Intermodal Freight Volume Rises Despite Rail Delays, Execs Say

This story appears in the Sept. 29 print edition of Transport Topics.

LONG BEACH, Calif. — Intermodal freight, including record weekly rail volume earlier this month, continues on a strong growth course this fall despite ongoing rail delays, industry officials said.

“We think there is quite a bit of underlying strength” in the intermodal market, Larry Gross, a senior consultant at Bloomington, Indiana-based FTR, told attendees at the Intermodal Expo here last week.

Scarce trucking capacity and underlying economic growth are driving the increase, said Gross, who previously was an industry executive.

On the rail side, U.S. freight railroads moved nearly 280,000 truck-rail shipments in the week ended Sept. 13 to set a record, according to the Association of American Railroads.

It also is being fueled by international cargo trends that have remained solid after pre-shipping of cargo this spring to avoid possible West Coast labor disruptions.

 “It is a great peak season; better than the last several years,” said Dave Daly, a vice president at ‘K’ Line America, the U.S. unit of a Japanese ocean carrier, noting that the continued market strength was unexpected.

“Domestic intermodal has been very strong. I don’t see that changing,” added Lance Fritz, president of Union Pacific Railroad, citing a noticeable peak in fall freight volumes. “We are now in the marketplace we have been hearing about for years, with constrained capacity. There is more potential for highway conversions. We’ve got ample room to grow in many lanes.”

However, intermodal trains on average are running 8% to 9% slower than last year at this time. Earlier this year, freight rails’ shortfall was even greater, as shown by carrier data posted on the AAR website. But carrier executives emphasized that they are confronting building demand.

Gross said rail service, a subject of wide-ranging customer complaints, “has stabilized at unsatisfactory levels.” Fritz also addressed service issues, saying trains are running at 1.5 mph slower than the railroad’s network is designed to operate. UP’s year-to-year service decline is about 7%, when measured in mph.

But Fritz maintained that in recent weeks there has been “modest incremental improvement.”

“We should be able to continue to make modest improvements,” he said, though he wouldn’t specify when 2013 service levels will be equaled. “At this point, what we have to do is not create doubt that the consistent high level of service is achievable.”

Gross believes “meaningful improvement is still some distance away” in nationwide rail service, predicting there won’t be significant gains until spring.

He noted that total rail volumes this year have just returned to 2008 levels, but trends have shifted toward more intermodal traffic and fewer coal shipments since then. Today, he said, rails have too much track in places such as the Wyoming coal fields and not enough elsewhere.

There also are not enough workers, Fritz said.

He noted that freight volumes have grown this year by 7%, nearly three times the pace that train and yard workers have been added. UP more than doubled 2014 hiring to 3,400 persons for those jobs, but their training period is as long as nine months.

Hub Group, which derives about two-thirds of its revenue from intermodal shipments, is optimistic that the railroads will restore service, CEO David Yeager said.

Hub, which owns 28,000 domestic containers, has seen utilization slip more than 10% as systemwide delays slow transit times.

“We have been growing [volume] in the high single digits,” Yeager said. “We have confidence there is tremendous growth ahead. We know the service will come.”

Hub ranks No. 8 on the Transport Topics Top 100 list of for-hire carriers in the United States and Canada.