The stated topic was “intermodal in the post-ELD world.” But it became more like free form at intermodal’s highest managerial levels. Terry Matthews, executive vice president of intermodal at J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) and Jeff Heller, vice president of intermodal and automotive at Norfolk Southern Corp. (NYSE:NSC) took the stage at the SMC3 winter meeting today in Atlanta to proffer their views on a range of subjects.
On electronic logging devices (ELDs): Matthews said ELDs’ impact, though substantial, would be confined largely to the first full year of implementation. “Year 2,” Matthews said, would find ELDs to be “something in the past.” As might have been expected, Matthews and Heller said most of the dislocation was in the 500- to 800-mile range, distances where one-day deliveries could easily turn into two. Trucking firms not prepared for the changeover have struggled and lost share to legacy ELD businesses. Heller added that Norfolk Southern has experienced strong intermodal growth on lanes such as Chicago-Columbus (Ohio) and Chicago-Cleveland, which he labelled “ELD-sensitive markets.”
On drivers: Matthews said that the “random driver” is increasingly unavailable due to the cumulative effects of changes in hours of service regulations and enforcement of the ELD mandate. This has pushed more business to the dedicated contract carriage model, Matthews said.
On the January effect: January 2018 launched one of the strongest first quarters for carriers in decades. Things have evened out in January 2019, according to both executives. The ELD mandate is not as much of a factor, and equipment, drivers and freight are better aligned than a year ago. Another tailwind, said Heller, is that Norfolk Southern’s service reliability is better now than then.
Speaking of which...2018 was “not a stellar year for service for the railroads. And it wasn’t a stellar year for Norfolk Southern,” Heller admitted. The executive added that the railroad has “turned the corner” on service.
On driver availability: Matthews said Hunt is having a tough time finding regional drivers for drayage jobs of 250 miles or more. That could be a by-product of the ELD mandate’s impact on drayage hours. And Hunt is paying more: Driver wages in the Midwest have risen by $12,000 to $15,000, the largest increase since Hunt entered intermodal in the 1980s, according to Matthews.
One trend is that drivers who may have left the industry to take jobs in construction and in the gig economy are being lured back in by higher wages. About 30 percent of Hunt’s driver hires in 2018 did not hold a driving job in the prior 30-90 days, Matthews said.
On equipment: The trailer, displaced long ago by the container as intermodal’s equipment of choice, again showed resurgence in 2018. Through November, trailers rose 12.4 percent year-over-year, while containers rose 5.2 percent. Of course, there was more than five times the container traffic than trailer traffic.
As was the case in 2017, tight truck capacity was seen as the reason for trailer growth. While stating that Norfolk Southern remains a “double-stack container railroad,” Heller added that “we will find ways to help trailer freight.” Trailers account for 6 to 8 percent of Norfolk Southern’s approximately 4 million annual intermodal traffic, he said. Matthews added that a network bifurcation is in the offing, with some terminals being dedicated to trailers and others to be container-only. Heller said that it is difficult to combine trains with a mix of trailer and container equipment. There are also no new railcars coming online designed to handler trailers. That said, Heller vowed to explore how “trailers fit into the double-stack system. They are very important in the intermodal world.”
There is adequate container equipment in the system, according to both executives. It should be noted, however, that there are no domestic box manufacturers; all of them come from China. Things look sanguine for the next four to five years on the box availability front. The next flashpoint is around 2025, when 25,000 aging containers could be taken out of service.