Rail, Intermodal Rates Seen Firming

Rail, Intermodal Rates Seen Firming

If there’s been one reliable trend in recent years, through recession years and growth, it’s that rail rates keep rising.

Analysts generally think major North American freight railroads want to push overall pricing up by mid- to high-single-digit rates or a bit faster in 2011, across the broad mix of cargoes and not counting the push from fuel surcharges.

But pricing for rail service varies with each player, as railroads market differing route maps and efficiencies, and as intermodal middlemen juggle rail pricing and their own market offerings.

In the first quarter, Union Pacific Railroad in the West had an 8 percent year-over-year bump in average revenue per shipment. But company officials said that broke down into 3.5 percent from fuel fees, so its “core” pricing was up 4.5 percent.

Ed Wolfe and Scott Group of Wolfe Trahan said that was a deceleration from UP’s pricing trend late last year, but “we suspect rates could accelerate in (the second quarter) following large intermodal rate increases in April.”

Unit-volume yields decelerated some at eastern railroad CSX Transportation, too, but John Larkin of Stifel Nicolaus said CSX has increased its share of intermodal traffic that generates lower average revenue than some other cargoes. He thinks CSX “will continue to generate no less than 5 percent annual price increases” going forward on what CSX calls its “same store” business of same customer-traffic-route.

Many intermodal contracts are out to bid early in the year, so first quarter pricing on container and trailer hauls aboard trains may not be a good indicator for the whole year. And this year, as the recovery appears to strengthen, the industry looks for intermodal pricing to stiffen.

Company officials at Hub Group, one of the major intermodal marketing companies that work with retail customers to sell space aboard trains, have said they expect intermodal pricing this year to rise 3 to 5 percent.

For the first quarter, Hub’s revenue from intermodal traffic jumped 17 percent over the 2010 quarter. But Larkin said volume rose 13 percent, fuel pricing and mix shifts accounted for most of the rest, while pricing rose 3 percent.

Pacer International, another large IMC, had an intermodal price gain of 1.5 percent net of fuel fees, said Kevin Sterling at BB&T Capital Markets. But market pricing has trended higher in March and April, so Sterling’s team looks for “intermodal rates to rise about 2 to 3 percent in the second quarter and 3 to 5 percent over the course of 2011.”

Contact John D. Boyd at jboyd@joc.com.