BY MARK B. SOLOMON, EXECUTIVE EDITOR – NEWS
RAIL/INTERMODAL
transportationreport
EACH MONTH, CASS INFORMATION SYSTEMS INC., A
freight bill and payment company, and Avondale Partners,
an investment firm, produce an index showing how much
Cass customers, who generate $25 billion a year in freight
bills, pay for domestic intermodal service. After a solid multiyear rebound from the Great Recession, the index, which
encompasses linehaul costs, fuel surcharges, and accessorial
fees, has sloped down relentlessly for the last 18 months.
During that time, the federal government’s weekly read on
diesel fuel prices—which had been dropping since the start
of 2015—began another plunge that by February had taken
nationwide prices down to levels not seen in 11 years. Diesel
prices had rebounded to $2.42 a gallon as of early July but
were still more than 30 percent below where they were 18
months prior.
Does the data show a link between the prolonged decline
in diesel prices and the drop in demand for intermodal
traffic moving by rail? Donald Broughton, an Avondale
managing director and chief investment strategist who has
covered transport for decades, says it does. For months,
Broughton has argued that falling diesel prices have led rail
users to shift some of their intermodal business back to the
highway, especially in shorter-haul markets in the country’s
densely populated Eastern half, which have long been the
province of motor carriers and whose business the railroads
have been chasing for years. (Rail executives estimate that
10 million to 12 million domestic loads, most of them in the
East, are ripe for conversion to rail service.)
In April, Broughton told a gathering of the Transportation
Intermediaries Association (TIA) that “cheap diesel [is]
driving intermodal loads off rail [and] back onto the highway, especially in shorter lengths of haul.” Broughton’s
views had not changed as of late June, when he wrote in
his analysis accompanying the most recent Cass-Avondale
data that “intermodal rates are expected to continue
declining for the remainder of 2016 as the dramatic drop
in diesel prices … takes its toll on U.S. domestic demand.”
Prospects for any growth in the domestic container trade—
the bulwark of U.S. intermodal business—for the rest of
the year are “dependent upon demand in longer lengths
of haul growing fast enough to offset the loss of volume in
shorter lengths of haul, particularly in the East,” he added.
“Lower for longer” diesel prices not
seen curbing enthusiasm for rail
Avondale analyst says lower diesel prices have led rail users to shift short-haul loads
to trucks. Yet others say that’s just one factor, if it’s a factor at all.
