Intermodal 2021 Outlook

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Intermodal 2021 Outlook

Featuring Mark McKendry, Regional Vice President of Intermodal at NFI

What do you think is in store for the intermodal market in 2021?

One thing we’re going to see in 2021, alongside incremental capacity gains, is incremental price increases. When supply and demand dictate that price must go up, it absolutely will, especially in the precision scheduled railroading models. As long as intermodal trade is at a relative discount to trucks, I think the market will accept that, but I think shippers need to brace for the inevitable. And that will mean the movement of goods is going to cost us more in 2021 and likely beyond. And that’s not just because of supply and demand. There are other external forces like the cost of insurance on the highway side that are going to drive that and what that may do is drive more freight to rail. What that might do consequently for long-time users of rail is actually increase their same-store price fairly dramatically in 2021. I do think when you contrast that with the volatility of the trucking market there will be shippers who are happy to make that trade. I expect that we’re going to see a little more volatility in the short term. I don’t think anyone can accurately predict what demand is going to look like, but I do think that we’ll see somewhat of a sustainment of what’s happening today, which is fairly consistent demand. I do believe the incoming administration is going to facilitate even more consumer confidence, even if it’s just short and mid-term, and that will probably provide some stability to the freight economy. And that likely means passing through the costs, unfortunately, to shippers in 2021.

You mentioned the new administration. Is there anything else that you foresee the new administration having an impact on within the market?

What I think we’ll see with the new incoming administration is more harmony with trade partners, both allies and otherwise, and that’s going to lend itself well to predictability in the international market. Whether or not we achieve a trade balance is sort of besides the point at this juncture. What I think we need to do is focus on repairing those relationships and also ensuring that consumers have confidence and they continue to spend, and they’ll drive the economy forward when they do. All of those things  I would say look positive under the incoming administration.

What do you expect to see for intermodal capacity in 2021?

What we’re likely going to see in the medium term is a replenishment of inventory levels which is going to sustain demand both domestically and globally. When that stops becomes a moving target, I think what needs to happen for any sort of decline in demand would have to be either consumer driven, market driven, or capacity driven. In other words, more capacity coming online to handle what we believe is sustained demand. It’s hard to predict what that’s going to look like. I do think what we would suggest most shippers do is be diversified in your routing guide and make sure that you have multiple modes to rely upon, because when you think about rail and what happened in August and late July with unprecedented peak season surcharges, those typically aren’t applied to folks who have consistent repeatable freight with the rails. What I would encourage everyone to do is look at implementing an intermodal strategy if they don’t already have one, because having consistent freight presented to a railroad means that you’re protected against the variability, to an extent, of a capacity crunch. Folks who show up looking for capacity in August of 2021 are going to be treated much the same way they were this year [2020]. And that means unprecedented peak season surcharges, getting into the neighborhood of $5,000 per container. That’s not what we expect for 2021, but it’s a possibility and it’s one we need to plan for. And I think, when you mitigate risk, which all shippers are vested in doing, one way you could easily do that is by being diversified in your routing guide and ensuring you have multiple mode coverage. I would say that you want to take that strategy with trucking as well. And that’s why non-asset providers like NFI on the brokerage side are key in the routing guide because of their carrier partnerships.

What other advice would you give to shippers as they continue to consider their operation?

I think shippers in 2021 are going to be faced with unprecedented challenges in trying to predict what this market looks like for them, both with their demand and sales, and with capacity to actually move freight throughout their supply chain. What they need to be doing is partnering with strong 3PLs like NFI to ensure that they get a bird’s-eye view of what’s happening in the broader marketplace and get an understanding and a scale that allows them to be successful. Also what they’re going to gain is collaboration and transparency, and I think what NFI brings to the table is precisely that and more.

How do you think shippers will adjust their supply chains moving forward?

Supply chains are organic in nature right now, they’re basically living, moving organisms. What that’s driving is demand, how we position inventory, and how we migrate inventory throughout the supply chain. There’s been an urbanization of forward nodes that allow traditional retailers and e-commerce platforms to move freight into more urban centers in a way to deliver next day or same day service. And while that doesn’t necessarily affect the major line haul components between major networks, especially transcontinental networks like the West coast and Northeast, we are definitely seeing a shift with buying and demand patterns as well as inventory levels and the inventory to sales ratio. All of those things are conspiring to make 2021 a little more unpredictable, but I think that nimble supply chains exist and at NFI, with our scale and our visibility in this marketplace allows us to see those changes happening.

I do think that with the shifts that we’ve seen to e-commerce, there’ll be a softening there as retail accelerates. Although it’s obvious that we may not see a return to what we had pre-COVID, it’s reasonable to assume that there’ll be an effect on the demand that we see within e-commerce. And that could be good for rail capacity and frankly, for truck capacity, as other providers who are maybe less fragmented across North America gain access to their customer base again. As supply chains evolve to meet the demands of consumers in 2021, being partnered with a 3PL like NFI gives shippers the best possible opportunity to be successful.

What are the biggest drivers for these changes? 

Some drivers for change in 2021 that shippers need to be aware of is with a new administration and more of an open door policy on trade, we could see increased transporter traffic, both northbound and southbound between Canada and Mexico. But what we also might see is a shift in the global space which might have an impact on lead time and transit because the West coast port congestion is extreme and that’s led to freight moving through the Panama Canal to hit an Eastern port. This would be freight traditionally originating in Asia and landing in the West coast, whether that’s up in the port of Vancouver or in the Pacific Northwest or in LA/Long Beach. That migration eastward has a real big impact on how long it’s going to take to get freight into their distribution centers. I think with more free trade we might see even more volume, as long as there’s consumer stability. What becomes difficult to predict is where that will come from. If you’re operating supply chains and you’re buying from all over the world, your buying patterns may shift out of necessity to something more local or it might be a different market than Asia, as an example. When that happens the predictability of transit time and the consolidation we’re seeing in the ocean space may lead to delays. 

How can NFI help shippers in 2021?

NFI Intermodal can help shippers by being the voice of the customer to the railroads. We have a lot of scale and a lot of recognition in this industry. We are members of professional bodies that oversee and govern how intermodal runs within North America. We are obviously very connected with our Class 1 railroad partners. And what we can do is strongly advocate for shippers, not only in 2021, but 2021 and beyond because of our presence, our scale, and the fact that we run an asset and a non-asset network allows us to have more flexibility, more stability, and more capacity for our customer.

What are you most excited for in 2021?

I find rail exciting and I know that it’s been volatile and it’s been a tough year, but we also know that it can only go up from here. So I’m excited to see how we respond to the challenges of 2020 and how we build a better stronger network in 2021.

portrait mark mckendryMark McKendry, Regional Vice President of Intermodal at NFI, is responsible for NFI’s asset and non-asset intermodal sales and operations teams across North America. Mark and his team are experienced in domestic and cross-border intermodal solutions.