DC Velocity - June 2011

newsworthy

UPS shift to 53-footers
Truck demand accelerates
could change dynamics
of U.S. shipping

UPS INC. DISCLOSED THAT IT HAS PLACED A MULTI-YEAR order for 53-foot double-stack intermodal container units, a move that could dramatically change the dynamics of shipping in the United States and usher in a new era of intermodal pricing and service.

UPS spokesman Norman Black said the Atlanta-based giant has for the past year begun shifting to the larger equipment and away from the 45- and 48-foot trailers it has traditionally used to transport its customers’ intermodal traffic. The order, which Black said UPS placed directly with an unidentified container manufacturer, is designed to facilitate what the spokesman called an “efficiency move” on the company’s part.

Black declined any further comment on the order other than to say that production has begun and that none of the new equipment has been placed into service. An executive close to the industry, who asked not to be identified, said UPS has ordered between 6,000 and 7,000 units. It is believed the equipment is being manufactured in China, where a great deal of low-cost container production takes place.

For decades, UPS has been the country’s largest individual user of intermodal services. It has also been by virtually every account, the railroads’ single most demanding customer.

CHANGING MARKET DYNAMICS

For large users like UPS, double-stack containers, which can be placed two-high on railroad chassis, provide compelling economies of scale relative to a single trailer on a flat car. Containers are also considered more energy efficient.

However, double-stack trains run at substantially slower schedules than service for expedited trailers. The executive said that although users of container equipment have long requested faster schedules, railroads have historically refused to comply because pric- p. 18

Truck freight demand across the nation is starting to spike, a situation that could raise anxiety levels for shippers and freight brokers already confronting a capacity-constrained marketplace.

According to TransCore, a Portland, Ore.-based load-matching network that tracks freight activity in 64 U.S. traffic lanes, first-quarter online load postings by freight brokers hit records for each month in the quarter. TransCore’s load-posting data extends back at least 10 years and probably longer, said Ken Harper, the firm’s senior marketing and communications manager. However, Harper declined to disclose specific numbers, saying they were proprietary to the firm and its clients.

The flurry of posting activity by brokers indicates that shippers, who traditionally work through brokers to locate truck capacity, are experiencing a sharp acceleration in business that requires them to secure space quickly through the spot market instead of via the contract route.

For shippers, opting for spot market pricing has, in recent years, often been a better deal than signing a one- or two-year contract, mostly because spot market rates have been depressed due to sluggish demand and overcapacity. However, spot rates have been climbing in the past year as a pickup in demand intersects with significant capacity reductions from the four-year freight downturn and subsequent economic recession.

By contrast, contract rates have remained relatively static, due in part to the impact of so-called legacy contracts that have yet to come up for renewal.