Intermodal markets: Rates rise to YTD highs

A national average intermodal spot rate of $2.62 per mile last week broke the year-to-date/all-time high in our data series (rising by 40 bps week-over-week) and underscores strong containerized imports and tight capacity on the rails, especially on the West Coast. At FreightWaves’ North American Supply Chain Summit on Tuesday, Gene Seroka, executive director of the Port of Los Angeles, told viewers that current volumes are running up 50% year-over-year, which suggests no near-term relief in West Coast port activity flooding intermodal networks. Seroka described how this year’s peak season for consumer goods was delayed by multiple weeks compared to normal seasonality due to the traffic overflow.

Operational issues like widespread bottlenecks caused by high volumes, lack of space, imbalanced container flows and labor shortages have no easy fix and will take time to solve.

Last week, Class I intermodal volume maintained 11.1% y/y growth and average intermodal train velocities also accelerated. Intermodal tender rejections on a national basis actually came down slightly to 2.47%, but we expect further waves of tightening and congestion to ripple through the nation’s intermodal network into Q1. 

There was a fundamental negative data point this week in that November retail sales contracted by 1.1% and missed consensus expectations of -0.3%. This is not yet overly concerning in our view and more likely a timing issue but worth monitoring.

Regarding the ability for new capacity to come in and act as a release valve, intermodal is very concentrated in terms of market share relative to truckload and capacity tightness will not be solved by high rates but instead by coordination.