US shippers hitting capacity barriers on rail, road

US shippers hitting capacity barriers on rail, road

A freight train travels in Illinois, United States.

Rising intermodal spot rates and tight capacity on the rails are making it difficult for latecomers seeking to shift freight off the highway. (Above: A train travels in Illinois.) Photo credit: Shutterstock.com.


US shippers stung by rampant truckload rate increases are looking for alternate routes to customers, but they’re finding capacity is tight and prices high no matter where they look. Higher intermodal spot rates, combined with rail capacity limits and service issues, is turning some freight that would otherwise shift to rail back to the highways, a logistics provider said.

“When trucking markets get tight you can usually convert to intermodal as a price play on capacity,” Matt Witten, carrier sales manager at AFN Logistics in Chicago, said Thursday. Note his use of “usually,” however. “The difference in 2018 is that railroads have had time to prepare for this market, and a lot of that mode conversion to intermodal has been done already.”

That means shippers just now trying to find space on intermodal trains are bumping up against shippers that made intermodal commitments last year, before the worst of the truck capacity crunch. They’re also finding spot intermodal rates that are substantially higher than a year ago.

Spot intermodal rates up 53 percent compared with last year

On average, domestic intermodal spot rates were up 53 percent year over year May 15. “Rail has capacity problems of its own,” Witten said. “It’s not tapped out, but it’s harder to get volume commitments. A lot of intermodal companies are at their limits.” More pre-allocated resources means tighter overall capacity, and that generates higher spot rates, he said. “Companies have seen prices rise year over year across the board, and knew that was coming.”

Even so, the increase in intermodal spot rates on specific lanes can be astounding.

On the critical Los Angeles-to-Chicago lane, spot rates on May 14 were up 22.8 percent on average from the previous week, and 90.1 percent from a year ago, according to data provided to JOC.com by Intek Freight and Logistics. The average spot rate hike in the LA-to-Dallas intermodal lane was 15.4 percent from May 7 and 117.4 percent from a year ago.

According to Rick LaGore, president and CEO of Intek, Union Pacific Railroad is fully booked on domestic outbound intermodal contract volume from Los Angeles through the end of 2018. He said the railroad announced it would not take new contract business last week, while clarifying its decision would not affect current business and renewals, or spot rate capacity. “We’ve never seen railroads tell us ‘no new contracts’ for the peak so early in the year,” LaGore said.

Despite pricing and capacity constraints, intermodal volumes keep moving up, as freight demand increases for all modes. In the week ending May 19, intermodal volume on US railroads rose 5.9 percent year over year to the third-highest weekly level on record, 285,142 containers and trailers. Year-to-date, intermodal volume is up 3.2 percent year over year.

Shippers’ imperative — not price, but when will product get there?

Price isn’t necessarily the determining factor shippers make when choosing modes, and that’s especially true in a market marked by high demand and increasingly tight delivery deadlines. For shippers, “it’s not just the price, it’s when is my product going to get there,” Witten said. “Can I afford to put this shipment on the rail, and can they get it to my customer on time.”

“Shippers are very concerned about just maintaining that capacity level,” Maggie Turner, a national account manager at AFN, said. “They know rates have risen across the board. Everyday we get requests for market information, what are you seeing? With the electronic logging [device mandate], we’ve seen [truckload] rates jump anywhere from 10 to 40 percent.”

Turner and Witten see more shippers and consignees moving away from live loading and unloading to trailer drop-and-hook operations, where loaded trailers are dropped by a trucker and unloaded later, while the trucker leaves with a pre-loaded trailer. “Our volume is 30 to 35 percent drop trailer, and we anticipate that number to increase 8 to 10 percent,” Turner said.

Like other shippers, her customers are trying to eliminate waste that cuts into driver time on the road, and adding shipment lead time. “There are a couple of large shippers we’ve worked with that had a 24-hour lead time, and they’re increasingly going to 36, 48, or 72 hours,” she said. “They’re pushing that out to allow for better planning as driver hours of service become key.”

Shippers will have to use all options, whether truckload, intermodal rail, less-than-truckload, or even package van if they want to secure surface transportation capacity. The rail and intermodal industry is making heavy capital investments to add capacity, Witten noted. “Can they keep up with the demand right now? No, but in the future, we’ll see. Right now, trucking is king.”

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc.