First Quarter 2020 Intermodal Volume
Intermodal volume declined 6.7% in Q1, following an annual loss of 4.1% in 2019. Intermodal volume was impacted by COVID-19 related issues at the start of 2020, while trade uncertainty pulled down volume in 2019. On a quarterly basis, Q1 performed slightly better compared to the 7.4% loss in Q4 of 2019.
From quarter to quarter, individual intermodal market performance was relatively the same, except for a directional change in domestic container growth. The domestic container market turned around this quarter, gaining 2.2% in Q1 compared to the 2.7% loss in Q4. In contrast, international container losses increased from 9.1% in Q4 to 11.3% in Q1. COVID-19 related issues impacted both domestic containers and international volume in Q1. Auto plant and other manufacturing shutdowns across North America, coupled with declining imports, made for a difficult start to the year.
3PL volumes are reported by participating Intermodal Marketing Companies. Overall, volume was up year-over-year slightly in Q1, as highway volumes recorded solid gains and intermodal volume was down a bit. While total domestic intermodal loads dropped 1.8%, IMC intermodal loads dropped just 0.3%, due to a slight decline in January and March and a solid increase in February. February’s jump likely resulted from being a day longer than the year before. Highway loads were up 2.9%, but is likely a result of a 10.6% surge in March following slight declines over the first two months of 2020.
It will be curious to see if IMCs have a significant decline in Q2 or continue to see highway loads rising. While volume was up slightly, average revenue per load fell significantly for both intermodal and highway loads. This resulted in a $113.7 million drop in revenue year-over-year, down 5.0%. Intermodal resulted in 78.8% of that total revenue decline.
Weak comparisons and an increase in conversions to containers led to the domestic container market gaining volume this quarter. On the other hand, falling imports pulled down potential growth as imports feed into transload volume. While domestic containers grew 2.2% in Q1, volume fell 4.9% from Q4 to Q1. In Q1 of 2019, domestic container volume lost 4.1% due to increased trucking competition and weak domestic demand. However, the positive change in domestic container performance in Q1 of 2020 could be the result of weak comparisons rather than an actual improvement in volume. Domestic containers fell in only three of the ten IANA regions this quarter. Losses were concentrated in the eastern U.S. as trucking tends to be more competitive with rail in this region.
In comparison, trailers only gained volume in two of the ten IANA regions in Q1. Western Canada and Mexico gained volume this quarter, but are the two smallest IANA regions. Due to their size, these two regions are sensitive to minor changes in volume. All other regions, excluding Eastern Canada as there are currently no trailers in service in that region, fell over 20%. On the whole, trailers fell 23.3% in Q1 and 21.4% in Q4. Trailer and domestic container performance in Q1 led to an overall loss of 1.8% in the domestic market.
Total international volume fell 11.3% in Q1, an increase from the 9.1% loss in Q4. International suffered in 2019 due to a 0.1% decline in imports into the U.S. This deterioration was triggered by trade disputes and economic uncertainty in the U.S. and across the globe. First quarter imports are normally volatile due to a shutdown of manufacturing plants during the Chinese New Year. However, these shutdowns were extended far past the normal two week hiatus due to COVID-19 related issues. An outsized loss of 27.2% of international loads on the West Coast in Q1 was caused by 11.2% fall in U.S. West Coast imports over the same time period.
Only one region showed an increase in international volume this quarter. Mexico gained 19.5%. However, in similar fashion to domestic containers, Mexico is one of the smallest regions and has limited impact on the overall performance of international volume. Eastern Canada and the Midwest lost over 10% in Q1, while the Northwest, South Central and Southwest all lost over 20%.
The COVID-19 impact on intermodal volume makes it the most difficult time ever to forecast. The decline is expected to be much larger in Q2, and perhaps through the rest of 2020. While volume could surge back up later this year, International volume will likely fall between 15% and 20% during the rest of 2020. This reflects the very low demand for imports as well as the impact of tariffs, most of which remain in place. Domestic container loads also are expected to fall between 15% and 20% as demand is low, fuel prices have fallen drastically, and transloads of imports are expected to decline. Trailers were expected to fall significantly prior to COVID-19, but are now expected fall even more. Overall, total intermodal loadings are forecast to fall about 15% for all of 2020. Yet all those dealing with intermodal should know it is very difficult to confirm where this will go this year.
