J.B. Hunt Transport Services Inc., the largest US asset-owning intermodal provider, will be making a major push into the temperature-controlled intermodal sector, doubling the number of refrigerated 53-foot containers in its fleet to approximately 2,500 units before the end of the year.
The majority of perishable goods are moved on trucks because of temperature sensitivity, speed-to-market, and the fewer number of pallets able to be moved in a container due to weight restrictions. Only recently have intermodal providers been able to address these disadvantages.
In the last six years, refrigerated intermodal has become a niche growth industry. J.B. Hunt’s investment is an indication the industry giant believes there is a rich pipeline of food shippers willing to convert from truck to rail. J.B. Hunt’s expansion further signals that intermodal providers have closed the gap with trucking through a combination of newly constructed containers capable of handling more pallets, better rail service since January 2019, and higher margins due to the specialization of cooled cargo.
There are concerns, however, that J.B. Hunt will slash rates to build share in temperature-controlled cargo, making it harder to maintain higher margins. Non-asset intermodal marketing companies in dry intermodal have privately complained about J.B. Hunt’s pricing strategy for years.
J.B. Hunt, according to a video the company posted online, will be adding approximately 1,400 new reefer containers this year, unseating C.R. England as the largest asset-owning provider. A spokesperson for J.B. Hunt declined to comment, beyond confirming the accuracy of the company’s video.
J.B. Hunt has owned a small number of reefer containers for nearly a decade, but a source familiar with the fleet expansion told JOC.com that recent orders were the largest in company history. The source said an order of almost 1,000 containers, including two dozen currently in transit, will be fulfilled this year.
There are 20 bills of lading showing Qingdao CIMC Special Reefer Co. assembling and shipping containers to J.B. Hunt since May 2019, according to Ocean Audit CEO Steve Ferreira. His records show 634 containers have arrived in the United States, including 122 this year through Feb. 20.
“This serves as both a recognition that there is relative strength in demand for refrigerated transportation, and that J.B. Hunt wants to erect walls around certain customers who were often forced to use multiple carriers to fill their routing guide,” said a rival intermodal executive based on the US East Coast. “I think it’s complementary to their other service offerings like dedicated contract services, and helps to position the one-stop shop methodology they have been striving to achieve.”
J.B Hunt’s purchase comes as other temperature-controlled intermodal providers, such as Marten Transport and KLLM Transport Services, have been replacing trailer-on-flatcar with reefer containers. A source told JOC.com that J.B. Hunt ordered SlimLine boxes with a Thermo King reefer, which is capable of holding at least two additional pallets than older containers.
Validation that railroads can handle perishables
Ted Prince, co-founder of Tiger Cool Express, said J.B. Hunt’s container order validates the core premise Tiger Cool held when it launched in 2013. Back then, there were fewer refrigerated intermodal providers and those who existed used trailers. Tiger Cool was one of the first to choose containers.
“Our containers can hold 28 pallets, and in six years we have had exactly one load cube out before it weighs out. J.B. Hunt is unique in that they have a self-contained network that has ultralight chassis and day cabs,” Prince told JOC.com.
The SlimLine reefer container can hold 30 pallets, narrowing the gap between what fits in a 53-foot container versus a 53-foot trailer.
“Since the average weight of a reefer container and chassis is almost 5,000 pounds more than a reefer trailer, this restricts drayage opportunities if using a day cab, or weight if using a sleeper,” said a rival intermodal executive based in the South, speaking on the condition of anonymity. “With the advent of the SlimLine container, the palletized capacity portion has been resolved, which allows for more shippers to convert highway freight to intermodal.”
“Historically, the biggest competitor to refrigerated intermodal wasn’t other intermodal carriers, it was trucking,” the East Coast intermodal executive said. “I don’t think that the relatively small incremental increase to capacity that J.B. Hunt is adding changes that dynamic in any material way. However, what we would all like to avoid is a race to the bottom, and certainly J.B. Hunt has the ability to run more laps in that race than other providers would have.”
A third intermodal executive, based on the West Coast, agreed that J.B. Hunt’s investment will put pressure on rates and service.
“Of course we need to be competitive on price as the additional reefer container capacity added in the past six months has created challenges to maintain an acceptable return,” the source, who did not wish to be identified, said. “Shippers are less willing on the reefer side to trade savings for service in conversion from truck, so the need to be closer to truck in service levels will help decide market share as well as price.”
Similar to the decision on dry goods, the competition between truck and rail is fierce and largely depends on price, capacity, and service. If refrigerated trucks are readily available and spot rates are low, then intermodal will struggle to win freight. If truck capacity is tight, fuel rates rise, or spot markets heat up, then intermodal providers have an easier time selling a shipper on modal conversion.
Will shippers use J.B. Hunt?
The intermodal executive based in the South emphasized that every shipper is different. Some might flock to J.B. Hunt, especially if the Arkansas intermodal giant attempts to gain share by slashing rates. Others might prefer to be a “big fish in a small pond” rather than a “small fish in a big pond.”
“Ultimately, the shipper has the choice of who they choose to do business with by selecting the provider that meets their overall needs,” the source said. “Depending on the size of the transportation spend, you may be a top 10 customer for one provider and unknowingly get certain levels of enhanced priority due to your size. But if you begin utilizing a larger vendor, you might not even be in their top 500 and begin to see a difference in the level of service you considered to be ‘normal.’”
Other intermodal executives said they would remind shippers about their expertise in refrigerated transportation, whereas J.B. Hunt is known for hauling dry goods in dedicated trucking, brokerage, one-way truckload, and domestic intermodal.
Questions about new containers
Prince, of Tiger Cool Express, questioned the ability of new SlimLine containers to handle the rigors of refrigerated intermodal.
“We are a little concerned with the Thermo King reefers because they are based on a European model in which the maximum container length is 13.6 meters [45 feet]. We are concerned about the 53-foot reefer holding temperature as the rail moves through the desert in summer,” he said.
Two of the other intermodal executive sources acknowledged there are concerns SlimLine containers cannot successfully transport sensitive frozen goods such as ice cream through very hot regions of the US during the summer.
“The testing of different reefer models in testing chambers on 53-foot containers shows that the necessary temperature range is sustainable, but there are more BTU [British thermal units] robust SlimLine units currently under development that will further address those concerns,” said the East Coast intermodal executive.