Yes that is for sure termites in your fence! Did you happen to see a build up of dirt or mud where those tracks are ? That would be a mud tube.

Thank you Kelly. Is there a way to save the fence? Also, will they migrate to the shed and the house? I am mortified.

They live in the soil most likely, so you treat the soil at the base of the fence with termiticide. You can get consumer grade products at the hardware store, or pro grade stuff like Fipronil at places like domyownpestcontrol.com. Good stuff but more expensive.

Move any soil or mulch away so it is not touching the fence.

Did you have the house inspected for termites as part of the purchase? If not you may want to. Obviously there are termites in the area so it doesn't hurt to have the house treated.

Yes, there were two inspections. I don't know how they missed this in the back fence. I noticed the damage 4 or 5 months after moving in.

Thank you for your advice - I'll get on it. The fence doesn't look like it can be saved but perhaps I can put off replacing it a bit longer.