U.S. intermodal shippers aren’t just getting faster service, they’re also enjoying something rare in the railroad industry: pricing relief.
Increased trucking competition in a slowing freight market helped push intermodal line-haul rates in July down year-over-year and also from June, according to Cass Information Systems. Cass’s Truckload Linehaul Index, which fell year-over-year for the first time since March, is at the lowest point since December 2010.
“In addition, we continue to believe that over the intermediate term, the large number of containers coming on line and aggressive pricing by carriers focused on ramping up their intermodal businesses will keep pricing grounded,” said Donald Broughton, Avondale Partners’ senior research analyst and managing director covering industrials and transportation.
The index isn’t the only sign intermodal pricing has lost momentum. Hub Group and J.B. Hunt Transport Services, two of the largest intermodal marketers, appear to have lost some of their pricing power, John Larkin, managing director at Stifel Nicolaus, wrote in a July 20 research note. Pricing gains look like they have fallen from the mid-single digits to the low-single digits, Larkin wrote.
In second quarter earnings calls, the major U.S. railroads denied letting up on their intermodal pricing pressure, explaining to analysts that the sharp declines in revenue per intermodal unit, a key measure of pricing, were due to weaker fuel surcharges and shorter hauls.
The railroads, excluding privately held BNSF, saw average revenue per intermodal units rise 3.8 percent year-over-year in the second quarter, compared with a 9.1 percent rise in the first quarter. The apparent gap between the pricing of major railroads and intermodal marketers might be due to the latter having to cut rates because of increased competition.
About 8 percent of surface freight over the next 10 years will be competitive for the trucking and railroad industries, Derek Leathers, president of truckload carrier Werner Enterprises, said in May. He said trucking companies would have a lock on about 77 percent of the freight, while railroads will be the only cost-effective carriers for 15 percent of cargo.
“We’ll see ongoing and significant growth in intermodal, but only in the piece of the pie that is truck-rail competitive,” Leathers said.
It will take more than competitive pricing, largely gained though fuel efficiencies, for railroads to grab more market share from trucks. Better service is key, and the major U.S. railroads improved further in the first half of 2012, according to the Intermodal Association of North America. Average train speeds rose to roughly 32 mph from 31 mph in the first half of 2011, and terminal dwell times are near the lows set during the recession when freight volume was weak.