Moore on Pricing: Intermodal pricing signals mixed

Shippers and third party logistics providers (3PLs) need to pay attention to domestic and major trade lane transportation prices now as the U.S. economy tries to find a higher gear. As was recently reported, there were 3 percent increases—or more—in some key trade lanes (lanes to and from ports) last month amid a softening market. I suggest we look at the long-term and short-term capacity and infrastructure trends that will undoubtedly be affecting prices. 

First, the long term trends. IDS Transportation estimates that many lanes of 750 miles or more are now competitive between rail and highway, increasing a shift to intermodal equipment usage. Therefore, the state of the rail and drayage markets will have an impact on a broad swath of shippers in capacity availability, pricing, and service. 

While domestic over-the-road trucking (trailers) is largely a closed market with some NAFTA impacts, the domestic intermodal market (containers) is still subject to rapid change as international freight markets swing from weak to strong and back again. U.S. domestic consumption continues to climb as unemployment falls, and worldwide suppliers are looking to the U.S. to be a market for their goods while
Japan and Europe are stuck in low gear. Thus, there will be spikes in trade lanes serving ports when capacity gets tight—driving continued investment in capacity in key trade lanes where margins are higher. 

On the infrastructure front, we had an announcement by the City of Los Angeles that BNSF can expand their rail capacity at the Port of Los Angeles to support larger vessels. And as the mega-ships arrive, we’ll see thousand of containers added to the rails. Offsetting this West-East rail surge will be larger vessels transiting the Panama Canal directly to Eastern ports. Keep in mind that more capacity in rail and water is good for buyers across the country.

This is a time of re-engineering for service providers, and I think I can safely predict more consolidation and market share shifts. With this, shippers need to step up participation in industry forums and discussions with industry thought leaders on what’s coming their way. For 3PLs, this is an opportunity to demonstrate deep industry knowledge and to offer to brief shipper’s C-level executives about things that will affect both of your businesses. It’s clearly time to bring out the folks who can talk strategy. 

On the short-term, the increases in capacity are running into a very short-term stabilization of domestic truckload capacity ahead of the new driver hours-of-service regulations in the U.S. Lower fuel costs are masking the upward trend in labor and equipment costs, while railroads and their partners—many of them also truckers—are pushing to keep market share against motor carriers seeking to keep drivers and equipment utilized. Meanwhile, diesel appears to be going sideways in price in the short run, providing relief to carriers who are using this margin to buy market share.  

While shippers in a few trade lanes are seeing aggressive price changes, we are still in a buyer’s market that will not last long. Now is the time to be building stronger relationships to ensure service and competitive pricing in a strengthening economy—one that will bring shortages of skilled operators, higher security costs, and rapid shifts in capacity positioning. 

Shippers need to understand what their service provider will be doing to meet these challenges, and what changes they need to make internally in inventories, purchasing, and contracting to accommodate these changes. Flat pricing now is not an indicator for the future. My father was one of the pioneers of intermodal, and he used to repeatedly say: “Pay attention to the game.” Those words were never more on point than they are right now.