Bend, Don’t Break: Last year we tracked a domestic intermodal surge on BNSF and used it as an example of the Bend-Don’t-Break playbook, which acknowledges that railroads will naturally slow under volume pressure (particularly unexpected pressure), and rather the goal is to quickly activate and position critical resources to: 1) limit the damage in terms of operating efficiency; 2) speed the eventual rebound; and 3) take the worst-case scenario off the table (meltdown).
It was a good primer for what we’ve seen this year regarding western international intermodal as labor-related diversions from western Canada and the U.S. East Coast boost imports through U.S. West Coast ports. Union Pacific, on its Q3 earnings call, quantified the surge in international intermodal at 33%. Rail networks hate surprises, and this is a historically big one.
Below you can see what it’s done to total intermodal loads on Union Pacific. Strength began immediately after Memorial Day and then exploded from the third week of July. The peak, so far, occurred in the week ending Oct. 4 at more than 87,000 loads, which is the highest weekly load count since the first week of December 2018.
Strong volumes are, of course, a good thing, but now let’s quantify the price being paid for these volumes in terms of network inefficiencies.
Here’s Union Pacific’s intermodal network velocity back to 2017, and it’s a bleak picture. We did see a welcome uptick last week, to 28.5 mph, but the week before, at 27.9, represented the slowest performance since the February 2019 polar vortex. Even the current 28.5 is still worse than at any point during the 2022 Service Crisis and during the massive re-routes when the Dry Canyon Bridge in Northern California was out (fire damage) during July of 2021. The green columns show trains per day holding for “other” (congestion in this case) and you can see the corresponding peak in the week ending Oct. 11, followed by a modest improvement the week ending Oct. 18
Another useful measure is to count the number of intermodal platforms that were idle for 48 hours or more in any given week, as spikes can indicate congestion. Does that also show a top in the week ending Oct. 11 and a modest improvement off that high in the following week? Yes it does, with idle platforms hitting 248 in the week ending Oct. 11, representing a high not seen since Tropical Storm Hilary took out a bridge on UP’s Sunset Corridor in August 2023, before a small improvement to 189 the following week.
Finally, we’ll look at intermodal cars-on-line, and it also corroborates the Oct. 11 peak story. UP’s operations team is, rightly, sensitive to operating inventory, and this looks a bit out of control as they struggle with the international surge. The peak of 18,594 platforms during the week ending Oct. 11 is the highest, again, since the February 2019 polar vortex of 19,905.
A Little Too Early to Declare Victory
We now have four key data sets—speed, trains held, idle platforms, and cars-on-line—that all paint the same picture. A peak in network inefficiency in the week ending Oct. 11, before a potential inflection the following week. Our gut says this inflection is real but remember the golden rule for weekly rail data: You need three in a row to call a change in trend. We only have one. Stay tuned.
Is Congestion Now Stifling Volume?
There’s an aspect of the rail feedback loop we also need to be aware of. Surging volume will push speed lower and ultimately result in congestion, which then feeds back in the form of lower volumes. If you go back to the first chart we showed and look at volumes over the last few weeks that’s what we may now be seeing. A volume peak in the week ending Oct. 4, peaking congestion metrics in the week ending Oct. 11, which then stifles volumes to a six-week low in the week ending Oct. 18. Probably between LA and Dallas. For the record, we haven’t discussed this stifling effect with the company; it’s just our speculation.
Looking Ahead
We’ll reluctantly, but necessarily, veer into politics here because according to the polls there’s a 50% chance we’ll have another Trump Administration early next year and associated U.S. and reciprocal tariffs; a.k.a Trade War. In that scenario, on the day after the Nov. 5 election, every importer is going to be calling China and elsewhere, and ordering as much stuff as possible to beat the tariffs (inauguration is just 10 weeks later). That could trigger a second international intermodal surge, resulting in more volume pressure on the networks and hitting them in winter when operations are seasonally more challenging. The railroads need to have capacity contingency plans in place for this.
In the event Harris wins, intermodal volumes should simply normalize over the next few months as the Canadian and East Coast diversions ultimately correct.
Never a dull moment in rail.
