At the NEARS (North East Association of Rail Shippers) Fall 2024 Conference in Pittsburgh, a leading IMC (intermodal marketing company) panelist sees a 99% chance of a week-long East Coast strike as internal ILA (International Longshoremen’s Association) politics strongly incentivizes hardline negotiations. A disruption that long could constrain West Coast surface capacity for 3-4 weeks in our view, though the ports should remain fluid on robust capacity. Normal peak is materializing per Class I panelists, though the 2025 outlook remains measured, with the industrial economy soft.
The IMC panelist sees a 99% chance of a week-long East Coast port strike with little signs of progress in negotiations. ILA International President Harold J. Daggett is reportedly seeking political capital to assist his desired successor, and as a result is inclined to drive a hard bargain with the ocean carriers. This panelist sees a strike beginning on Oct 1, necessitating the appointment of a government mediator, resulting in the possibility that the strike bleeds into the weekend but is ultimately resolved before Monday 10/7 (recall the White House has refused to invoke the Taft-Hartley Act but may have to if the mediator fails to have success).
A week-long strike would be longer than we previously anticipated, potentially constraining West Coast transport capacity meaningfully for 3-4 weeks. We expect the Port of LA itself to function smoothly as we remind investors that the port is running at ~20% excess capacity. As we have noted prior, disruption favors Union Pacific volumes slightly, while ocean forwarders (C.H. Robinson Worldwide, Expeditors International of Washington, Kuehne + Nagel International AG) should see support from congestion surcharges applied by the ocean carriers. The feeling from one panelist at NEARS was that most retail shippers are electing to wait out a short strike or have freight already moved.
The panelists are broadly expecting a more normal peak season through 2H24 as seasonality is apparent. Teir commentary is in line with rail carload data, pointing to a 12.3% increase in QTD intermodal volumes. UNP had a record August for international intermodal and September has accelerated, with some help from Canadian freight diversions. That said, the y/y comparison for the peak is extremely easy. Our outlook on 2025 remains more measured, with one large IMC highlighting that customers are cautiously optimistic about volumes, though Norfolk Southern sees 2025 as another relatively soft growth year (in line with prior commentary that 2025 will be a “transition year”).
UNP spoke to the well-understood weakness in the industrial economy, highlighting soft construction and frack sand markets, although NSC’s panelist acknowledged that election-related uncertainty is contributing to the malaise. We believe capital formation could see tailwinds once the uncertainty is past us. UNP pointed to the Northeast as a prominent bright spot, with business up 3%, outpacing the overall market. Investments in and around the Gulf Coast are supporting increased industrial chemical volumes.
Digitization and visibility initiatives continue in the rail industry, pioneered by RailPulse™ telematics. An NSC executive offered an update on the program’s progress. Railcars fitted with RailPulse technology report to the database every 15 minutes while on the move, offering near-real-time updates and generating better ETAs as the system learns from the lane-specific data. The frequency is orders of magnitude better than Automatic Equipment Identification cars (which will be obsolete by 2039). With RailPulse offerings costing $800-$1,000 per railcar over a five-year period), most are expected to be upgraded by 2035.
