FTR points to modest intermodal improvement

Modest improvement was the main theme in the most recent edition of the Intermodal Competitive Index (ICI) issued by freight transportation forecasting firm FTR this week.

The objective of the ICI is to provide its viewers with an assessment of the competitive posture of domestic intermodal transport versus over-the-road truck transport, adding that it is a compendium of different factors, including relative rates vs. truck, industry capacity vs. demand, fuel prices and intermodal service levels.

As for how the ICI is gauged in terms of metrics, FTR said figures above 0 indicate favorable conditions for intermodal to compete with truck, and figures above ten show extremely favorable conditions that would result in substantial truck to intermodal conversion. Conversely, negative numbers indicate less aggressive modal share gains for intermodal - and potentially reduced share.

For October, the most recent month for which data is available, the ICI headed up to 5.26 from 4.95 in September. FTR said this increase points to what it called continued moderately favorable conditions affecting the intermodal segment, adding that while the pace of intermodal growth is down annually, signs of mild improvement are intact.

“The fundamentals in the domestic long-haul freight sector are beginning to turn in intermodal’s favor,” said FTR Partner Larry Gross in a statement. “The economy has successfully negotiated soft conditions early in the year and appears to be back on a solid growth track.  Truck capacity is starting to tighten as shown by increasing spot market trucking rates.  Recent actions to restrict crude oil supplies by producer nations should result in an increase in the price of diesel.  Most importantly, implementation of ELDs is now just a year away.  While competitive conditions for intermodal remain challenging at the moment, we do expect to see sunnier skies in the coming months.”

Intermodal Association of North America (IANA) President and CEO Joni Casey recently said that that decreases in international, or ISO, volumes have hit all North American markets, while most of those same regions continue to see domestic volume growth.

She described the current ISO outlook as a “mystery and a challenge” to industry stakeholders.

“One trend we are seeing is the emerging disparity between intact international inland point intermodal shipments and import volumes relative to basically handling a lower direct share of imports,” she said. “The main reasons for this are continued increases in transloading, particularly out of the Pacific Southwest and Pacific Northwest, more all-water share of Asian imports to East Coast ports, and heavy over-the-road truck competition.”

And another unknown, she cited, is the impact of the three major steamship alliances that will be launched in 2017, including The Ocean Alliance, The Alliance, and the 2M Alliance, which she said will change the landscape in terms of ship calls and container discharges.

As for the trucking and over-the-road environment, she echoed how capacity is expected to tighten, especially in late 2017/early 2018 as the full impact of motor carrier regulations, specifically ELD (electronic logging devices) kick in.

“This is viewed as an opportunity for domestic container growth, which is expected to accelerate, when over-the-road capacity tightens up,” she noted. “But this really might be a double-edged sword, because the same regulations that impact the trucking community could spill over into intermodal drayage operations.”

Another shift to increased intermodal growth is the ongoing challenge related to truck driver retention, which is what the industry is expecting, with the caveat, she said, that the industry needs to maintain an adequate supply of owner-operators and drivers to service that to meet increases in volumes, coupled with multiple regulatory factors like CSA, speed limiters, HOS, and ELD.

Even with the various challenges in the intermodal sector at this time, Casey made the case that the pros outweigh the cons, with international volumes continuing to be impacted by the strong dollar, high than normal inventories, and the potential for protectionism trade policies by the incoming Trump Administration.