Trucking’s intermodal service challenges
Rail service levels are impacting trucking intermodal growth plans. At a Deutsche Bank transportation conference on Tuesday, J.B. Hunt noted that intermodal demand remained strong but poor rail service appears to be creating a bottleneck.
Darren Field, executive vice president and president of intermodal at J.B. Hunt, said: “The continued effort to get better velocity and service out of our rail product will only deliver significant growth demand from our customers. We continue to hear our shippers tell us that they want more from intermodal but they need better service.”
The challenge is the missed revenue when rail service levels impact container utilization. FreightWaves’ Todd Maiden wrote: “Container turns across the company’s intermodal fleet remain at depressed levels. During the second quarter, the company moved 1.65 loads per container each month (five loads per box for the quarter). Quarterly box turns were 5.7x or better in the years leading up to the pandemic. That’s an annual shortfall of roughly three loads per container on a fleet of 110,000 and growing. At $3,400 in revenue per load, there’s roughly a $1 billion top-line opportunity hanging out there, assuming the demand is truly there.”
I’ve talked about trucking intermodal dynamics in the past with FreightWaves’ Mike Baudendistel. He indicates that while shippers generally see 10% to 15% in savings by going to rail, poor service is causing many to turn to truckload for “must-go” freight.
Do carriers agree on California’s AB5? Survey says no.
FreightWaves recently conducted a survey asking carriers what they thought about AB5. As background, California Assembly Bill 5 was originally designed to address gig-economy workers like Uber and Lyft, but the legal guidelines under the ABC test also applied to trucking companies’ independent contractors. The U.S. Supreme Court’s decision not to review the case resulted in Port of Oakland protests in addition to more legal action.
The survey noted that “some respondents view the bill as an existential threat to the current way American supply chains function. To others, it’s a necessary legislative step to prevent companies from taking advantage of workers.”
Additionally, the survey found substantial disagreement among respondents on whether AB5 will affect their business, with moderate agreement that AB5 will limit their freedom of choice.
The effects of AB5 will remain unclear, as the Ports of LA and Long Beach, the largest import berths in the U.S., utilize a large number of independent contractors to haul drayage freight. Additional legal action is expected, as there are approximately 70,000 owner-operators in California.
A link to download the full survey can be found here.
Market update: July trailer orders drop; demand remains strong.
A recent report from FTR Transportation intelligence noted preliminary trailer orders fell in July by 28% compared to final trailer orders reported in June. There were 17,000 trailer orders in July, up 101% year over year.
The report notes: “OEMs still appear to be cautious about taking orders for next year’s build slots; however, the holding pattern does appear to be opening on a limited basis. Moderate improvements are being made month over month; however, supply chain conditions, rising material costs, and labor availability continue to remain inhibiting factors that are making it very difficult for manufacturers to increase build rates.”
Charles Roth, analyst, commercial vehicles at FTR, said: “Amidst these uncertainties and production challenges, OEMs have continued to strategically manage backlog levels and maintain strong build rates. Under these conditions, order volumes are likely to improve in Q4 as OEMs begin filling their production schedules for 2023.”
FreightWaves’ SONAR spotlight: Contract rates are falling without a parachute.
Summary: Contract rates are slow. They were slow to rise and meet market demand in 2021, and they are now lagging behind declining spot rates by roughly six months. But contract rates are contracting, according to data from early August. In just a week, rates have fallen 7 cents per mile. Compare that to the National Truckload Index, Linehaul Only, which excludes fuel surcharges and other accessorials, just as contract rates do. Linehaul spot rates suffered a major decline in March and have only deteriorated since then. Should contract rates plunge similarly, it will raze the last bastion of hope for carriers and their operating margins.
The Routing Guide: Links from around the web
Love’s pulls plug on controversial I-90 truck stop in Montana (FreightWaves)
U.S. Xpress CCO gone after just year and a half on job (FreightWaves)
Turning point? Port of LA boss sees imports ‘easing’ lower in August (FreightWaves)
Atlantic Hurricane Seasons Are Starting Weeks Earlier, Raising Risks to Coastal Areas (The Wall Street Journal)
Demand no longer main driver of inflation (FreightWaves)