Mark A. Yeager has a message for intermodal shippers trying to plan out their year: Capacity is tight and will only get tighter leading up to autumn’s peak season.
“People are getting concerned about capacity — and they should be, because capacity is very tight right now,” said Yeager, vice chairman, president and chief operating officer at intermodal marketing company Hub Group.
|And that’s not the normal supply-demand situation at this point in the year, he told Wall Street analysts at a Wells Fargo Securities industrial conference this month.
“It’s very unusual in the intermodal industry to see tight capacity in multiple markets in the first quarter, which is traditionally our slowest quarter. Because of high demand, encouraged by very solid service levels from the railroads, we’ve seen a tight capacity situation, which we anticipate is going to be the case throughout the remainder of the year.”
At the same point in 2009, he said, only the Kansas City market area was stretched for intermodal equipment, as container owners nationwide had idled much of their fleets in the recession while waiting for business to return.
Now, he said, “If it looks like this now, it’s going to get much more severe in the second half of the year.”
Some shippers and economists think the overall freight sector outlook is mixed in the wake of new signs, including industrial input prices and stalled job growth, indicating the recovery might be slowing.
Supporting that stance are weekly rail traffic numbers for bulk carload shipments, the types of cargo dominated by raw materials, semifinished goods and construction supplies, that have slipped since peaking in April.
But trucking and intermodal numbers are still rising and rail intermodal hauls this spring were at their highest levels since late 2008, when credit markets imploded. Intermodal container traffic grew 20.7 percent year-over-year in May and, perhaps more importantly, the May traffic was even 3.9 percent better than the same month in 2008. The growing volume is absorbing most readily available containers and trailers and giving carriers their best chance in years to hike freight rates (see www.joc.com/trucking/trucking-pricing-seeks-higher-gear).
Hub does not see the intermodal market entering a skid, and is spending $25 million on 2,500 new 53-foot jumbo domestic containers. The first 100 or so already have been delivered, and Hub plans to have the rest in hand in August, well in time for the intermodal peak period through October.
The company already commands the nation’s second-largest fleet of intermodal equipment, after industry leader J.B. Hunt Transport Services. Yeager said Hub’s intermodal operations focuses on major retailers — led by Big Lots, Sears and Home Depot — and it’s the largest U.S. buyer of rail-furnished capacity and largest purchaser of external dray capacity.
After shifting most of its western U.S. service last year to Union Pacific Railroad from BNSF Railway, Hub is now UP’s largest customer for domestic truckload intermodal business, and is the second-largest for eastern carrier Norfolk Southern Railway.
Although rail-truck intermodal is Hub’s main business, it also operates a logistics unit and its own trucking service that mainly uses owner-operators. It is building up an intermodal drayage unit at either end of the container’s rail haul, partly with an eye toward expanding what is now just a small foothold in serving the international container business.
Yeager said recent freight rate hikes by railroads for their intermodal service, and by competing truckload carriers for all-highway moves, make this a good time for companies such as Hub to get back part of the pricing they slashed during the recession.
Hub supports the rail price moves as justified by their service reliability, he said. “We feel that based on service levels we have experienced, and based on the capacity tightness that we’ve seen, this is the right time to try to recapture some of the pricing that we gave away last year. We won’t get it all back this year, but we should be able to get it back over the course of the next year-and-a-half.”
Helping that situation is increased consolidation among intermodal service providers. Combined, Yeager said, Hunt and Hub command about 39 percent of that market, trucker Schneider National takes about 9 percent and other participants, including Pacer International, take smaller shares.
Until now, he said, several small intermodal marketing companies also accessed the market through Pacer’s low-cost Stacktrain service or a special-rate product offered by CSX Transportation. Both of those options have disappeared as UP wrote new contracts with Pacer and CSX, “so these smaller IMCs are now forced to compete with a much higher cost structure than they have become accustomed to,” Yeager said.
“Obviously, we see this as an opportunity,” he said, “and we feel that in all likelihood this already consolidated market is likely to further consolidate.”
Contact John D. Boyd at email@example.com.