This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
Will rails regain their intermodal mojo in 2020?
Well, they had better; intermodal remains the best opportunity for rail to show sectoral as well as cyclical growth and to participate in the new economy.
Certainly, after the tough year of 2019, it will certainly look (somewhat) better, not just due to comparisons but because of reduced “de-marketing” under the new precision scheduled railroading (PSR) operating plans. The big macro questions, the ones the rails cannot control, remain the state of the economy and, particularly, the status of trade wars. In addition, trucking overcapacity may be coming down, but it isn’t over.
So what’s a railroad to do?
Looking back at the last two years, it is certainly easy to see what they should have done — provide more reliability and capacity in 2018 — which will go down as one of the biggest “missed opportunities” of all time. By the time they begin to get their service act back together (with the help — yes — of PSR), it won’t be too late; they are still in the game. But the lost year of 2018, combined with a general policy of holding the line on price, meant that a stairstep or two of share was lost. The added volumes in 2018 came in the form of trailers, not uncoincidentally the worst performing subset in 2019. Had the rails been able to offer more domestic container capacity and reliability in 2018, they would have been ahead of the game. Some think the rail management decision-making comes from short-termism and too much focus on the Operating Ratio (OR). I am sure that played a role.
Looking ahead, balancing out the aberrations — trade & tariffs, ELDs, etc. — as PSR plays out across the industry, we can start to think of a restoration of the upward trend line in service and, therefore, market share. But I will always wonder, “What if?”