Covering the railroads for a long time does strange things to a person. We were glued to The Weather Channel, with Hurricane Helene’s Category 4 track resulting in a direct hit on Tallahassee and its 200,000 residents, before moving north. All we could think about was—gee, I hope CSX’s hump yard at Waycross, Ga., is going to be OK. It made it through Hurricane Debby recently without flooding, so that’ wan encouraging precedent. Some important CSX and Norfolk Southern yards and intermodal terminals around Atlanta were also going to get wet.
Generally, we don’t lose too much sleep over CSX and Norfolk Southern’s ability to deal with hurricanes, given they’ve had more than a century of practice and have just about got it down. Additionally, hurricanes are only dangerous to rail networks when they’re the “2” in a 1-2 punch, with the “1” a pre-existing condition of weak velocity and tight crews or power, neither of which exist at the two eastern railroads at present. So it was likely going to be the usual: the direct impact in week 1 with a small number of flood-related main line outages, trees across tracks, and temporarily paused customer and railroad facilities, then recovery and working down backlogs in weeks 2 and 3. Only something as significant as a bridge washout on a key main line represents tail risk.
Potential East Coast Port Strike
As you’re no doubt aware, on Oct. 1 the International Longshoremen’s Association (ILA) contract expires, with a subsequent strike threatening to shut down every major port on the East Coast. We’ll just repeat what we said about the recent Canadian railroad lockouts but substitute the word “port”: Large-scale port shutdowns, for any reason, are economically untenable; the government will always step in and order the backstop of binding arbitration; and the allowance of a work stoppage for a short duration is basically a token nod to the legitimacy of the bargaining process and workers’ rights to strike. However, anything more than tokenism simply comes at too high an economic cost. The Canadian railroad lockouts lasted 17 hours and 35 minutes before the Canadian government stepped in. In the event of a port strike and East Coast supply chain chaos—five weeks before an election—let’s see how long it takes before the U.S. government gets decisively involved.
Domino Effects on West Coast Intermodal
The West Coast intermodal story continues to be interesting as BNSF and Union Pacific try to manage, and partially lock in, some windfall gains from the two events above. Customer diversions away from Vancouver and Prince Rupert ahead of the Canadian stoppages juiced intermodal loads at U.S. West Coast ports, and the two U.S. western railroads are trying to sign some contracts to prevent at least a small portion of those volumes shifting back north of the border.
We’re now seeing the same thing regarding freight diversions that would normally flow directly to the East Coast. Another windfall, another opportunity. However, service also needs to hold up under the significant volume pressure on the networks, with loads at BNSF up 16% YoY in 3Q24 and Union Pacific not far behind, up 14%. Rail networks can’t handle double-digit changes efficiently, so we’re in Bend-Don’t-Break mode.
Intermodal velocity is predictably poor, with speed at both networks in the bottom quartile of historical performance. While it’s not fast or pretty, the good news is that the fluidity of the boxes remains decent. Neither railroad is visibly short crews or power; the buffers are working; and tracking the number of intermodal platforms that sit idle for 48-hours or more per week is a good early warning system. There are no red flags here, at least yet. That could change if we get a one-week ILA strike and every importer re-routes product through Los Angeles but, so far at least, BNSF and Union Pacific are fluid off the West Coast.
The real question: When the Canadian and East Coast diversions wear off, to what level do loads on UP and BNSF normalize?
