After pounding along at full throttle for a number of years, the intermodal sector has seemingly run out of steam in recent months. Its previous healthy volume growth has stalled and even moved into reverse. Given $4.00 per gallon diesel fuel, shouldn’t intermodal be gaining freight off the highway? What’s going on? How much of intermodal’s troubles are due to softness in the US economy? Are there other factors at work? And what does the future hold?
To understand the situation we need to understand that Intermodal is not really one market, but rather at least two: International and domestic. The first, and larger, segment deals with the movement of intact ISO containers (20, 40 or 45 feet in length) between the ports and inland points. This segment accounts for roughly 60% of intermodal revenue movements and was the major growth driver from the year 2000 through the peak in 2006.
Movement of “domestic” equipment accounts for the balance. This segment is further divided into truckload and less-than-truckload/parcel sectors. The truckload segment includes domestic containers (48 and 53 feet in length), and 53-foot trailers. Smaller trailers (28-foot up to 48-foot) serve the less-than-truckload (LTL) and parcel sectors. The term “domestic” is placed in quotes because a significant portion of freight moving in the truckload domestic units is actually import freight that has been transloaded near the ports. The bottom line is that the intermodal business has been heavily dependent on the health of international import traffic.
Through February 2007, the rolling 12-month total for intermodal revenue movements was down 1.3% versus year-ago levels. Examining the performance of the market segments shows where the weakness lies. International container movements were down 3.1%, while movements of domestic equipment were up 1.4% for the same period.
Much of the current weakness in International intermodal can be traced to a combination of three factors:
1. Substantial volumes of import cargo from Asia have been diverted from their former intermodal routing: via US West Coast ports with intermodal moves into the Midwest and East. Now, more of that traffic is moving all-water direct to the East Coast via the Panama or Suez Canals. What had been profitable, long-haul intermodal traffic has been transformed into a short-haul move more likely to be delivered by highway without touching the rail.
2. The weak dollar has helped cause import volumes to stagnate while helping export volumes to soar. Comparing 2007 with 2006, import TEU’s handled at continental US ports slipped 0.6% while export TEU’s grew over 18%. From an intermodal standpoint, import containers are ideal traffic, with highly concentrated, high volume and long-haul movements from ports to major points of consumption. In contrast, export flows tend to be more dispersed and shorter haul. For these reasons, intermodal has a tougher time competing for exports. Recent press accounts indicate that exporters are having a tough time finding sufficient container capacity to meet their needs, simply because the containers are not becoming empty and available in the right locations, and it is too expensive to reposition them for the export loads.
3. The general weakness in the US economy is an additional factor reducing our appetite for imported goods.
While there are indications that the diversion of freight to all-water routings has run its course at least for now, it appears that growth in import cargo will not resume until economic activity begins to pick up. In the meantime, for intermodal to grow it will have to more effectively divert domestic freight movements from the highway. $4.00 per gallon fuel provides a powerful incentive for shippers to give intermodal a fresh look. We are beginning to see evidence that intermodal is beginning to gain share in the domestic arena. This is the sector that will bear close watching in the months ahead.
Gross is president of Gross Transportation Consulting and a consultant with FTR Associates.
