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Transportation Best Practices: Intermodal looks marvelous!

The red-hot intermodal sector is “in fashion” these days as shippers opt for lower rates at near-truck service levels. Our intrepid trucking correspondent examines the factors driving this impressive growth as well as how logistics professionals are using the option as part of their 2011 transportation tool kit.
By John D. Schulz, Contributing Editor
May 01, 2011

Whether it’s truck-rail for domestic freight or ocean-rail for international moves, the situation is the same no matter how you analyze the numbers: Intermodal is the hottest game in town.

At the end of this year’s first quarter, intermodal freight volumes are up 10 percent from year-ago volumes—11 percent up on international moves and 9 percent up on domestic moves. That’s roughly twice the rate of growth of all North American rail traffic, and three times the growth in the U.S. trucking industry.

“Intermodal is looking very strong as we roll into the middle of 2011,” says Larry Gross, an intermodal expert and a consultant with FTR Associates and principal of Gross Transportation Consulting. “It’s been a bang-up year.”

Analysts, academics, and some industry officials have long called intermodal the “sexiest” part of freight transportation due to several factors. One is its inherent ability to take the best efficiencies from the various modes—cheap ocean transport, long-haul rail shipment, and just-in-time truck transport—and use them in one coordinated move. And then, of course, there’s intermodal’s “green” appeal as it reduces overall diesel fuel usage.

For various reasons, from the staggering rise in crude oil prices to shippers and manufacturers increasingly wanting to reduce their carbon footprint and “go green,” analysts predict intermodal growth will continue to exceed overall freight demand as the nation ramps up from the recession. 

So how big is intermodal in 2011? According to the Intermodal Association of North America, intermodal revenue was $13.5 billion.

About 45.9 percent of that is purely domestic moves with international accounting for the rest.

While IANA does not do forecasts, analysts are conservatively predicting total intermodal growth this year to rise between 5 percent and 6 percent year-over-year, more if the price of crude oil continues unabated.

And while Class I rail volumes were up 5.1 percent year-over-year for all five North American railroads (6.1 percent for the four U.S. carriers), the intermodal share at each of the five railroads was significantly higher in the first quarter of 2011. Depending on the carrier, intermodal rose between 8 percent and 10 percent year-over-year at Burlington Northern Santa Fe and Union Pacific in the West as well as CSX and Norfolk Southern in the East.

Over the next few pages we’ll example the factors that are driving this impressive growth as well as how shippers and carriers are best using the intermodal option in their transportation tool kit.

Under the hot lights
Shippers are being inundated right now. Fuel surcharges are rising to the point where they can be 50 percent of their bill for a long-haul truckload move.

And while this is going on, there are growing capacity concerns in the trucking industry. Because of CSA 2010 and other initiatives, truck drivers are under increased scrutiny and are in short supply.

During the recession, many large truckload carriers such as J.B. Hunt, Swift, Werner, and others parked as many as 10 percent to 15 percent of their fleets to match reduced demand levels. Some of those carriers have been slow to replace those trucks, creating spot shortages along some lanes, particularly in the Upper Midwest, parts of the Southeast, and in and out of California.

But while this was occurring, the railroads were investing billions in their infrastructure, double-tracking, and increasing capacity where needed. Burlington Northern Santa Fe, for example, bought 331 new locomotives in 2009. Union Pacific (UP) added 127.

They’ve also become creative in seeking out help from the government. Most recently, UP announced in April that the New Mexico legislature has granted the railroad a locomotive fuel tax deduction. That paves the way for UP to start construction on a new $400 million intermodal center near Santa Teresa, N.M., that will have an annual lift capacity of up to 250,000 intermodal containers. UP Chairman Jim Young calls the move a “strategic investment” that will improve intermodal capacity and efficiency.

Rails have also spent the better part of the past decade tightening up their service standards. Trucking companies, meanwhile, are facing ever-higher fuel costs and driver shortages. Analyst Noel Perry of FTR Associates is predicting that the trucking industry will face a shortfall of as many as 400,000 drivers as early as 2012.

Today, truckers are increasingly eying the railroads as “partners” instead of competitors and are using the rails for their line hauls, particularly over 1,500-mile lengths of haul.

“Intermodal is in fashion right now,” says John Larkin, managing director of transportation equity research for Stifel, Nicolaus. “The service is as good or better than solo driver truckload both in terms of transit times and reliability. The base price is 10 percent to 15 percent below truckload, and the fuel surcharges can be half as much.”

Considering all these factors, Larkin is predicting that intermodal will grow this year at about twice the rate of growth as trucking. That is as long as there’s sufficient capacity both in terms of equipment and terminal capacity.

“The future is bright as long as sufficient boxes, chassis, locomotives, intermodal rail cars of the right type, and terminals capacity exists,” explains Larkin. “Line capacity is less of an issue, especially as more sidings are added or extended.”

Larkin noted that most intermodal loads will still go via truck as intermodal is service limited to a relative handful of lanes—Chicago to the West Coast, Chicago to Dallas, and, to a lesser extent, along the I-95 corridor in the East Coast.

About the Author

John D. Schulz
Contributing Editor

John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. He is known to own the fattest Rolodex in the business, and is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis. This wise Washington owl has performed and produced at some of the highest levels of journalism in his 40-year career, mostly as a Washington newsman.

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