SONAR data shows volume weakness across both the international (40-foot, 20-foot and 45-foot) containerized and domestic (53-foot) containerized segments. Slowing consumer demand and elevated retail inventory levels are hitting volume in both segments simultaneously. However, the relative synchronicity of both segments (moving lower at the same time) is a departure from the pattern since the onset of COVID — domestic intermodal held up better than international throughout most of 2020, 2021 and early 2022. 

The international intermodal segment has closer ties to import volume and ocean container availability while the domestic intermodal segment is also influenced significantly by the state of the domestic truckload market.

After volume strength in 2020 driven by import volume, international intermodal volume declined throughout 2021 due to scarcity in the oceangoing container market and congestion at inland rail terminals. Those factors made the containership lines less willing to send oceangoing containers inland, and there was an uptick in transloading imports from 40-foot international containers into 53-foot domestic containers. International intermodal volume continued to be lackluster throughout 2022 and into 2023. While oceangoing container availability issues have eased, consumer demand and falling import volume, particularly on the west coast, are currently the primary volume constraints.

From mid-2020 until early 2022, domestic intermodal volume benefited from a tight truckload market and, at times, more transloading of imports from international containers into domestic containers. Those dynamics provided support for volume, but also created greater imbalances in intermodal networks leading to greater equipment repositioning costs and reducing container turns.

After the turn in the truckload market last year, most of the shorter-haul lanes, and more of the midhaul lanes, are competitive across modes, which has constrained domestic intermodal volume since mid-2022, particularly for relatively time-sensitive shipments, amid lingering intermodal service issues. Notably, truckload capacity is loose for long-haul loads outbound from LA — dry van carriers are currently rejecting less than 2% of outbound LA tenders with lengths of haul exceeding 800 miles, down from 15%-30% from mid-2020 to early 2022.

While a small portion of intermodal volume moves on the spot market, spot rate quotes contained in SONAR (door-to-door rates to move 53-foot containers) provide a weekly indicator of intermodal capacity availability, which is often related to the availability of domestic containers.

In 2020 and 2021, intermodal spot rates rose in the third quarter as carriers anticipated capacity tightness in the fall. In contrast, falling intermodal spot rates in 2022 provided an early indicator that carriers were not expecting capacity tightness during the months historically associated with peak volume. In short, in the second half of last year, carriers did not feel the need to raise spot rates to protect capacity for contractual shippers. Intermodal spot rates have since remained depressed.

Domestic intermodal contracts are typically one year in duration, and most contracts reprice in the first half of the year. The change in contract rates usually reflects the relative strength of the prior fall’s peak season. Accordingly, tight intermodal capacity in late 2020 and 2021 led to double-digit rate contract rate increases (linehaul contract rates shown below) in early 2021 and 2022. 

The muted 2022 peak season, combined with weak consumer demand and looseness in the domestic truckload market suggests that domestic intermodal contract rates should decline (excluding fuel surcharges) as they are repriced in early 2023. That is directionally consistent with intermodal contract data shown in SONAR so far this year, which shows intermodal linehaul contracts in January 2023 3.6% below January 2022 levels. The decline from last year is likely to widen as more intermodal contracts are repriced as the first half progresses.