Dive Brief:

• U.S. railroads originated more than 1.1 million carloads in September, nearly a 10% YoY decline, and about 1.4 million intermodal containers, an increase of more than 7% YoY, according to the latest numbers from the Association of American Railroads.
• "September 2020 was the fourth best intermodal month in history for U.S. railroads, as retailers and others restocked their inventories and prepared for the holiday season," AAR Senior Vice President John T. Gray said in a statement. 
• Volume for Class I railroads were two to three percentage points better than expected for Q3 across CSX, Union Pacific and Norfolk Southern, according to a research note from UBS.

Dive Insight:

Rail has seen a boom in intermodal traffic as retailers restock shelves and consumers continue to shop through e-commerce channels while the pandemic continues to affect shopping patterns.

"The first thing that's really juiced up demand is e-commerce and the parcel side of the world," Union Pacific CEO Lance Fritz said at an investor conference last month. "So, our parcel customers and ... you know that UPS, FedEx, perhaps Amazon can be lumped in there to an extent. Their business is booming, and we're seeing demand through those service products really, really strong, which is good."

Railroads also see the current climate as an opportunity to chip away at some of the volumes in the trucking market. The railroads could have a pricing advantage — "particularly in this environment as things tighten on the truck side," CSX CFO Kevin Boone said last month.

UBS expects overall rail volume to go positive on a YoY basis in Q4, thanks in part to a strong peak season. But not everyone is so sure.

"There's very little guidance out there; nobody has a good crystal ball because there are too many variables," said Tony Hatch, an independent rail freight analyst with ABH Consulting.

Right now, intermodal volume is being partially driven by restocking, and it's hard to know how long that trend will continue, Hatch said. Everything from changes to coronavirus case numbers to the potential of a second stimulus play a role here.

"I am encouraged by the comeback of intermodal, even if I don't know the sustainability of it ... near term," Hatch said. "Because how much is restocking versus the peak season versus the economy? Those three factors, you know, we may never know, but that will certainly be easier to know in retrospect."

But Hatch does expect railroads to get "solid low- to middle-digit pricing gains."

And the railroads are confident they'll be able to handle any new volume that comes their way.

Boone said CSX has "plenty of capacity out there" right now and it has the ability to add more by increasing train length. Fritz said lower dwell times for Union Pacific have also helped to free up more capacity.