Intermodal Growth Surges on Truckload Freight Conversion

This story appears in the Dec. 24 & 31 print edition of Transport Topics.

Intermodal business continued to grow in 2012, powered by the combination of truckload freight migrating to rail long hauls, expanded Eastern truck/rail options and continued reliability improvements, industry experts said.

The latest available statistics show intermodal on a record pace, as measured both by the Association of American Railroads and the Intermodal Association of North America, two trade groups that publish industry statistics.

Both groups show volume growth above 4%, more than double the percentage increase in gross domestic product and above the American Trucking Associations’ tonnage index.

The IANA statistics, through the third quarter, totaled 10.96 million, or 2.5% above the pace in 2006, when the 14.2 million full year record was set.

“There is dramatic growth in demand and volumes for longhaul intermodal of truckload freight,” Donald Broughton, an analyst for Avondale Partners in St. Louis, told Transport Topics. “Just about everyone in the truckload business now has an intermodal offering. It’s kind of an ‘if you can’t beat ’em, join ’em’ mentality.”

Domestic intermodal, led by truck/rail, has risen nearly 25% this year, compared with 2006, IANA statistics show. International intermodal is ahead of the 2011 pace by 2.6%, but still trails 2006.

In fact, Broughton said, intermodal has become a challenge for those truckers that haven’t yet moved to it because the truck/rail combination is cost competitive over shorter and shorter distances.

Gaining shorter-haul business is important because consultants’ statistics show 85% of all truck shipments travel fewer than 550 miles.

Broughton tied the price stability and volume growth together by saying that capacity additions from truckload providers have kept pace with additional truck/rail demand.

Some rail executives, including Steve Branscum, BNSF Railway’s top executive overseeing its intermodal business, have said another reason for the growth is newly developed truckload markets such as flatbed.

Larry Gross, a former intermodal executive who now heads Gross Transportation Consulting, said this year’s truck/rail freight theme has been the ongoing improvement of that service, rather than a single standout achievement.

“Specifically, the reliability of intermodal has enabled it to become a core transportation mode for customers and not a mode of last resort,” he told TT.

Gross noted that while there were no published statistics on door-to-door intermodal service, the weekly publication of rail train speeds shows that intermodal trains now run 3% to 4% faster than in 2011, even with the similar percentage growth in volume.

“It’s not so much that the economics has changed, but the service quality has improved,” Gross said.

Intermodal rates remain about the same as they were in 2005, excluding fuel surcharge adjustments, despite the recent volume growth, Broughton said. He cited a price index his firm developed with Cass Information Systems, the freight bill payment unit of a St. Louis bank.

Rivals Norfolk Southern Corp. and CSX Corp. this year continued to expand their capacity, aiming to attract more freight moving solely east of the Mississippi River.

CSX opened an intermodal hub near Toledo, Ohio, early this year as the vehicle to upgrade service to and from other cities in the region such as Cincinnati, Columbus, Ohio and Louisville, Ky.

CSX also focused on building a new intermodal terminal in Baltimore to serve that city as well as the Washington, D.C., area.

Norfolk Southern chose to beef up Southeast-Northeast service with terminal projects in Alabama, Tennessee and Pennsylvania.

Both railroads pursued their projects with a mix of federal, state and railroad money.

Mexico also is an intermodal growth market. Kansas City Southern, owner of Mexican and U.S. railroads, doubled its cross-border intermodal traffic so far this year.

With a market share of less than 5% relative to truck, Brian Bowers, senior vice president of intermodal, described that business as the most attractive opportunity he’s seen in his 35 years in transportation.

Union Pacific Railroad is seeking to capitalize on that growth by opening two new terminals in Texas.

Even with continued growth, intermodal has at most a 14% share of longhaul freight markets, as gauged by Cleveland Research Group analyst Mark Davis, who offered that analysis at a November industry meeting. He gauged the total potential market for intermodal at 45 million loads a year, compared with 6.6 million domestic moves this year.