Summary
How solid is the case for intermodal rail? Is it merely the flavor of the month, or can be be an honest-to-goodness, legitimate alternative to all-truck movements of surface freight? Analysts are touting intermodal rail, but how important and encompassing can rail transport be to U.S. shippers?
Analysis
Intermodalism--in this case trucks and containers and rail--is all the rage what with Warren Buffett's investment of $26 billion to buy the Burlington Northern Santa Fe Railway. Major trucking companies such as J.B. Hunt, Schneider National and, to a lesser extent, Knight Transportation and Werner Enterprises also are sticking their toes in the intermodal waters.
But how much freight, really, is going to be moved out of reliable, 53-foot dry van trailers and onto intermodal rail?
The dirty dark little secret: not much.
Because of rail's limited scope--and, most importantly, shoddy service--intermodal rail is not that much of an option for a vast majority of today's all-truck shippers. I estimate as many as 90 percent of all-truck shippers today have no viable rail alternative.
Sure, rail is fine on 1,500-mile lengths of haul from, say, Chicago to Los Angeles or Chicago to Portland. Chicago to Dallas is another good route.
But suppose one wants to go from a company's distribution center in Central Pennsylvania--say, York, Pa.--to Cleveland. Is that going to go by rail? No way. Nor is a lot of the other all-truck freight being hauled today by the likes of UPS Freight, FedEx Freight, Con-way and other LTL providers.
Intermodal rail accounts for less than 1 percent of the nation's $680 billion freight bill. True, it is a growing sector, but not by much. During the recent recession, when fuel prices ticked below $2 a gallon once again, intermodal shippers fled the space like there were locusts on those locomotives.
According to the Association of American Railroads, the rails' own trade association, U.S. rail intermodal traffic was off 14.6 percent year-over-year in September, on top of the 16.4 percent y-o-y decline in August.
Now, that's not all the rails' fault. The general slump in the U.S. economy was practically totally to blame. But the fact is intermodal will be off this year in double-digits. And this is the future of U.S. ground transport? I strongly doubt it.
The wild card here is fuel. Intermodal becomes an attractive option to some long-haul shippers when diesel fuel costs more than $3 a gallon. Right now, it is right about at that tipping point. But if we enter another period of an extended oil glut--and we could be in for one, as the bubble in crude oil could burst as investors exit the commodities--that might cause a significant drop in the price of diesel to the point where all-truck moves become more economical.
Fact is, truck service is hard to match. Eventually nearly everything but the bulk commodities of grain, coal and lumber goes by truck. The market place has spoken on that score.
Intermodalism might be the flavor of the day to some. But I've been hearing that intermodal is the "future of transportation" for lo, some 30 years now. During that span, all trucking has done is expand its market share. Given an shock to world crude oil prices that would drive diesel to the $5 a gallon range, I suspect that trend to continue. Railroads simply are a limited option to most major freight shippers.
