Rail Intermodal Rates Reflect Truck Trends

As you may already know, DAT collects data on truck freight transactions, as part of the company's role as the largest provider of load boards and truckload rate data. Perhaps surprisingly, DAT also receives a lot of rail intermodal data, via our daily feeds from 3PLs, carriers and shippers. Most of that data refers to spot market pricing on 53-foot domestic containers.

Rail carload traffic declines, but intermodal edges up

The data from 2015 reveal some interesting trends. Overall rail carload traffic is down 5.4% in 2015 to-date. By contrast, rail intermodal increased 1.7%. The fourth quarter has been brutal, though, with carload traffic down 9.5%. Even intermodal declined 1.1% for the quarter.

Intermodal competes with truckload on hauls of 700 miles

Railroads realize they have a challenge, hanging onto market share. Intermodal linehaul rates hit their high in June at $1.42 per mile, which includes $1.13 for the line haul, plus a 29¢ fuel surcharge. That compares to spot market van pricing of $1.87 ($1.58 29¢) in the same month. Since hitting that high in June, intermodal line haul rates have settled in at $1.10 per mile, for four of the last five months, compared to a $1.51 average rate for spot market vans. The fuel surcharge added about 20¢ per mile in December, for both modes.

Rail intermodal pricing, at its June peak, was about 24% below the national truck price, but that difference is due partly to a much longer length of haul. Most rail movements start to become competitive with trucks only at distances above 700 miles.

Rail intermodal pricing has remained relatively steady on the spot market, but truckload transportation is more affordable. Rates on the graph do not include fuel surcharges, which declined from 39¢ to about 20¢ per mile over the past 13 months.

Shift in demand for metals, oil and coal affect rail traffic

Macroeconomic trends have a direct effect on rail freight volume, specifically on traditional bulk cargo types such as metal and ores, fracking sand, petroleum products, and coal. Those segments are in decline, with metal ores down 23% in the fourth quarter, petroleum traffic off by 19%, and coal down 17%. A lot of that lost rail freight just isn’t truck-competitive.

Auto and auto parts get a boost

The one bright spot in carload traffic, paradoxically, is for new automobiles and auto parts. Average train speeds have increased markedly in the last few months, with fewer interruptions by slow-speed trains carrying ore, coal, and petroleum products. Faster trains benefit the automotive industry.

Growth is slowing for domestic intermodal traffic, which was supposed to be the rail’s high-growth segment. As slack truck capacity and low diesel prices improve the competitiveness of truckload transportation, more of the core rail intermodal freight is headed back onto the highway.

Panama Canal expansion will add to pressure on rail

The opening of the expanded Panama Canal in 2016 will enable the new class of mega-container ships to travel from Asia to destinations on the U.S. East Coast. Our infrastructure isn’t fully ready for the these cargo giants right now, but the eventual influx of mega-ships will exert more pressure on railroads -- as well as West Coast ports -- to respond to this potential diversion of traffic.

Expect softness in Q1, with gradual rebound in Q2

Many analysts believe economic results will be soft in the first quarter of 2016. We see slowing in a lot of key indicators, and the country is still working through a period of excess inventory.

On the upside, drought-stricken areas continue to receive rain, which is very welcome, especially in California. When crops and industry improve in California, that boosts the whole nation, and the extra demand adds to pressure on spot market capacity.

I look for truck trends to begin reversing in the second quarter, with local shortages of equipment, as the economy adjusts to lower energy costs. At that point, the railroads may also begin to reverse current downward trends in both carload and intermodal traffic.

Intermodal rail cars. Photo by Mark Montague

Photo by Mark Montague

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