In the two weeks through May 17, the “China air pocket” in imports hitting the West Coast has become very visible. The trade war rhetoric between the U.S. and China culminated in a 145% U.S. tariff announced April 9. You can see in the Union Pacific chart below the suppressive effect on its intermodal volumes appears in the week ending May 10, so basically a one-month lag as expected. In Union Pacific’s case, you can see weekly intermodal loadings dropping from 75,000 to 70,000 loads over the past three reported weeks.
The same chart for BNSF shows the China effect only really visible in the past reported week, ending May 17 (so a five-week lag from the 145% announcement), when total loads fell from 102,000 to 97,000 loads. We’ll be dealing with the China air pocket for another two or three weeks in data terms, after which we’ll see a “relief rally” in import volumes, reflecting the de-escalation in the U.S. tariff from 145% to 30% announced May 12.
How strong is this relief rally in imports expected to be? We’re not overly bullish, given a 30% tariff is historically very high, and it’s only fears of a re-escalation off the 30% after the 90-day pause that are driving another round of pre-shipping. You can’t borrow volumes from the future forever. Additionally, even a sustained surge in import volumes is going to be matched against a very strong back half of 2024 in the West, when the U.S. West Coast benefited from share shift away from Canada ahead of expected strikes at CN and CPKC in late August, and even greater share gains from the U.S. East Coast ahead of the East Coast port strike in early October. Nightmare comps, in other words.
To give you a sense for what we’re dealing with, in the Union Pacific and BNSF charts above, we’ve added a dotted line that averages intermodal loads in 2022 and 2023. The latter year was particularly weak, so “normal” loads are slightly higher than the dotted line implies. Regardless, the gap between the dotted line and light green line shows the extent to which the back half of 2024 was boosted way above normal. We’ve been warning about this comp for months, and Union Pacific’s CFO also highlighted it on the company’s 1Q2025 earnings call. It’s important to remember, however, that international intermodal is relatively low-margin business, with an operating ratio north of 70% (our guestimate), so the materiality to earnings is at least diluted.
CSX Operational Recovery, Week 5
In the week ending May 16, CSX finally returned operating car inventory to levels consistent with where it was prior to the Howard Street Tunnel closure on Feb. 1, and the proportion of these cars that were slow-to-move also saw another nice sequentially drop, from 1.9% to 1.5%, a 10-month low.
Elsewhere, terminal dwell and hump yard dwell saw further sequential improvements, and even CSX’s stubborn velocity metrics started to edge higher. There was more good news in the form of no visible impact from the one-day flooding outage of Cumberland Subdivision, which we flagged last week.
We’re now at a point where it’s simply velocity that’s a bit off its game, and that’s probably reflective of a lower temporary ceiling due to the Howard Street Tunnel and Blue Ridge Subdivision reroutes. We’ll need to wait until 4Q2025 before those constraints go away.