Trucking Industry Outlook
The coronavirus’ (COVID-19) effects on truckload volumes were essentially limited to March, but they were more than enough to turn what had been forecast as a flat 2020 Q1 year over year into a negative one. Even with two months that largely were unaffected by COVID-19 and a few weeks in March when refrigerated and dry van spot market volumes were sharply higher due to the need to restock grocery store shelves, total Class 8 tractor-trailer loadings were down 1.6% from the same 2019 quarter. Compared to 2019 Q4, loadings were up 0.2%.
No truckload length of haul saw growth, either year over year or quarter over quarter. Long-hau truckload experienced the biggest hit, falling 2.1% year over year and 1.5% quarter over quarter. Super long-haul was down 1.8% year over year, although quarter over quarter it fared the best at flat. Medium-haul was down 1.3% year over year and down 1.0% quarter over quarter. Short-haul loadings were down 0.7% from Q1 last year and 0.8% from Q4.
Refrigerated truckload volume was just above flat year over year in Q1 at 0.1% growth and up 0.6% from the fourth quarter of 2019. Dry van fell 2.6% year over year and 0.8% from 2019 Q4. Together, all other segments were down 1.1% from 2019 Q1 and 1.6% from 2019 Q4.
Before the COVID-19 crisis, active truck utilization – the share of seated trucks engaged in hauling freight – bottomed out in late 2019 and utilization was expected to begin a gradual firming in the first quarter of 2020. However, utilization began to weaken toward the end of Q1. And this trend is not anticipated to reverse soon.
With truck insurance premium costs still high, the number of trucking companies losing operating authority was the highest ever in 2020 Q1. The gross number of carriers losing authority is not necessarily significant as the total number of motor carriers has risen over time, but failures have been above trend since 2018 Q4. However, there continues to be new entries, and indications are that until the COVID-19 crisis most of that capacity was being absorbed into the existing carrier base to haul what had been solid freight demand.
Spot market capacity in dry van and refrigerated freight rose modestly in late March as carriers chased a very brief period of higher loads and rates. However, spot truck availability remains slightly below 2018 in dry van and well below that level in refrigerated. When overall freight demand was solid, low truck postings suggested a general balance between capacity and demand. In the current environment, we would have expected a surge of trucks posted in the spot market. A smaller-than-anticipated increase could imply that some smaller operations either cannot operate or are choosing not to do due to health worries.
Meanwhile, truck and trailer orders are plunging due to the COVID-19 crisis. North American Class 8 orders plummeted in March to their lowest level since 2010.
The for-hire trucking industry added 1,500 payroll jobs in 2020 Q1, according to preliminary Bureau of Labor Statistics estimates. Even in March, trucking jobs were basically flat at a loss of just 200 jobs in a month that the U.S. economy lost 701,000 jobs. However, data collection for the BLS report ended in mid-March, and the early stages of the COVID-19 impact represented the strongest period of increased demand in dry van and refrigerated freight.
The FTR Truck Driver Pressure Index remained negative in 2019 Q4 at -6.1, indicating no driver-related pressure on rates. The index has a baseline of zero, which represents balance in the driver hiring environment. Positive readings suggest greater pressure on rates and utilization; negative readings suggest less pressure.
The near-term outlook for trucking obviously is bleak due to COVID-19. The forecast for Class 8 tractor-trailer loadings in 2020 Q2 is for a 9.0% drop year over year and an 8.1% drop quarter over quarter. The third quarter could be even slightly worse compared both to the second quarter and 2019 Q3. We might not see any significant recovery begin until early in 2021. All segments are forecasting as negative in 2020 compared to 2019 with refrigerated least negative and flatbed and bulk/dump hit the hardest.
Utilization likely will continue to deteriorate through early 2021. Although driver capacity certainly will fall, our expectation is that the collapse in freight demand will outpace the decline in active capacity. However, this is clearly one of the major areas of uncertainty. Direct federal assistance from Washington coupled with very low diesel prices is expected to keep some capacity in the market that normally would exit during such conditions, especially considering that carriers cannot readily dispose of equipment. Even before the COVID-19 crisis, used truck values were poor. On the other hand, truck insurance premiums likely will continue knocking out carriers once temporary moratoriums against cancelling insurance for non-payment expire. Although this has been happening for more than a year, the freight market was strong enough to absorb the idled drivers, and that won’t be the case for a while.
The weaker active truck utilization and sharply lower diesel prices – both consequences, directly or indirectly, of COVID-19 – mean that intermodal volumes, which are weak enough due to lower imports and exports and other COVID-19 impacts, will be further challenged by competition from the truckload sector.