2011 intermodal container capacity may only see slight uptick

While intermodal, especially on the domestic side, enjoyed a strong 2010, there is some sentiment that volumes may not see the same type of growth in 2011.

A research report by Stifel Nicolaus analyst John Larkin stated that future volume growth for intermodal marketing companies could be constrained by a general lack of domestic container capacity in the market.

“Relatively few containers will be added in 2011 which we expect should keep a lid on upside surprises, except those caused by price,” wrote Larkin. “We believe the railroads will likely capture much of the price increase that the intermodal providers capture from their customers.”

Talk of intermodal container shortages during the first half of 2010, in particular, was not uncommon, as many ocean carriers were employing so-called “slow steaming” practices to save on fuel, coupled with slow demand coming off of a very weak 2009.

But another major reason for these spot shortages was the fact that intermodal equipment not being in the right position at the right time, which abated throughout the year, according to Tom Malloy, vice president of member services at the Intermodal Association of North America (IANA).

“Domestic containers were plentiful [in the fourth quarter], and that is standard crunch time for demand,” said Malloy. “In anticipation of sustaining the year-over-year growth that domestic containers have enjoyed—even through the recent economic downturn—the industry has added or is adding (in early 2011) approximately 25 percent more containers to the 53-foot fleet.”

Malloy also pointed out that improving turn time velocity can optimize container owners’ fleets, and with increased demand the opportunity to do so is greatly improved.

Other factors playing into a potential 2011 lack of domestic container capacity include a slowed replacement cycle on containers due to the recession, “ said Brooks Bentz, a partner in Accenture’s Supply Chain Practice.

“There is a lot of ‘catch-up’ being played now, as order books are pretty full,” explained Bentz. “Volumes are recovering at a pretty healthy rate. Containers are not so much in short supply as being in the wrong places.”

What’s more, Bentz pointed out that the lower-value dollar has driven up exports, but while there are largely high-value consumer goods like apparel and electronics coming into the domestic market, there are lower value goods going out like waste, paper, scrap, lumber, and some chemicals. These types of things are typically not originating at the same locations that the consumer goods are terminating, so this is what Bentz labeled as ‘a repo gap’ that no one is anxious to pay to solve.

And while the domestic intermodal market is on solid footing, pricing for intermodal services is likely to play a role in how much and how quickly container capacity becomes available in the future.

“Many people are saying they are buying domestic containers now—and we are making a moderate investment, too,” said Steve Van Kirk, Vice President, Intermodal Commercial Management at Schneider National. “But the key thing for any asset-based provider to remember is how rates went down substantially in 2009. And many people maintain that investing into more equipment if not an appropriate choice until the over all pricing environment improves.”

This stance by Van Kirk, in turn, presents a sort of challenge to shippers.

The reason, he said, is that while shippers had no problems taking advantage of downward rates caused by the recession and subsequent lack of demand, it created a situation in which intermodal service providers largely lost access to capital.

“This prevented us in reinvesting in things like containers as we would like to until prices return to a point where we can deliver an appropriate level of return on capital. That is the dynamic of what is going on, in terms of how fast equipment comes back in and what happens to pricing; these two issues are always linked together.”

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