Archrivals CSX Transportation and Norfolk Southern Railway will further their different approaches to attract truck loads to the rails this year, but it’s too soon to say which eastern railroad will dominate one of the fastest growing North American intermodal markets.
At first glance, the railroads’ intermodal networks appear similar, but they both gained different parts of the now-defunct Consolidated Rail Corp., better known as Conrail, forcing them to take different tacks, said Tony Hatch, transportation analyst with ABH Consulting. CSX’s approach is more focused on “assembling density” at its northwest Ohio intermodal hub, while NS’s strategy centers on building direct train services that connect to smaller hubs on its corridors and gain load density along the way.
For shippers, how the railroads execute their strategies will factor into reliability, and potentially pricing. CSX intermodal train speeds were generally slightly faster than those of its competitor last year, but the difference in the carriers’ speeds was often less than one mile per hour, according to statistics collected by the Association of American Railroads. When it comes to terminal dwell times, which include carload traffic, CSX units in 2013 spent slightly more time in the terminal than NS units, according to AAR data.
Both metrics are key to the railroads as they push for the truck-like service needed to entice shippers to shift loads from the highway to the rails. Reliability, however, for most shippers is more important than door-to-door transit speed. So far, the duo, along with the other four Class I carriers, have been quite successful delivering what shippers want, with intermodal business boosting their bottom lines and helping offset steep declines in coal traffic.
CSX intermodal volume in 2013 accounted for about 39 percent of the railroad’s total traffic, and 49 percent of NS’s traffic came from intermodal volume in the same period. CSX intermodal volume rose 11 percent year-over-year in the fourth quarter, capping off a 5.3 percent expansion in 2013 compared with 2012, according to an analysis of fourth quarter earnings reports. CSX international intermodal traffic rose 6 percent in the fourth quarter, while domestic intermodal jumped nearly 13 percent, hitting a quarterly record.
NS volume last quarter grew at a slower pace of 6.6 percent year-over-year but saw a larger full-year gain of 6.4 percent. Domestic volume on NS’s intermodal network rose 7 percent in last three months of the year, while international traffic gained 6 percent in the same period. NS handled roughly 38 percent more intermodal units than CSX last year, with an annual total haul of 3,572 units compared to CSX’s count of 2,582 units.
But intermodal business is still less than a quarter of the duo’s total revenue. CSX’s intermodal revenue increased 6.5 percent year-over-year in 2013 to nearly $1.7 billion but still only accounted for 14 percent of the railroad’s total revenue. Similarly, NS intermodal revenue last year expanded about 6.4 percent year-over-year to nearly $2.4 billion, but the business only accounted for 21 percent of the carrier’s total revenue.
Norfolk Southern’s intermodal traffic is up 45 percent over the volume handled in 2003, while CSX has seen its intermodal volume climb 16 percent over the same span.
“Our intermodal business is expected to be the major growth engine for CSX going forward as we look to further tap into an estimated 9 million truckload opportunity,” CSX Chief Commercial Officer Clarence Gooden told investors.
For CSX, the jewel in its intermodal network crown is the North Baltimore, Ohio, terminal. Aside from giving shippers more origins and destinations, the $175 million facility allows the railroad to route transcontinental trains that don’t need to stop in Chicago, cutting transit times 24 to 48 hours.
Following the success of the terminal, which opened in early 2011, CSX plans to add two more wide-span cranes, bringing the total number of cranes to seven, and add new processing trackage. The expansion project, slated to be done in early 2015, will boost the terminal’s lift capacity by about 50 percent. CSX is also strengthening its intermodal network by completing a $100 million terminal in Salaberry-de-Valleyfield, Quebec, this year, and opening an facility in Winter Haven, Fla., in April.
CSX still needs approval from the Department of Transportation and city officials to reconstruct a rail terminal in southeast Washington, D.C., which would allow the railroad to run double-stack trains through the city. The $160 million project is key to the second phase of the National Gateway project aimed at gaining double-stack clearance between Chambersburg, Pa., and the ports of Baltimore and Virginia. The railroad in September announced the completion of the first phase of the National Gateway project — an $850 million public-private partnership — that provides double-stack clearance between Greenwich, Ohio, and Chambersburg, Pa.
NS is focusing on attracting volume to its existing corridors and terminals. The railroad is focused on ensuring that volume brought on the corridors “pays for itself and generates the type of return that we’re seeking with the investments that we’ve made, so we’re not looking to load up the network in one to two or three quarters,” NS Chief Marketing Officer Donald Seale told investors during a fourth quarter earnings call on Wednesday.
This approach, described by Stifel analyst John Larkin as “diligent” in a research note, comes after NS has invested hundreds of millions of dollars on its intermodal network in recent years. NS began handling intermodal loads out of it new Charlotte, N.C., terminal in December and in the fourth quarter began serving the Port of Charleston’s new inland port in Greer, S.C. The railroad is expanding two of it Chicago terminals — the 47th St. facility and the 63rd St. terminal — and expects to finish the $60 million expansion of its Rutherford, Pa., facility in mid-2015, said NS spokesman Robin Chapman.
Key to NS’s drive to grab domestic truck freight is the Crescent Corridor, a 2,500-mile network connecting the mid-Atlantic and Gulf Coast. Seale said volume on the corridor rose 6 percent in the fourth quarter and expanded 16 percent in the full year. The 6 percent gain was “a little disappointing,” considering that Crescent is the spear of NS’s intermodal thrust, Hatch said.
Neither railroad’s approach is better than the other, Hatch said during a JOC webcast yesterday. If that’s true, then the winner will be one with the best execution. Besides, the main competition is often not each other but the trucking industry, particularly in the domestic intermodal market. The domestic market, along with U.S.-Mexico cross-border sectors, is expected to see some of the fastest growth in the coming years. Fourth quarter domestic intermodal volume growth in North Ameria outpaced international growth, rising 8 percent year-over-year, versus 5.8 percent, according to preliminary figures from the Intermodal Association of North America. Further domestic intermodal growth is anticipated because the density, coupled with CSX and NS network improvements, makes shifting freight off the highway attractive. CSX and NS see their intermodal products becoming more attractive to shippers as trucking capacity tightens, resulting from increased federal regulation, driver recruitment challenges and other issues.
Tighter trucking capacity will ultimately lead to higher trucking rates, allowing intermodal rates to rise in turn. Both railroads told investors that their intermodal pricing was strong, even though shippers are expected to face weak to moderate rate hikes. That’s because the intermediaries, namely intermodal marketing companies and trucking companies, are waging a fierce fight for market share.
“As you see those truckload rates firm up more and more, you’ll see our rates start to follow them,” Gooden said, according to a Seeking Alpha transcript. “Lag time will be not as long as you think, actually, because a lot of the business is going to be on a transactional basis.”
Seale told investors that the trend in intermodal spot pricing, which represents about 15 percent of NS’s business, was positive. Still, the majority of NS’s intermodal business is priced on contracts of at least a year.
“I cannot tell you that (the positive spot pricing trend) is going to translate into contracts because we’re facing motor carrier competition, and, before we convert it, they attempt to hold onto it,” said Seale, according to a Seeking Alpha transcript.
Contact Mark Szakonyi at firstname.lastname@example.org and follow him at www.twitter.com/szakonyi_joc.