U.S. Southeast, Northeast offer growth opportunities for industry.
In the domestic intermodal market, many analysts and industry players point to the U.S. East Coast as the burgeoning hot spot for intermodal growth.
The Southeast and Northeast have among the smallest shares of the regional intermodal market — the majority of the activity still occurs in the Midwest and Southwest — but have shown the largest boosts in activity. In the third quarter of 2013, the Intermodal Association of North America measured year-over-year growth rates of 11.3 percent and 8.3 percent for intermodal activity on the northern and southern halves of the East Coast, respectively.
The rate for the Southeast came in more than 3 percent higher than that of the Midwest.
Third-quarter intermodal activity on the whole experienced a turn-around after a sluggish second quarter, IANA found, but economic volatility in the United States still means intermodal is on shaky ground. When analysts look at domestic intermodal, however, the past three quarters of 2013 have each seen growth between 6 percent and 7 percent.
Much of that growth, those in the industry say, has come from a better understanding by shippers of how intermodal can fit into their supply chains. Over the years, intermodal has become more reliable, with improved service levels that have come with enhanced investment by railroads and trucking companies, according to Ken Burroughs, vice president of revenue management at UPS Freight.
At UPS Freight, intermodal is part of the truckload brokerage division. When shippers ask for a quote, UPS lays out the shipment for both over-the-road and intermodal transport. The intermodal move is generally 15 percent cheaper than the pure trucking option, but shipments will arrive one day later.
Burroughs said he’s starting to see smaller and midsized companies embrace intermodal. The transport mode had historically been only a good option on a length of haul that stretched 1,000 miles or longer, he explained. Now, it can be a viable option when shipping goods within a 400-mile span, and this has fostered the development of East Coast intermodal services.
“We’re fairly new in it, but probably over the past two years, our intermodal volume has tripled, or more, as we go to market with more options,” Burroughs said.
Due to the sheer number of shippers who still haven’t gotten into intermodal, or haven’t used the mode to its full potential, domestic intermodal will sustain a solid growth rate for the foreseeable future, he said.
“We’re very bullish about the intermodal options that are out there right now. We’re going to continue seeing growth — we’re planning for more growth in the intermodal market than we are for the over-the-road market, as a percentage, for the next couple of years,” he added.
Rates in domestic intermodal are currently stable and growing at a slower pace than rates for over-the-road moves, according to Jim Filter at Schneider National. He called the current rate environment soft, but saw the potential for rate increases among rail carriers and pricing challenges in the trucking market filter down to the intermodal sector.
“When we look at driver pay, it has had somewhat slow growth over the past few years, but with changes in hours of service, I think over-the-road drivers will start to see their wages increasing, and that will put some pressure on our wages, and ultimately, the (intermodal) market is going to have to bear those costs,” Filter said, adding, however, that “truckload rates are going to increase at a rate that’s higher than intermodal.”
Filter said shippers have shifted shipping modes from over-the-road to intermodal options. Schneider’s trucking division has responded by focusing more on regional moves — the short- to medium-haul jobs where intermodal isn’t competitive.
Trucking still corners the vast majority of the short-haul market and that will not change, analysts say, but when shippers understand which trucking moves can be switched to intermodal the cheaper mode will continue to take some of trucking’s market share.
“Within the U.S., the story really is the East; that’s really what’s driving the growth,” Filter said. “In the East, only about 15 percent of the addressable market has converted to intermodal. It’s just so flush with opportunities.”
Nate Brochmann, an analyst with William Blair & Co., said the majority of current intermodal users are big shippers that are used to using intermodal as a daily part of their business. These companies have very sophisticated supply chains and have lots of visibility.
It’s important, Brochmann said, for shippers to have top-notch supply chains before they enter fully into the intermodal realm, but he added even companies that have been using intermodal for years could even increase their use of intermodal.
“Less sophisticated shippers need to seek the help of intermodal companies who can provide strong technology and supply chain management solutions,” he said. “They also have to be flexible, because if demand spikes, they might need to employ faster modes, such as truckload or even air freight.”
For intermodal growth in general, Brochmann said improved drayage services, better tracking and tracing technology, and advancements in rail services are all helping to make it easier for shippers to increase their use of intermodal.
“Truckload services will always be needed, as they are still a faster and more reliable form of freight transportation,” he added. “I could see an opportunity for intermodal to move from about 5 percent of the combined truckload and intermodal market today to at least double that percentage or more over the next five to 10 years as the East Coast corridor is built out and intermodal begins to attract medium-sized shippers.”
