Northwestern Pacific Railroad Network

Dedicated to Sharing the Heritage of Redwood Empire Railroading

Freight Railroads Get Boost from Tight Trucking Markets

From WSJ, 2018-04-30:

Retailers, manufacturers facing capacity squeeze on the highways are taking a slower path through intermodal rail to keep shipments moving

Freight railroads are capitalizing on a historically tight trucking market as companies move more shipments from highways to rails.

Domestic cargo volumes are surging on industrial expansion and strong economic growth. But demand is outstripping the supply of available trucks, which move more than 70% of U.S. freight, making it more expensive and difficult to book over-the-road transportation.

Trucking companies are struggling to recruit and retain drivers.  A new federal rule requiring truckers to electronically log their hours behind the wheel has also crimped capacity.

Rail is typically cheaper, but slower, than long-haul trucking.  With spot-market trucking prices up as much as 30% year-over-year, shippers looking to shave costs off less time-sensitive shipments are increasingly turning to intermodal service, where carriers move goods long distances by rail and truck.

U.S. railroads posted a 6.5% increase in intermodal traffic in March, according a report from the Association of American Railroads, making the month “easily the best” March in history. The trade group said intermodal volume is tracking to top records set last year, with growth accelerating in April.

The AAR said the number of truck trailers moving on major railroad networks expanded 15.3% in the first quarter from the same period a year ago.

Rising fuel prices have also made rail more attractive. On-highway diesel prices hit $3.133 a gallon the week ending April 23, the highest in more than three years, according to the U.S. Energy Information Administration.

The major freight railroads have captured the higher volume despite pockets of service issues in parts of the country where the carriers are dealing with hiring shortfalls and higher demand.

Norfolk Southern Corp. has been battling congestion in the southeastern U.S., where it didn’t have enough crews to keep trains running smoothly. It has hired conductors, relocated crew members to places like Alabama and created a “go” team to try to clear up bottlenecks.

Nevertheless, the railway has been picking up cargo from trucks, with intermodal revenue up 19% in the first quarter. Volume rose 8% while revenue per unit rose 10%, a sign that shipping customers were paying more to get their goods on trains.

“We’ve seen 11 consecutive weeks of increases in truckload spot rates,” said Alan Shaw, Norfolk Southern’s chief marketing officer. “So we’re very confident that as the year progresses, we’ll be able to continue to lean into price reflecting the value of our service.”

At Union Pacific Corp. , which reported first-quarter results Thursday, domestic intermodal volume increased 5% on strength in parcel shipments and tight truck capacity. Other lines of business, including the railroad’s refrigerated boxcar business, have also gotten a bounce from the tight truck market.

“We see opportunity across the board,” Lance Fritz, the company’s chief executive, said in an interview.

Railroads tend to have longer term contracts with shippers, so changes in the trucking market may not allow them to adjust prices or go after new contracts quickly.

Freight brokers who arrange transportation are also feeling the effects as customers switch some shipments over to rail. Hub Group Inc., one of the largest brokers in the U.S. focused on rail shipping, said a 14% increase in intermodal revenue in the first quarter to $482.5 million, helped boost the company’s net profit 56% to $16.1 million.

Not everyone has chased the volume aggressively. CSX Corp.’s intermodal division has shed about 7% of its business following a restructuring of its network. The Jacksonville, Fla.-based railroad it dismantled a hub-and-spoke model in favor of longer-haul routes that are more profitable. But its volumes have started to recover some of the lost business.

In the first quarter, CSX didn’t expand its intermodal volume compared with the year before, but revenue rose 3% on higher rates. CSX Chief Executive James Foote said the company is focusing on converting truck volume only if it can do so profitably.

“I don’t win any awards for how many truck trailers I move on our railroad,” Mr. Foote said in an interview this month. “I win points as to how profitable my enterprise is at the end of the day.”

--Jennifer Smith and Paul Ziobro at The WSJ

Views: 117

Reply to This

© 2018   Created by Mark Drury.   Powered by

Badges  |  Report an Issue  |  Terms of Service