Chart of the Week: Rail Traffic – Intermodal Containers, Trailer-on-Flatcar, Outbound Tender Volume Index – USA SONAR: RTOIC.USA, RTOIT.USA, OTVI.USA
Intermodal container and trailer-on-flatcar volumes are down 5.5% YoY over the past four weeks while trucking volumes are up 5% over the past month compared to the same time period in 2018. The softer rate environment in trucking has made it more conducive for shippers to use trucks over the rails, but shifting supply chain dynamics are also having an impact on rail volumes. This market may be the opportune time for trucking and the rails to re-evaluate their relationships.
Flexibility vs. Efficiency
Intermodal containers typically measure 53 feet in length and can be transported across multiple modes—hence the name—such as container ship, rail, and on a specialized chassis of a truck. Trailer-on-flatcar is just what it sounds like, a 53-foot trucking trailer with chassis placed on top of a flat railcar, which is anything but efficient for rail operators as damage to the trailer is more likely.
The truth is, neither trucking nor rail operators feel great about handling the containers which are not optimized for either mode, but there are opportunities for both rail and carrier to leverage their existing infrastructures and increase margins.
Trucking and rail companies tend to consider each other direct competitors, but they really aren’t. Both haul freight over long distances, and that is about where the overlapping service stops.
Almost half of the railroad’s carloads consist of bulk commodities like coal, lumber, and chemicals. They are loaded in specialized hoppers or tankers and can be loaded and offloaded while still on the rail, unlike an intermodal container and more obviously a trailer-on-flatcar that will more than likely find some portion of its journey on a truck.
Over the past three years intermodal container volume has become a more significant piece of total rail activity in the U.S. as demand for coal has waned with increasing regulations and environmental concern, while the demand for dry goods shipping has increased. Dry goods are primarily shipped in containers and trailers.
A Challenging Environment
A few things work against the rails in the current market. Shippers are increasingly attempting to shorten distance from warehouse to end user. The rails are extremely inflexible in their ability to pick up cargo due to the static nature of their infrastructure.
There are only so many rail-heads across the U.S., where cars and freight can be added or taken off the train, and most of them are located around population centers such as Chicago, Atlanta, and Los Angeles. From there, the freight most likely needs to be moved on a truck to a trans-loading facility, distribution center, or warehouse, which is also known as drayage.
Another more publicized item that works against the rails is the reputation for poor service relative to trucks. Rails are designed to haul large amounts of freight over long distances efficiently. They are not as hindered by weather and traffic as trucks although extreme heat can derail trains if moving too fast. The main hang-ups remain in the transitions to and from the rail as it takes days to unload at times. Rail velocity and terminal dwell times are improving, but not as much as many would like.
Trucking suffers from the opposite condition of the railroads, there is enormous competition in an overly flexible network. They can move to and from their customers with relative ease and quickness, but this makes their costs fluctuate wildly while having little to no control over market pricing.
Frenemies
Some trucking companies, such as JB Hunt and Knight-Swift, have partnered with the railroads to leverage each party’s strengths. Rails can move freight at a lower cost than trucking companies, but trucking companies have more flexibility and have better perception with customers.
Railroads have done an incredible job of recovering from what appeared to be a slow death over the past 20 years. Consolidation has made them more efficient and given them more pricing power, but they still suffer from the stigma of poor service and immobile infrastructure.
Trucking companies are more motivated to build strong relationships with their shippers because if they don’t, there is a line of others that are banging down the door to get a chance. Railroads are essentially the only game in their region with a cost advantage, meaning they can drop prices well below a typical carrier and remain profitable.
Railroads could lean on trucking companies for volumes, using their existing relationships, while trucking companies could utilize the rails to save on costs on the longer haul freight in a true win-win scenario.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week a Market Expert will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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