Intermodal Markets: Operating leverage first

Consider the fact that across Union Pacific, BNSF, CSX and Norfolk Southern, headcount was down 16.6% year-over-year in July (less negative than June’s -17.9%), yet last week intermodal volumes were up 1.9% year-over-year for the second week in a row.

In particular, the best intermodal volume growth has been in Union Pacific’s network, where over the past four weeks intermodal volume has averaged 5.5% higher than in the year-ago period. From June to July, though, Union Pacific grew its employee headcount by just 2.2%. Management has indicated that it believes it can run the railroad with fewer people; we don’t expect UNP’s headcount to grow above 2019 levels.

Union Pacific imposed more spot rate hikes out of California this week, with the apparent intention of discouraging spot business so that it can concentrate on restoring network fluidity for its core contracted customers.

Meanwhile, in response to Amazon’s grab for trans-Pacific containership capacity, Walmart has booked slots going to Houston and Savannah, Georgia. We reiterate our belief here that West Coast intermodal network issues will not be resolved anytime soon, especially as volumes rapidly grow into peak season. That will put more pressure on trucking companies and continue to tighten capacity on the West Coast, as well as important trucking markets like Dallas.