The Class I U.S. railroads are not struggling with congestion anymore. Traffic is down, and weak intermodal business owing to sluggish imports is a major factor.

According to the Association of American Railroads (AAR), traffic declined 4.1% from the period last year in the 31 weeks of this year to August 5 weekly. U.S. carriers suffered a contraction of 5%, while Canadian operators saw a 2.9% decline. Only the Mexican railroads could report growth, with weekly traffic up 4.9%.

In the U.S. intermodal traffic fell 9.5% during the period. Intermodal flows have been a major brake on rail traffic this year.

The week of August 5 shows a modest gain in overall volume of 0.7%. However, intermodal units were down 6.4%. Likewise, the Canadian railroads posted a 2.9% gain in weekly cargo volume through August 5, but their intermodal business dropped 10.9%.

The Intermodal Association of North America (IANA) recorded a drop of 10.4% in intermodal volume for the second quarter, resulting in a decline of 9.6% for the first half of the year.

The organization’s numbers point to weak international flows as the biggest culprit. The international container count slumped 13.2% in the second quarter, while domestic units slipped 6.3%.

The decline was not confined to particular sectors, such as flows from California to the Midwest. Intermodal traffic sank in all the top seven freight corridors. Together they account for about 60% of total U.S. volume.

Union Pacific (UP) reported a 20% drop in intermodal revenue for the second quarter, with revenue per carload falling 14%. BNSF, which suffered drops of 12% and 11% respectively in revenue and volumes, saw its consumer products volume fall 16%, driven by weak imports through the West Coast, the loss of a major intermodal customer and competition from the trucking industry for domestic intermodal cargo.

In the eastern U.S., Norfolk Southern saw a 9% drop in intermodal shipment count and a 15.7% fall in intermodal revenue per carload. CSX attributed its 12.9% fall in operating income partly to lower intermodal volume.

July brought no respite for carriers, with AAR statistics showing a 5.5% retreat from a year earlier in intermodal traffic.

For the Canadian Class I railroads the picture worsened in July due to the port strike at Vancouver and Prince Rupert, the nation’s top and third-ranking maritime gateways. In the last week of July their intermodal volume was down 15.9%.

Only the Mexican rail carriers thrived. For that week their intermodal tally was up 3.6%, in line with a 3.5% gain over the first 31 weeks of the year. In the following week they saw a 4.9% increase in volume.

Cross-border traffic between Mexico and the U.S. is enjoying a robust tailwind from the rising nearshoring trend, which brought a wave of new factory openings to Mexico.

Rail carriers and intermodal service providers have responded to this growth with a flurry of new services and alignments. Canadian Pacific Kansas City (CPKC), which commenced its merger in mid-April, has been very much in the driving seat, eager to leverage its position as the only Class I railroad with a network that spans all three USMCA countries.

In May it unveiled a daily intermodal service that links Chicago with San Luis Potosi in central Mexico, with a transit time from Chicago to the Mexican terminus of 98 hours.

Within weeks of the official merger date of April 14, CPKC struck up alliances with Schneider National and Knight-Swift to beef up intermodal traffic to and from Mexico. Rivals UP, Canadian National and GMXT responded to CPKC’s merger with a joint service that connects CN’s Canadian network with GMXT’s rail ramps in Mexico, via UP’s route between Texas and Chicago.

CPKC’s latest move has been a deal with shipping line Hapag-Lloyd to move cargo arriving at the Mexican port of Lazaro Cardenas up to the U.S. The pair seek to market the Mexican gateway as an alternative for cargo owners who want to avoid U.S. West Coast ports and for those looking for a faster transit than routings to the U.S. Gulf Coast.

The rail carrier argues that the ocean passage from Shanghai to Lazaro Cardenas is 10 to 14 days shorter than the route to Houston through the Panama Canal. Interest in this is likely on the rise in light of the restrictions on the Panama Canal in response to low water levels owing to severe drought.

CPKC executives have expressed confidence that the new service will be well received. Down the road management aims to boost frequency, ultimately to a daily service.

The company expects intermodal traffic to generate an additional US$550 million in the coming five years. About US$150 million of this is expected to come from temperature-controlled intermodal shipments.

CPKC has a partnership with cold chain service provider Americold, which sees the latter build temperature-controlled facilities at CPKC stations. In addition, the pair are going to field 1,000 new temperature-controlled containers.

According to the rail carrier, 250 of these were already in service in late June. The rest should be operational before the end of the year. By then operators hope intermodal traffic will have emerged from its doldrums. Traffic should be on the rise, but nobody is expecting a bumper peak season.

By Ian Putzger

Correspondent | Toronto