TRUCK FIRMS MAKE INROADS INTO INTERMODAL MARKETING

TRUCK FIRMS MAKE INROADS INTO INTERMODAL MARKETING

The uneven U.S. economy continues to send shock waves through domestic cargo markets, forcing truckers and intermodal marketers scurrying for every load and permanently blurring the traditional lines separating highway and rail freight.

The latest trends show intermodal marketing companies, which sell long-haul rail service, losing ground to truckers in the fierce battle for intercity freight. At three major railroads, IMC freight has declined 15 percent to 20 percent.Truckers tend to focus on higher-value freight, like computers, that offers more attractive rates. Intermodal services have traditionally been marketed by IMCs, which have strong ties to railroads, to handle normally lower value types of freight, like canned goods.

The latest evidence that truckers are actively encroaching into IMC territory is the decision by Schneider National Inc., the largest U.S. truckload company, to form its own intermodal marketing unit. (See separate article).

"We don't inherently know what is an intermodal marketing company's and what is truck freight," said Thomas Finkbiner, vice president of intermodal for Norfolk Southern. "The market between truck and IMC traffic is blurring."

Shippers' insistence on a broader range of services from a smaller core group of vendors is forcing both marketing companies and truckers to expand.

"Everyone's going in every direction," said Ron MacDonald, senior vice president of pricing and marketing for MCS Inc., a marketing company in Memphis, Tenn. "Before the market was pretty well defined for an IMC. Now there are so many other players that are muddying the waters. The new angle is that logistics companies are stepping in the middle and trying to deal with us, while we have dealt with the railroads all along," he said.

"Once we were convinced you could tell the difference," Mr. Finkbiner said. "We were always comfortable with the segmentation strategy in domestic freight that LTLs (less-than-truckload carriers), IMCs and truckload motor carriers had different markets. That's clearly not the case anymore. What happened in the first half of the year is that truckload carriers decided to reduce rates and compete with IMCs for IMC traffic. That makes IMCs a creditable competitor with the truckload guys."

"There has been a definite downward pressure on rates accompanied by strong market share plays by both IMC's and truckload carriers," said Tom Brown, president of Riss Intermodal, a marketing company. "IMCs and (J.B.) Hunt (Transport) are more frequently finding themselves in direct competition. The competitive picture has intensified as (trucker) Schneider National has become a more active player in the market."

While Santa Fe, Union Pacific and Southern Pacific report lower IMC volumes, other carriers won't be specific about IMC trends.

NS claims that sales channel has grown. Mr. Finkbiner said the IMC business is up 6 percent, less than half of the carrier's overall 13 percent first-half increase.

The Association of Railroads' weekly carloading reports show trailer traffic - nearly all of which is domestic - falling off 8 percent this year.

Because the 8 percent trailer loadings also include freight from companies such as Schneider, Hunt and less-than-truckload carriers, the actual extent of the shift cannot be measured.

Intermodal marketing companies are responding to the new environment by expanding their product lines to offer a broader range of services, said Phil Yeager, chairman of the Hub Group, an intermodal marketing firm.

Not everyone sees wholesale change in progress.

"We really haven't gone after the intermodal business mainly because it is quite a bit cheaper than what we can afford to haul it for," said Wayne Childers, vice president of marketing for truckload carrier Werner Enterprises. "We look more for the higher-service market that intermodal can't do."

Despite the changes, the IMC/rail connection remains strong.

"We are not wedded to the railroads, but they represent 90 percent of our business," Mr. Yeager said.

Joe Pirozzi, assistant vice president of distributor sales, said CSX Intermodal has made a conscious decision to maintain close ties with distributors, known to others as marketing companies.

"Because we are so committed to that (sales) channel, when they are down, so are we," he said.

Some railroads see sharp differences between trucking and rail pricing strategy, which affects intermodal marketing companies' underlying costs.

Steve Mitchell, assistant vice president of domestic marketing, says there is a fundamental difference between intermodal and truckload pricing practices that affects the market share each segment can gain on a short-term basis.

"Intermodal pricing is seasonal or even year round," he said. "Truckers can do point-specific pricing. They will price down until they get a load."

"Motor carriers, both those that use intermodal and those that do not, are taking decreases," said John Philp , assistant vice president of intermodal marketing for Union Pacific."

He characterized UP's decision not to cut rates as "an economic move, not a strategic move."