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August 28 2023

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52 Journal of Commerce | A ugust 28, 2023 Land Lines Lawrence Gross A smaller slice Same conditions as 2019 There's a lot of discussion right now regarding the intermodal head- winds being generated by soft freight demand and abundant truck capacity. These "abnormal" conditions, we are told, are what's holding back inter- modal growth. But if you go back to 2019, you'll fi nd the exact same conditions were in play. Trucking was coming o the historic capacity crisis linked to electronic logging devices. Truck capacity had fl owed into the system, and truck rates were coming down. Sound familiar? What if we went back further? In the "good old days," prior to 2018, domestic intermodal maintained a share near 6.7% for more than three years. This predates much of the pre- cision scheduled railroading restruc- turing of the intermodal network and a good chunk of the demarket- ing and conversion of trailer-on- fl atcar. The share di erence from the second quarter of 2023 stands at about 1.1 percentage points. Had that 6.7% share been achieved in the sec- ond quarter, domestic volume would have been 19.5% higher, translating into another 408,000 domestic revenue moves or about 1.6 million more annual loads on the rail. What might this mean in terms of revenue? The Intermodal Sav- ings Index compiled by the Journal of Commerce indicates average intermodal rates recently were run- ning about $1.65 per mile. I have intermodal sector to a ect. There- fore, let's set international inter- modal aside for this discussion. But the story is quite di erent regarding domestic intermodal. Here, it's all about the industry's competitiveness with trucking. It's about service levels, capacity and, above all, economics. Tracking domestic intermodal's share of long-haul truckload vol- ume over the past 10 years, a trend emerges that — more than any other data — quantifi es the extent of the damage the domestic intermodal sector has endured in recent years. In the second quarter of 2023, the US domestic intermodal share of long-haul trucking stood at an esti- mated 5.6%. The share has dropped 0.9 percentage points since the second quarter of the last "normal" year, 2019. What that means is that if the industry had simply hung onto the share that it achieved in 2019, the second-quarter domestic vol- ume in 2023 would have been more than 15% higher. Applying this to the North American second-quarter domestic volume of 2.15 million rev- enue moves, this would have meant an additional 327,000 loads. Annu- alize that fi gure and you're looking at an additional 1.3 million domestic revenue moves this year. THERE HAS BEEN a great deal of discussion in the press recently regarding the current state of the intermodal market. Has the inven- tory drawdown run its course? Will the market come back in time for the peak season? These are certainly valid ques- tions, but the answers lie outside of the intermodal sector's control. However, regardless of where the demand for intermodal and truckload freight transport moves over the coming months, the indus- try holds the key to its destiny in its own hands. It's all about market share, and even a partial recovery will result in signifi cant gains. I produce an estimate of inter- modal market share each quarter. In this task, I am assisted by Noel Perry of Transport Futures, who provides his industry-leading data on the trucking industry. Each quarter he uses a vari- ety of economic data to generate esti- mates for the US dry-van and refriger- ated (reefer) van truckloads. To create an intermodal market share estimate, truck movements of less than 500 miles in length are excluded, cutting out about 78% of the US heavy-duty trucking market. The intermodal numbers come from the Intermodal Association of North Amer- ica ETSO database and include all inter- modal revenue movements that both originate and terminate within the United States. These intermodal fi gures are further segmented into ISO — i.e., international — container moves and domestic equipment moves —i.e., domestic containers and trailers. What happens to the interna- tional intermodal sector and the share of US long-haul truckloads it commands is, to a signifi cant extent, the product of outside forces. How fast are import and export TEUs growing versus US truckloads? Where are these TEUs entering and exiting the nation? What are the steamship line policies and their interest level in extending their services inland? These and many more inputs to international inter- modal demand are di cult for the Intermodal share tumbles from Q2 2018 peak Intermodal rail market share of US long-haul dry-van and refrigerated freight, domestic equipment moves only 5.4% 5.4% 5.6% 5.8% 6.0% 6.2% 6.4% 6.6% 6.8% 7.0% L Q1 2016 Q4 2017 Q3 2019 Q2 2021 Q1 2023 Domestic intermodal 4Q rolling avg. Notes: *Long haul = 500+ miles 4Q rolling avg.: 6.2% rolling avg.: 6.2% Domestic intermodal: 5.8% dom 7 0 Q4 2022 Q1 20 2% 7.2 Source: GTC, Transport Futures, ETSO Report © 2023 S&P Global

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