Summary
After 20-years, Intermodal as pioneered by JB Hunt and United Parcel Service is even more of a bright spot. I share our colleague Mr. Williams’ optimism regarding Intermodal - and that for JB Hunt’s continued success therein. There are idiosyncrasies in the numbers discussed that offers an opportunity for a different look.
Analysis
Secrets to success within businesses vary, but include the P-words: price (value), process, partners and / or people. JB Hunt has the P-words well tied down in the Intermodal realm (and dedicated too). While the people / knowledge and processes are critical, they are harder to put numbers to versus the other key issues of rail costs and getting backhauls.
We have been a direct player in the Intermodal marketplace for 20-years. At first it was dealing through the marine ports, then included rail terminals. We did Dole Bananas from Guatemala up through the Port of Galveston - picking up the containers there and delivered the product to Safeway & Kroger’s King Soopers warehouses in Denver. We used the container to backhaul beer, meat, potatoes and canned paint to Texas before returning the container / chassis to the Port. We separately did beef to Japan with empty containers were picked up at the Port of Oakland where we loaded tomato products in Tracy CA going to grocery warehouses in the Rocky Mountain States. The containers were taken to meat processing plants to be loaded for Oakland where the cans were loaded back on ships. We also are involved in the same for Maersk into Denver and Salt Lake, along with Hyundai Merchant Marine to Tijuana MX. As we got involved in our Asian food business, we had to roll in the rail Intermodal moves of rice from Arkansas to California.
The key to success in those operations were understanding and interfacing with the port / terminals, communication with all parties, minimizing container demurrage (allowable days), chassis maintenance documentation, fixing the point-to-point (long-haul) costs, and putting something in empty containers (backhaul).
As noted by Mr. Williams, the largest Intermodal players are JB Hunt, Hub Group, Pacer International and Schneider National. United Parcel Service and the United States Postal Service are others, although not in general freight. In addition there is Triple Crown (RoadRailers) on the Norfolk Southern, similar to what Swift did between LA and Portland on the old Southern Pacific (UP).
An analysis of JB Hunt Intermodal "revenue and profit per company truck" is not really a fair one against other carriers, as well as when looking exclusively at JB Hunt. While they have been rapidly moving trucks from their truckload division to Intermodal (several hundred earlier this year), a large number of Intermodal moves are outsourced - but are included in revenue and profits. Some of the trucks we lease into the Chicago market are used by the 3rd party carriers exclusively for such today. Just looking at the container to truck ratio, one can see that the norms don’t match (40,000 containers / 2,000 trucks = 20:1).
Intermodal runs aren’t clean either, as it’s common for JB Hunt (and others) to do “3-way’ trips to get loaded containers back to the rail yard. Such an example involves a typical consumer load picked from Chicago rail yard to Iowa, dropping and hooking another container for a pure ground trip to get to another loaded container to take back to the Chicago rail yard. This is a 700 mile round that would count as Intermodal.
In rolling up norms, revenue per mile base rates (exclusive of fuel surcharge) for Intermodal runs 5-10% less than all-truck truckload rates. Dray miles norms are about 10-15% of the rail piece. Shipper / receiver trade-offs are accepting on-time performance in the lower-90’s for lower value moves versus high 90’s for truck-only performance. As fuel costs rise, the overall calculation and advantage moves more toward rail since the overall rate differential is higher for truck.
The huge advantage JB Hunt has is in their rail contracts. A couple years ago in these articles, we noted that Hunt has the best very long-term (percentage) “partnership” contract with the BNSF - which will continue to be a boon for them. Even though the deal got tweaked in court a number of years ago, it still is a good deal for Hunt - and a better deal for BNSF since then.
If the numbers are as we recall them, Hunt-BNSF still have a revenue split contract at around 50%. As a calibration, the remainder of the Intermodal market plans for 60% of the non fuel surcharge revenue going to the railroad on a fixed cost basis. Getting a 10-point OR advantage can easily come from rail rates - and that has shown to be big bucks! When it comes to backhauls, Hunt can also discount as compared to their competition and still do OK. It’s kind of like a brokerage where one can drop rates but still make a percentage.
Schneider National (or any others) will never have as good rates with the BNSF as JB Hunt does. They and others including Hub and Pacer have to negotiate rates for loaded and empty rail haulage. It is disappointing to see Schneider deemphasizing their East-West marketplace - but it makes sense when one looks at their rate-cost structure. This is potentially good news for Hunt, Hub and Pacer in this corridor.
The bottom line is that JB Hunt’s secret is a big part their people - plus their unique rail deal. They have a GREAT model and court-tested rail contract that may last into perpetuity. I agree with Mr. Williams - their outlook is rosy & I love it!
