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Intermodal Transport Key to Domestic Supply Chains This Year

Trucking’s capacity constraints have been part of the good news for rail and intermodal

By ·
By ·

Rising fuel costs are only one of many challenges confronting supply chain managers reliant on motor carriers in 2019. While this transport sector remains robust, increasing driver wages and insurance costs are eroding profits. Furthermore, note analysts, costs associated with labor, maintenance, equipment, licensing and compliance have increased steadily for several years.

Truckers are charging higher fees for shipping services, but much of the increase is going to cover rising driver wages, which leaves many companies still struggling to make sufficient profit.

David Ross, transportation equities analyst for Stifel Financial Corp., forecasts truckload (TL) rates to rise from 5% to 7%, with less-than-truckload (LTL) rates rising 3% to 4%. He does not find this particularly alarming, however. “Just as everyone wants to fill up their car at the gas station with the cheapest price, when the price triples, they still have to fill up,” he says. “It’s the same for trucking, in our view. Shippers won’t pay a penny more than they have to for truckload capacity, but they’ll pay whatever they have to.”

Brian Hodgson, vice president of transportation strategy at the SaaS provider and consultancy Descartes, says he’s already seeing higher rates on TL/LTL with a lot more volatility based on lane.

“With the current capacity crunch, shippers are trading off cost pressure to secure capacity and develop stronger relationships, trying to minimize the reliance on the spot market,” says Hodgson. “A number of shippers are moving to or expanding their dedicated fleets. This provides much more predictability to capacity which is critical for the customer experience.”

Trucking’s capacity constraints have been part of the good news for rail and intermodal, says Frank Harder, a principal with the transportation consultancy Tioga Group. “Railroads made a lot of money in 2018, as we predicted in last year’s forecast,” he says. “The same holds true for 2019, as coal transport had a significant uptick and steel manufacturing strengthened.”

Harder also believes that innovations pioneered by CSX in creating precision scheduling railroad (PSR) techniques will continue to transform the pricing and rate landscape. “We see that Union Pacific and Norfolk Southern are also copying PSR, which focuses a railroad to improve service and maintain fluidity,” he says. “This is done in part by shedding marginal operations and facilities, and is much easier to do in a growing market.”

In summary, Harder feels railroads are confident that they can grow both their volumes and their operating ratios, thereby charging shippers more aggressively than motor carriers can manage. “This is not a good year to get special or lowball deals from a railroad…for any commodity group,” he concludes.


About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

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