Modal Shift Affecting Intermodal

A modal shift may be accounting for improvements in intermodal volumes, suggests Morgan Stanley Research.

“Several key drivers of intermodal demand should point to slowing traffic,” says William Greene, Morgan Stanley Research. Among them, declining US imports, slower retail sales and a lackluster housing market should depress intermodal volumes. But declines in intermodal volumes have been moderating since the second quarter, says Greene, and the Burlington Northern Santa Fe, Canadian National and CSX are all reporting year-on-year intermodal volume growth in week 33 of 2008 (the week ending August 15th).

Current fuel prices still support conversion of motor carrier freight to rail. “Prices above $100 per barrel still make the economics of rail very compelling,” says Greene. “We don't expect a rapid market share shift from truck to rail. Rather, we see the potential for higher fuel prices to drive a gradual shift as shippers make the strategic decision to redesign supply chains to accommodate lower cost, albeit slower, modes of transportation.” Railroads could also use their advantage in fuel efficiency to push pricing.

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