Are Trucks Taking Over Intermodal Shipments From Rail?
The winter of 2013-14 was especially hard on rail service, and it has been struggling to recover some of the intermodal shipping it lost for the past 18 months. Recently, there has been rumors on the North American supply chain that the domestic intermodal business U.S. and Canadian railroads have fought so hard to get back, could be jumping rail and heading back to motor carriers.
In the beginning, railroad executives quickly dismissed such talk, stating intermodal rail was still the best way to go and shippers would continue to wait out the lag in service until it could fully recover. They were certain the cost of shipping via truck would rise due to tightening capacity. But prices of fuel have dropped dramatically and rail service still hasn’t recovered well. Some motor carriers are ready, willing and able to grab up cargo that might otherwise have gone to rail.
With coal and other carload shipments on the downfall and railroad profits slowing, railroads are going to have to make a big push or lose more profitable business. Its the international intermodal market they’ve got to worry about… Port congestion on the West Coast is slowing things down for the moving of these big ocean containers, but many carriers aren’t quite ready to switch to trucks yet, though it could be coming. Railroads have got to step up their game on intermodals or risk losing the business to truck.
Railroads have long touted the image that rail service is more reliable and consistent than any service a trucking company could offer, but that image is steadily fading as the trucking industry offers a lower cost of doing business. “We expect intermodal rates will continue to decline in 2015 as the dramatic drop in diesel prices and even more dramatic drop in oil takes its toll on U.S. domestic demand,” said Donald Broughton, chief market strategist at Avondale Partners, the equity research firm that produces the index for Cass Information Systems.
Several months ago, the railroads claimed there was absolutely no loss of intermodal shipping to motor carriers are now back tracking. Not only is growth simple slowing down, but railroads are actually losing market share to trucking. Kansas City Southern President Pat Ottensmeyer said, “We absolutely know there was demand during the quarter that we could not satisfy. ”
Railroads are offering pricing that competes with motor carriers in their fight to keep and win back some of the lost business. They’ve got to make new investments, develop strategies and create new infrastructure if they hope to stay in the game. Larry Gross, a senior consultant at freight transportation forecasting firm FTR Associates, said “I think it’s going to take some work and some time. They’re going to really have to earn this back.”
But it seems motor carriers won’t need to work too hard to pull customers away from rail. “I don’t think the truckers are going to have to fight any harder,” Gross said. “They fight hard every day of the week. That’s that business.” Even still, the trucking industry is struggling with capacity issues and taking over a large amount of customers from rail would be difficult. The driver shortage is taking its toll and trucking companies are struggling to get their cargo out in a timely manner. While both rail and over-the-road have their ups and down, only one will come out on top… at least this year.