Intermodal markets: Worse before it gets better

Containership lines are still voiding sailings to West and East Coast ports in the United States, threatening downstream domestic intermodal volumes, but the more profound risk is that consumer spending will pull back further and kill the demand for intermodal goods.

Contracted truckload volumes went negative on a year-over-year basis Wednesday and will continue to drop. We expect intermodal capacity to be abundant.

In an April 1 client note assessing how negative the freight outlook may get during the pandemic, UBS transports analyst Tom Wadewitz wrote, “2008 / 09 downturn may be a reasonable framework and it implies downside for [earnings per share] and the transport stocks.”

Of the Class I rails, Wadewitz found that Canadian National and Norfolk Southern were most exposed to international intermodal revenue, which he views as currently under threat. He also noted that rail volumes bottomed in the second quarter of 2009 at -22% year-over-year, implying that there is still room to run in the current downturn.