There's no doubt the truckload and intermodal segments are closely linked. A stunning example is J.B. Hunt Transport Services Inc.(Lowell, Ark., www.jbhunt.com), which reported that intermodal revenues were 45% of its fourth-quarter 2006 revenues and 59% of its operating income. But, domestic intermodal growth has been weaker than its international counterpart. On top of that, the influence of Asian imports gives international intermodal a coastal bias.
Morgan Stanley's proprietary Truckload Index (New York, www.morganstanley.com) put truckload demand at 2002 levels as January came to an end. Demand is expected to continue softening after the post-holiday slowdown that started in October into the first half of 2007. This was expected to erode pricing, the equity analyst firm reported. Because utilization is down, carriers could start parking trucks, but it is the falling demand not the increasing capacity that is the driver, says Morgan Stanley. Removing capacity may be less effective for carriers seeking to shore up pricing given this scenario.
Motor carriers will continue to receive tractors into the second quarter due to the pre-buy of equipment related to the 2007 engine emission requirements. So, truckload demand should see little change until the forecast economic growth begins in the second half of 2007.
Despite the weaker demand, intermodal has a substantial price advantage over truckload, and is expected to gain 2% to 3% in pricing overall. International container volumes continue to drive increases in intermodal, which are enjoying their fifth annual volume record, according to the Intermodal Association of North America (IANA, www.intermodal.org). The Washington, D.C.-based organization reports intermodal shipments will top 14 million in 2006 and will continue to rise in 2007. Domestic and international intermodal growth was expected to continue after the post-holiday slowdown and the effects of the Chinese New Year on production (and, therefore, on Asia imports).
For Burlington Northern Santa Fe (BNSF, www.bnsf.com), volume growth in the fourth quarter of 2006 was 3.7%, concentrated in international intermodal, coal and agricultural products, according to the analyst firm Stifel Nicolaus (www.stifel.com). Taken separately, international intermodal rose 5.3% in the period while domestic intermodal dropped 2.1%.
Canadian National (www.cn.ca) reported growth in grain/fertilizers and coal as well as petrochemical products and intermodal. Intermodal revenues of the Montreal-based company rose 6% while units were up 3%, despite adverse impacts of weather in the fourth quarter.
On the East Coast, Jacksonville-headquartered CSX (www.csx.com) was reporting significant operating improvements, but still experienced a 0.4% overall volume decline. It's fourth quarter offered some difficult comparisons considering the impact the 2005 hurricane season had on its infrastructure and operations. Year-on-year improvements in on-time originations and arrivals were 37% and 51%, respectively. Actual on-time train originations were 76.4% in the fourth quarter and on-time arrivals were 65.9%. Dwell time dropped 17%.
Norfolk Southern (NS, www.nscorp.com) also worked to produce-more revenue per car on reduced car loadings. NS saw a 3.3% overall decline in intermodal while it was reporting traffic with its truckload partners had increased 6%. Wrapped into the overall number was a 13% drop in domestic intermodal in the fourth quarter.
Pending Safety and Security Mandates
Volumes and pricing aren't the only challenges facing rail intermodal in 2007. Safety and security top the list of concerns for rail regulators. Rules required under SAFETEA-LU requiring safety inspections (roadability) of container chassis are nearing the end of their comment period. Meanwhile, the Department of Homeland Security (DHS, www.dhs.gov) announced initiatives to secure freight and passenger railroads and prevent terrorist attacks.
The proposed rule governing intermodal chassis roadability appeared in the December 21, 2006 Federal Register (www.gpoaccess.gov/fr) as " Requirements for Intermodal Equipment Providers and Motor Carriers and Drivers Operating Intermodal Equipment." The rules include intermodal equipment providers (IEPs) as well as intermodal carriers, brokers, forwarders and drivers.
Among the requirements:
- Intermodal equipment providers would have to register and file equipment reports for each chassis.
- Each chassis would have to display a Department of Transportation (DOT, www.dot.gov) number or unique identifier.
- A systematic program of inspection, maintenance and repair must be established.
- IEPs would have to put in place documentation and systems for response to defect reports.
The program is designed to ensure chassis comply with Federal Motor Carrier Safety Administration ( FMCSA, www.fmcsa.dot.gov) regulations. The inclusion of IEPs means they are now subject to the same enforcement and penalties as carriers, brokers or forwarders. FMCSA would use its Safety Status Measurement System to identify and prioritize which IEPs would be subject-to roadability reviews. The reviews would include an on-site examination of the inspection, maintenance and repair operation. The FMCSA would not issue a safety rating for IEPs as it does for motor carriers.
Among the factors that would potentially subject an IEP to a roadability review are:
- A complaint that the FMCSA determines to be non-frivolous.
- Equipment involved in a pattern of recordable crashes or hazardous materials incidents.
- The IEP requests review.
- A pattern of non-compliance.
- FMCSA otherwise determines there is a need for review.
On the security front, the Transportation Security Administration (www.tsa.gov) would gain new authority over freight railroads under initiatives announced by the DHS. Contained in these initiatives are requirements that rail operators regularly inspect certain equipment and keep it in secure areas when not in use. The DHS would also require continuous tracking of tank cars loaded with toxic inhalation hazards or toxic inhalation hazard material.
IANA notes that freight railroads carry about 1.7 million hazardous materials loads per year, including 100,000 toxic inhalation hazard shipments. Hazardous materials routings are not addressed under the DHS initiatives, says IANA, despite the controversy raised in 2005 when the District of Columbia tried to ban CSX trains from carrying such shipments on tracks that ran near the U.S. Capitol.
DHS will deploy radiation detection devices at virtually all U.S. ports by the end of 2007, according to Ralph Basham, commissioner of Customs and Border Protection (www.cbp.gov). Speaking at an industry event, he said that by then CBP will be able to screen 98% of all incoming containers for radiation, bringing DHS into compliance with rules set by the Safe Ports Act.
DHS and the Department of Energy (www.doe.gov) are also planning pilot tests at foreign ports of scanning equipment to detect nuclear and radiological materials.