Forecasting intermodal in 2020

Late last year, I questioned whether intermodal still deserves to be considered a growth area within surface transportation, asserting that its growth status has been diminished, if not demolished. Of course, no judgement on that debate was ever expected to be rendered during the first two months of 2020 and questions regarding intermodal’s secular growth remain. However, the latest public comments and data on intermodal from the Class I railroads, their intermodal partners and FreightWaves data paint a picture of an industry that will likely struggle to attract freight away from the trucking industry, at least until the much-anticipated capacity-driven improvement in the truckload industry kicks in.  

On its earnings call, J.B. Hunt described a domestic intermodal picture that caused me to wonder why a shipper would use intermodal in this market. 

J.B. Hunt described domestic intermodal customers as demanding intermodal service levels that are essentially indistinguishable from trucking while still expecting a rate discount from trucking that is similar to what shippers have received historically (i.e., 10%-15%). Management then described a trucking marketplace as being so highly competitive with intermodal that it is difficult to price at any discount to trucking (at least in the eastern U.S.) while still earning an acceptable margin on the ever-rising wholesale rates paid for capacity on the Class I railroads. 

What incentive does a shipper then have to shift freight from truck to intermodal? Perhaps only as a hedge against a shortage of truckload capacity later in the year or to add to a checklist of "green" initiatives. For those reasons, several of Hub Group’s intermodal customers converted a portion of their transportation spend back to trucking from intermodal within the last year. While Hub Group expects that lost volume to return to intermodal, the shift clearly underscores the competitive nature of domestic intermodal and the difficulty in growing intermodal volume in the current transportation marketplace.