Improving US intermodal rail service propels Hub Group turnaround

Improving US intermodal rail service propels Hub Group turnaround

Hub Group said the intermodal rail service of its two major partners, Union Pacific Railroad and Norfolk Southern Railway, is improving, albeit not fully recovered, delivering a better financial performance than the prior quarter.

The company said it expects intermodal volumes to grow 4 to 7 percent this year after volume jumped 6 percent year-over-year in the second quarter, lifting revenue from the business 2 percent to $465 million. Despite the surge in traffic, Hub’s net income slipped 1 percent to $18.5 million profit as revenue rose 1 percent in the same period to $686 million.

That a noticeable improvement from the first quarter, when net income fell 16.5 percent to $10.3 million, revenue shrank 1.5 percent and intermodal traffic inched up only 1 percent.

Pricing discipline played no small part in the company’s recent gains, said Hub Group Chairman CEO David Yeager. “But we also had a very low benchmark sequentially,” he said on Tuesday’s earnings call.

Hub’s intermodal business is picking up after struggling over the past year thanks in large part to slowdowns on the U.S. West Coast before and a slow recovery of intermodal rail service since networks reliability took a nose dive during the harsh 2013-2014 winter. Without port congestion, which exacerbated chassis shortages and flummoxed gate reservations at rail terminals, Hub estimated intermodal volume in the first quarter could have been up 3 percent year-over-year.

“If you could take it back from February, March, April, May, June, (intermodal volume was) sequentially moving in a positive direction,” he said. “And then July, it's early yet, but if you look at it as of like the 14th, it's continuing on with the trend from June.”

But poor intermodal rail reliability has spurred some shippers to convert loads back to over-the-road trucking, said Mark Yeager, Hub’s vice chairman, president and chief operating officer.

“There are some customers that are very concerned about rail service and it's been now nearly a year since we started having significant service issues,,” Yeager said.  “To be honest, we've also seen some customers who have made the decision to convert back from intermodal to over-the-road where they just felt that they couldn't get the service that they needed in order to be comfortable with the product.”

Although Hub Group has done business in both the rail and road sectors, it’s onus has historically been on intermodal service. Trucking, meanwhile, has been a compliment to intermodal, used for so-called first and last miles.

Hub's other divisions and subsidiaries reported lackluster results for the second quarter.

The firm's truck brokerage revenue increased 8 percent year-over-year to $93 million. Second-quarter revenue at Hub's Unyson Logistics subsidiary also declined 8 percent hitting $128 million. Hub's other subsidiary Mode Transportation saw revenue increase 1 percent year-over-year to $234 million.

Contact Reynolds Hutchins at reynolds.hutchins@ihs.com and follow him on Twitter: @Hutchins_JOC.