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Intermodal freight volumes were on a steady decline in 2019, especially towards the end of the year. Schneider’s Whitepaper “The State of Intermodal: How Shipping Via Rail Is Changing The Transportation Industry” reviewed what this decline looks like, why it’s happening, and what the future could and should look like for the transport industry based on intermodal volume numbers.
Intermodal transportation, also commonly referred to as multimodal transport, is the movement of freight using two or more modes of shipping. Intermodal routes include a mixture of trucks, train, air, and/or ocean.
Frequently, “intermodal transportation” will refer to the process of shipping freight long distances using rail systems and then bringing those goods the last mile on trucks. This works well to get a large volume of freight off the roads, without paying hefty air fair, while still allowing for fast and effectual cross-country shipping. One intermodal train can move about the same amount of cargo has 280 trucks, so it’s a highly efficient mode of shipping. It also offers competitive pricing, especially with the trucking crisis we’ve seen in recent years.
The Intermodal Association of North America reported that total intermodal volumes were in decline 7.4% in Q4 of 2019 (compared to Q4 2018). Domestic intermodal declined by 2.7%, international by 9.1%, and trailers down by 21.4%.
These are some hefty numbers. Intermodal transport is typically the most predictable and reliable for the industry, and we haven’t seen declines like this since the recession in 2009.
So what’s actually causing this decline?
The demand for the quick shipment of goods is dramatically rising.
The current infrastructure of the logistics industry simply can’t keep up with the hike in demand for freight movement. Companies throughout the industry are working diligently to improve and automate operations to meet the rising demand. However, there’s still too much freight to be handled without the proper optimization of routes.
Not only is demand rising, but also there is an ongoing driver and truck shortage. This is tightening road freight substantially, which is putting even more pressure on railways to fill in-demand gaps.
To meet the increasing transportation demand, a lot of railways are implementing the PSR system. Precision scheduled railroading (PSR) uses a scheduled direct line for shipments in the rail network. Previously, most railways waited until the train was completely full before they’d send the train out on its route. But this led to long delays and unpredictable arrival times.
With PSR, the train takes off at a set time, whether or not the freight is on the train and whether or not the train is full. This allows for much faster speeds and less dwell time in terminals, and it’s expected to have a lot of positive benefits in terms of efficiency of the total supply chain.
In the meantime, though, the transition to the PSR process has been slowing down rail companies. There’s an overlap of shipping lanes, ramp closures, and a reduction of equipment and staff, which is further reducing the already-tight supply of rail gear.
Railroads don’t actually own all of the shipping containers on their tracks. They only own about 1/3 of the 300,000 U.S. shipping containers. (J.B. Hunt owns about 96,700 of those.)
This means that small carriers or businesses can’t just walk up to a railroad and ask for space on a train. There’s a capacity crunch as it stands, and large individual carriers are buying their own rail equipment to try to offset this concern. In the process, it feels like this is squeezing out smaller carriers and shippers (although this isn’t entirely the case, as we’ll discuss below.)
Despite the whitepaper’s findings, it seems intermodal transportation is going to come back soon. Let’s address the reasons for the intermodal decline.
First, demand. Demand is going to continue to increase. But the trucker shortage is starting to lessen (slowly but surely), and companies are providing heftier compensation packages to encourage the hiring of more drivers. This means the road portion of the intermodal transport can move more quickly and create a more streamlined overall process.
Second, we expect that the current concerns of PSR will fade quickly, and it will lead to increased on-time delivery and reliability. For the time being, PSR is a concern, but it should resolve itself once the change is fully implemented.
With regards to the third reason for shipping equipment, there are still some challenges to address for smaller shippers who might be dealing with a rail capacity crunch. We’ll look at this in the next section.
On a quick note, we’ve seen a dip in intermodal transport at the beginning of 2020 due to the coronavirus outbreak.
In the meantime, this could take a hit on the renewal of the intermodal transport industry. Any progress forward might shut down in terms of international multimodal, as ocean vessels have stopped or delayed.
Right now, spot market pricing for both rail and road are fairly low. There are still plenty of instances of excess capacity, so shippers can find a place for their goods. This works as a good short-term strategy, but it’s not sustainable.
In the long haul, capacity is going to tighten up and it’s going to be a challenge to find that same service for smaller shippers. Capacity will reduce, which means shipping will be hard to find; and when you find it, it could be expensive.
To ensure small businesses aren’t hit with the effects of a capacity crunch, they’ll want to do one or multiple of the following:
Another effective strategy is to work with a shipping partner like Redwood Solutions. Redwood Logistics is a multimodal brokerage built to move you forward. We work with you to create custom solutions for your transportation needs. We use the best technology to find the carriers and routes that work best for your shipping. Best of all, we are able to do so while also enhancing your logistics supply chain from A to Z.
Reach out to us for a consultation about how to implement a long-term strategy that can withstand whatever changes occur in the logistics industry.