Intermodal remains resilient, despite trucking demand dip

In July, Union Pacific shut down service from Los Angeles to Chicago due to container congestion around the rail ramps and yards. Drayage service and equipment shortages were cited as driving factors. Many shippers shifted to truckload to get orders in a more timely manner. Inventory levels were still low relative to demand at this time. 

In February, the Logistics Managers’ Index (LMI) reported record inventory growth. While there have not been many macroeconomic figures to support a severe dip in consumer demand just yet, it has been widely discussed that shippers have been ordering more than they need for the past several months thanks to uncertainty around production and capacity. The uptick in the LMI is indicative of strong demand side easing as there has been no real change in ordering behavior.

The cost of holding inventory has been on the rise as well, according to the LMI, with the inventory cost figure showing a value of 75 or higher (extreme expansion) since January of last year.

Ironically, the things that have hurt intermodal over the past year, congestion and slower service, are now becoming its biggest values. Intermodal containers are essentially movable storage as they can be easily loaded and offloaded from the rails or onto trucks. They can also serve as temporary storage without needing a warehouse.

The recent decline in truckload demand is more indicative of a decline in the sense of urgency for goods transportation as the upstream modes of maritime and rail transportation have not seen the same level of a slowdown. 

The Inbound Ocean TEUs Index that measures bookings of twenty-foot equivalent unit containers moving into the U.S. has not shown much indication of slowing. There are still many questions around China and its reliability in the wake of the zero-COVID policy, which puts the supply of goods in question. 

Essentially, shippers are still not quite ready to relax on ordering for the future while current demand eases. Inventory management is the next big hurdle to overcome in the supply chain.

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