Truck-Rail Intermodal in Midst of Boom, But Can Grow More, Industry Execs Say

This story appears in the Nov. 26 print edition of Transport Topics.

ANAHEIM, Calif. — The truck-rail intermodal market, on pace for a record year, has a realistic chance to grow even faster in the near future with truckers as the driving force, several industry officials and observers said.

“Domestic intermodal will be the fastest growing part of our business for the foreseeable future,” said Steve Branscum, group vice president of the BNSF Railway unit that includes intermodal.

Branscum spoke with Transport Topics on Nov. 12 during the National Industrial Transportation League’s TransComp and the Intermodal Association of North America’s Expo here.

“The biggest factor in making the future bright is that we are finding more and more that a tremendous amount of freight is convertible” from truckload to intermodal, Branscum said. “A lot of people thought intermodal was pretty mature in longer-haul lanes.”

He estimated that 10 million truckloads in BNSF’s existing service area could be converted to intermodal, and said conversations with customers have reinforced his view that the number is realistic.

Most of those 10 million potentially convertible loads are dry freight. With better service, other markets such as flatbed and bulk shipments now in tank trailers have potential as well, he added.

Truckload freight this year accounts for 77% of BNSF’s domestic loads, up from about 70% five years earlier.

Industrywide, domestic intermodal shipments have increased by 1.2 million, or about 20%, since the record year of 2006 and could near 7 million this year, based on IANA’s statistics.

Increased shipments of former truckload freight are accounting for the “vast majority” of BNSF intermodal volume that is anticipated to be between 5.6 million and 5.7 million shipments, he said.

BNSF is the largest rail intermodal carrier, with about half of its traffic volume from domestic freight and the rest from international cargo.

Domestic intermodal growth of 7.1% through September has far outpaced the 2.6% pace for international freight, according to IANA.

Branscum, who early next year is moving to head up the railroad’s coal business unit after 23 years in intermodal, said international intermodal reflects the economy, which has grown about 2% this year.

Thom Albrecht, an analyst for BB&T Capital Markets, agreed with Branscum.

Albrecht told TT the recent growth in truckload intermodal has changed the traditional view that the road-to-intermodal conversion is “in the sixth or seventh inning” to a current assessment that the transition is still in an early stage, more like the fourth inning of a baseball game.

Mark Davis, senior analyst at Cleveland Research Group, said at the meeting that, on a nationwide basis, as many as 45 million shipments could switch from truckload to intermodal.

Davis said government regulations, rising fuel prices and improved rail service have been driving the conversion of truckload freight to intermodal, which began two decades ago with an agreement between truckload operator J.B. Hunt Transport Services Inc. and a BNSF predecessor.

“There is a bit of a ‘if you can’t beat ’em, join ’em mentality’ ” among truckload carriers that is driving them to intermodal, said Avondale Partners analyst Donald Broughton.

While truckload intermodal has grown, rates for truck-rail shipments haven’t changed, other than fuel surcharges, since 2005 because capacity additions have matched demand, he said.

Some shippers see improvement, as well as gaps, in intermodal.

“The industry itself tends to lag 5 or 6 percentage points behind the delivery reliability we are looking for,” said Rick Smith, vice president of transportation for Sears Holdings Corp.

He said that he seeks 95% reliability and that interchange delays between railroads and lack of coordination in highway drayage and shipment tracking cause the gap.

In some places, such as Jacksonville, Fla., and Miami, intermodal is very competitive with trucking, Smith said, while elsewhere, such as the Reno, Nev., area, truck-rail still isn’t a viable option.

Another effort to tap truckload service is being pursued by Florida East Coast Railway, said CEO James Hertwig.

His company is trying to reach beyond its northern track boundary of Jacksonville to reach Atlanta, Nashville, Charlotte and South Carolina points and other Southeast markets through a truck-rail service between those areas and South Florida.

In Miami, the railroad also is preparing to benefit from connections being built between the port and the FEC rail yard 10 miles away to keep trucks out of downtown Miami.