Intermodal Down 2.2% in 3Q; ’07 Total May Lag Last Year’s

By Jonathan S. Reiskin, Associate News Editor

This story appears in the Nov. 12 print edition of Transport Topics. Click here to subscribe today.

Intermodal freight volume declined by 2.2% during the third quarter, compared with last year, making it likely the sector will experience its first annual volume decline since 2001, according to the Intermodal Association of North America.

For the first nine months of the year, according to a report from IANA, truck-rail intermodal volume is down 0.9% from 2006. In addition, intermodal’s lead over coal as the No. 1 revenue-generator for the U.S. rail industry has all but vanished.

IANA issued its report on intermodal volume in the United States and Canada Nov. 2, only days before its annual Intermodal Expo, which will be held this week in Atlanta.

“After growth in the first quarter, we had a decline from the second quarter until midway through the third quarter. In the back half of that quarter, we stabilized, but there are no signs of recovery yet, and there might not be any until 2008,” said Steve Branscum, group vice president of consumer products for Burlington Northern Santa Fe Railway, North America’s largest intermodal rail carrier.

“An intermodal recovery in the back half of 2008 is the best case we see now — and that could change, depending on what happens with oil prices,” Branscum said in an interview with Transport Topics.

The IANA report said, “Despite widespread hopes for a second-half intermodal recov-ery, third-quarter results did little to bolster those hopes. Even though year-over-year comparisons get easier in the fourth quarter, it would take a huge fourth-quarter surge to bring 2007 intermodal volume home ahead of year-ago levels.”

Domestic truck-rail shipments of containers and trailers on flatcars have changed little, IANA said. What drove volumes down is the retreat by international boxes.

For the three months ended Sept. 30, international containers fell by 3.7% to 2.17 million, compared with the 2.26 million handled on an intermodal basis the same time a year ago. For the nine months of the year, international containers dipped 1.2% to 6.32 million from 6.39 million the year before.

In contrast, domestic intermodal grew by 0.1% for the quarter, although it was down by 0.5%, year-over-year, for the first nine months.

IANA said intermodal shipping grew by about 6% a year, on average, each year from 2001 to 2006. That helped it overtake coal as the top source of revenue for U.S. rail-roads. As recently as 1998, coal traffic had a 6.7-percentage-point lead over intermodal. Coal generated 25% of railroad revenue and intermodal brought in 18.3%, according to Association of American Railroads figures.

In 2003 the balance changed, and intermodal took a slim lead over coal, 22% to 21.7%. The intermodal lead expanded to a high of 2.3 percentage points in 2005.

While AAR will not publish final numbers for 2007 until early next year, looking at financial reports for the first nine months from BNSF, Union Pacific, Norfolk Southern, CSX Transportation and Kansas City Southern — the five largest U.S. railroads — shows the two freight groupings are about even in terms of the revenue they generated this year.

BNSF gets more of its revenue from intermodal than from coal, but at the other four railroads the situation is reversed. Taken as a whole for the five companies, intermodal brought in $2.96 billion in quarterly revenue and coal generated $2.95 billion.

For the first nine months of the year, intermodal shipping generated $8.49 billion in revenue and coal hauling contributed $8.48 billion to the five rail carriers.

BNSF’s Branscum said trouble in the beleaguered housing industry, which is a major problem for flatbed carriers and other truckers, has spilled over into intermodal shipping.

“We estimate that one-quarter to one-third of the international containers we handle are related to housing. One of the largest imported commodities is furniture, and Home De-pot and Lowe’s are big importers,” he said, listing furniture, household appliances, floor covering and roofing products as goods often imported and shipped by intermodal, but now there is less of a demand for them.

However, Branscum has also found a new source of intermodal business: U.S. grains and other agricultural products. With the U.S. dollar at a low level relative to other cur-rencies (11-5, p. 10), he said American products are priced attractively on world markets.

“Demand is up and there are a lot more containerized exports of food and food products,” he said explaining that a lot of food that was once shipped in bulk is now packed into cargo containers.

In addition to the soft U.S. dollar, he said, a drought in Australia has damaged that country’s crops, thereby heightening the demand for food from the United States and other substitutes.

“The capacity of bulk ocean vessels is tighter than it’s ever been, mainly because of Chinese consumption. We started by putting specialty grains and lentils into containers, and now it’s more general,” Branscum said.