- tion caused by COVID-19. "This was the most disruptive quarter that I have experienced in my career, with both the fastest decline in volumes followed by one of the most rapid increases in volumes in the company's history," Jim Foote, CEO of CSX Transportation, said during a July 22 earnings call. "React- ing to those extreme swings while dealing with the pandemic has been and continues to be challenging." UP's intermodal volume declined 12 percent year over year to 724,000 units in the second quarter, while CSX's volume dropped 11 percent to 586,000 units. A surge in June as e-commerce business picked up and retailers reopened their doors helped lessen the steep declines seen in April. North American domestic volume fell 17 percent in April from a month earlier, according to the Intermodal Association of North America, but then jumped 17 percent in June from May. There has never been a swing of more than 15 percent in both direc - tions so close together in IANA's data. IANA's regional 53-foot equip- ment data shows just how volatile the market was through June. US Southeast outbound volume dropped nearly 20 percent between March and April, but it then rose 6 percent sequentially in May and 11.5 percent in June. In the US Northeast, domestic volume dropped nearly 14 percent between March and April, but then rebounded 11 percent between May and June. Conditions were even more topsy- turvy on the West Coast, where sequential domestic volume dropped 12 percent and 8 percent in March and April, respectively, and then surged 21 and 20 percent in May and June, according to IANA. Service deterioration US railroads furloughed engineers and crews during the downturn in March and April but began calling them back this summer to handle the recovery in volumes. Recalling labor isn't a quick task because of the complex agreements between unions and US railroads, which allow workers to wait a couple weeks before coming back rather than return immediately. The volatility showed in deterio- rating on-time performance in June, according to CSX. While trip-plan compliance, the metric used by CSX, averaged 94 percent in the second quarter, the company acknowledged the number was higher in April and lower in June. "It's just a work-in-progress for us to ramp up and get the trains fully staffed, so we can get our velocity back to where it needs to be, our on-time originations and arrivals where they need to be, and that's taken us a little while, and yes it shows in the metrics, but we think that we are in a pretty good place right now," Foote said. Jamie Boychuk, CSX's executive vice president of operations, said it's "an enormous task to turn this big ship in six weeks" to absorb such large swings in volume. Likewise, UP acknowledged June's service issues in Southern California were related to ramping back capacity to handle the surge in demand. "Nobody can crank up a railroad running 2,000 different movements all over the [UP network] in one week," UP CEO Lance Fritz said on an earnings call. "When we call people back, [more than 90 per - cent of those called] are accepting to come back to work." Uncertainty ahead Neither railroad had a clear Shaky recovery Volumes rebounding but railroads uncertain on sustainability By Ari Ashe "It's really a wait-and-see if we see that bump up around Labor Day." -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% Jan- 20 Feb-20 Mar-20 Apr-20 May- 20 Jun- 20 Midwest Northeast Southeast Southwest Domestic intermodal recovers after steep decline Source: Intermodal Association of North America © 2020 IHS Markit Month-over-month change in intermodal volume, 53-foot trailers and containers, US, Mexico, and Canada Trucking | Rail | Intermodal | Air & Expedited | Distribution

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