Intermodal Volumes Continue to Outperform Despite Seasonal Trends

The intermodal market has been experiencing remarkable growth, with volumes continuing to outpace January 2024 levels despite typically soft seasonal trends. This resilience can be attributed to several key factors, including high Chinese exports, a robust U.S. consumer, and shippers building up inventory in anticipation of tariffs. Additionally, railroads have been strategically maintaining their head count levels while improving operational efficiency and productivity, allowing them to handle the growing intermodal volumes effectively.

In the third week of January 2025, intermodal volumes grew by an astonishing 27% year-over-year, driven in part by high Chinese exports. This growth was further bolstered by a strong U.S. consumer, who has remained resilient despite the impacts of inflation and interest rates. Shippers have also been building up their inventories in anticipation of potential tariffs, contributing to the continued growth of intermodal volumes.

Railroads have been navigating this growth by optimizing their head count levels and improving operational efficiency. For instance, Union Pacific CEO Jim Vena highlighted improvements in productivity at an investor conference in December, allowing the railroad to manage steady volumes with fewer employees. Similarly, CSX has projected a flat head count outlook for 2025, anticipating that its existing workforce can absorb the increased demand through improved efficiency measures.

The growth in intermodal volumes has been supported by diversified growth across various commodity types. For example, grain is up 15% so far this year, petroleum products volume has increased by 10% so far this year, and chemicals are up 7% year to date across the Class I rails. This diversification helps protect railroads against downturns and ensures a more stable market share.

The intermodal market's resilience through the third week of January 2025, which is typically a deep trough in rail volumes, indicates the strength of the market. While rail intermodal competes with trucking on the longest lengths of haul, it serves as a backstop for trucking volumes at shorter lengths of haul and is generally indicative of shippers' attitudes toward their inventories. The question looking forward is how deep a seasonal trough, if any, intermodal volumes will see this winter before they start rebuilding momentum toward their traditional late-fall peak.

In conclusion, the sustained growth of intermodal volumes, despite seasonal trends, can be attributed to several key factors, including high Chinese exports, a robust U.S. consumer, shippers building up inventory, and railroads' proactive measures to optimize head count and improve operational efficiency. As the market continues to grow, railroads face potential risks and challenges, such as capacity constraints on rail networks and volatility in freight pricing. However, their proactive approach to managing growth and diversifying commodity types positions them well to navigate these headwinds and maintain their market share in the intermodal market.