FTR's state-of-freight message: Plan for uncertainty in 2023
1/18/2023
By Julie Sneider, Senior Associate Editor
The outlook for the freight transportation business in 2023 can be summed up in one word: uncertainty. That was the takeaway from FTR Transportation Intelligence’s webinar, “State of Freight: Cutting through the Fog,” which was presented Jan. 12. It gave viewers insight into the economic factors that likely will affect rail, trucking and other industries that transport goods and commodities across the country.
The program’s panelists were FTR Vice President of Rail and Intermodal Todd Tranausky and FTR VP of Trucking Avery Vise. FTR CEO and Chief Intelligence Officer Jonathan Sparks served as moderator.
Vise kicked things off by noting that the “elephant in the room that everyone is watching” remains inflation, which began to soar last spring with the spike in gas prices. In general, FTR anticipates a slowing economy in 2023.
“The good news is that inflation is cooling — it’s past its peak, but it’s not disappearing,” Vise said. “Although inflation remains high, consumer spending remains steady.” However, the personal savings rate is at a record low, which is a red flag for consumption and the overall economy. Also, job payroll growth is slowing but remains solid, he said.
Meanwhile, in discussing international trade and import trends, Tranausky noted that import growth slowed in 2022.
“The good news is that inflation is cooling.” — Avery Vise, FTR vice president of trucking FTR Transportation Intelligence “When you think about imports, there’s a couple of things to keep in mind: Not all imports are equal, and you have some seasonality involved,” Tranausky said. “We’re a week away from the Chinese New Year, so we typically have a seasonal decline in imports early in the year. We didn’t really see that decline in 2022, but we expect to see a traditional Lunar New Year in 2023.”
Also, imports trends are regional depending on their ports of entry. California ports, for example, saw imports drop off dramatically in 2022. The reasons for that include port congestion; shippers moving to other port complexes; and uncertainty over dockworker contract negotiations. On the other hand, Southeast ports logged less of a dip in traffic in 2022, and Gulf Coast ports experienced a “renaissance” of strong import volumes.
When it comes to rail, Tranausky noted that carload and intermodal volumes were particularly weak over the last couple of years — and that trend is likely to continue by varying degrees in 2023.
In terms of carloads, volumes remained below the five-year average for much of 2022. According to the Association of American Railroads data, the number of U.S. carloads dipped 0.3% to 11,976,283 last year compared with 2021 volumes. Although higher natural gas prices helped boost coal carload activity in 2022 and in 2023’s first week, carload increases in coal and other bulk commodities (like grain) won’t be enough to drive growth in carload volumes in 2023, Tranausky said.
Carload volumes ‘flat’ in 2023
And even though AAR data reflected a slight increase in carload traffic during the first week of 2023, “we expect carloads to be flat on a full-year basis” due to a slowing economy, Tranausky said.
Also, some individual commodities will face headwinds. One is coal, he said.
“A lot of coal-fired plants are slated to come offline this year due to consent decrees,” said Tranausky. “That will make it hard for coal to post growth on a full-year basis. We expect to see [coal carloads] go down significantly.”
“All segments of intermodal are going to struggle in 2023.” — Todd Tranausky, FTR vice president of rail and intermodal FTR Transportation IntelligenceOn the plus side, there’s good news for economically sensitive freight (ESF), which includes things like pulp and paper, metal, autos and parts, potash, crushed stone and sand, and excludes coal, agriculture and petroleum products.
“There is a relatively steady picture of growth expected in economically sensitive freight,” Tranausky said. “Now, it’s not going to be gangbusters growth. … It’s going to be 1 to 2% growth, slow and steady, for the balance of the year.”
One ESF category that Tranausky anticipates will show gains this year is chemicals, which has been a carload volume growth driver in recent years. That growth started to trail off in 2022, but overall chemical volumes are expected climb in 2023, aided by a strong Q4.
Challenges ahead for intermodal
On the intermodal side, FTR expects to see “weak and negative” volumes due in part to stiffer competition from trucking.
“All segments of intermodal are going to struggle in 2023,” Tranausky said. “It will be a sustained downturn for most of the year. As we get to the end of the year, we expect things to recover a little bit, but it’s only going to be a little bit.”
A key — and ongoing — risk factor to the railroads’ freight traffic recovery will be their quality of service, Tranausky said. Shippers’ rail service complaints have been well documented by the Surface Transportation Board over the past couple of years. The railroads have attributed the problems primarily to a shortage of train operators.
“As an industry, the railroads made progress on hiring in 2022, but they’re not back to where they were before the pandemic or before they started introducing precision scheduled railroading,” Tranausky said. “But there has been movement in the right direction in terms of how many operating personnel are available to move freight across the network.”
As railroads bring more train operators on board, service will improve, Tranausky added. However, improvement will vary by railroad, as some are farther ahead than others in hiring and training new train crews.
“Service certainly has been a headwind for growth,” he said. “It hasn’t encouraged shippers to bring freight to the railroads if they have an option at all.”
