DC Velocity - August 2011

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line penetration, and [future gains] are largely dependent on issues beyond the rails’ control,” he says.

Charles W. Clowdis Jr., managing director, transportation advisory services for the consultancy IHS Global Insight, says intermodal’s improving reliability and transit times will gain it new converts whether oil prices rise, fall, or remain static. “Even if oil prices decline from these levels, users who try intermodal will stick with it, at least for some of their freight,” Clowdis says.

Another challenge for the railroads is educating truck shippers on the benefits of domestic intermodal, and convincing them the rails can deliver on their service commitments.

It hasn’t been easy. “A lot of customers keep freight on the highway because they don’t think there’s an intermodal solution,” says Branscum of BNSF.

Gloeb of UP adds that the reluctance of shippers to convert to intermodal is largely due to “an issue of confidence” in the quality of rail service.

The past has a lot to do with that. For years, shippers complained about inconsistent and unreliable rail service, a reality that hampered intermodal growth despite what is conceptually a solid value proposition. While rail executives tout the service improvements, they also admit prior missteps are not easily forgotten by big shippers.

“The greatest challenge is history,” says Rutherford of CSX.

RATES ON THE RISE?

As intermodal gains traction, it’s a safe bet users will be paying more for the service than they have for several years. Intermodal rates in 2011 are projected to rise between 3 and 8 percent over year-ago levels, with the high end being significantly above the increases expected to come from the truckload carriers.

At a recent industry conference spon-
sored by New York City investment firm
Wolfe Trahan, a panel of executives from
companies that tender much of the inter-
modal freight to the railroads—Hub
Group Inc., Schneider National Inc., J.B.
Hunt Transport Services Inc., and Pacer
International Inc.—predicted rate
increases of between 3 and 5 percent, with
Schneider saying rates could go higher
than that, according to a post-meeting
report published by the firm.

BRIGHT PROSPECTS

While there are many variables that could disrupt the railroads’ plans to capture domestic intermodal share, what is clear is that a growing number of shippers are interested in at least exploring what the rails have to offer.

Howland of APL Logistics, whose company is booking an increasing volume of domestic intermodal freight, says customers using intermodal for 15 to 20 percent of their traffic are looking to boost that ratio as high as 50 percent. Some shippers, Howland says, are looking at intermodal to move as much as 70 percent of their merchandise traffic.