Plan for extended intermodal surcharges
West Coast port volumes surge
In early September, Union Pacific (UP) announced California intermodal markets are constrained. Peak season surcharges were announced to match cost with high demand. Today, the volumes have outpaced all predictions, which led UP to increase the peak season surcharges again in October. They have also indicated an extended peak season. The major asset players have all followed suit and have placed surcharges on their equipment as well.
Factors extending peak season surcharges
Several factors are contributing to the extension of peak season surcharges. First, ongoing labor negotiations at East and Gulf Coast ports, with a potential strike looming in January 2025, have created uncertainty.
Second, concerns over potential new tariffs have prompted importers to expedite orders to arrive before March, which is the earliest date the new administration could put new tariffs in place. Third, the regular retail peak season surge at this time of year is exacerbating the situation. As a result, West Coast ports are expected to see increased demand for several more weeks to come. Overall, the domestic U.S. intermodal market is up 11.5% year to date.
Potential East and Gulf Coast port strike on January 15, 2025
A potential labor strike at East and Gulf Coast ports is looming as the contract extension deadline of January 15, 2025, approaches. Both parties have yet to resolve the primary issue of automation. Because not all industries can pull inventory forward in advance of a strike, many shippers are exploring their options—from leveraging ports in Canada and Mexico to diverting qualifying shipments to the West Coast.
While more details won’t be available until January, the most important step now is to get risk mitigation plans in place to avoid any surprises if the strike occurs.
Intermodal growth in Mexico
Mexico has been a bright spot for intermodal growth in 2024 with double digit increases, keeping up with the last several years of double-digit growth y/y.
2025 pricing prospects
Expect increased pricing in the low, single-digit range for the last quarter of 2024 and through 2025 due to new U.S. railroads that have labor agreements and inflationary pressure. Rates have already begun to rise, so the best time to lock in intermodal rates is now. Spot rates remain low as they mirror the current over the road market. However, the railroads are confident spot prices will jump dramatically in the second half of 2025. If they are correct, the lowest yearlong rates will be right now.
Strong service metrics
Intermodal service, as measured by train speeds, is tracking just below the five-year average. However, given the large increases in volume and demand, rail service is still performing very well overall.
With strong service and low pricing, contact your C.H. Robinson account team to see how you can best take advantage of intermodal within your portfolio today.