Intermodal Record to Come Early: FTR

The United States will set a record for total intermodal loads later this year—at least three years earlier than the estimates coming out of the Great Recession, according to Jonathan Starks, director of transportation analysis for FTR Associates.

“That’s a pretty significant development that it would recover that quickly, when the truck and rail-carload segments are still well below their previous peaks,” he said.

In FTR Associates’ State of Freight webinar on Thursday, Starks said that the weakness during the middle of 2011 was driven by the international segment while the domestic segment stayed robust. Now the international segment is coming back and domestic remains strong, so strong growth is expected the rest of the year—6%, slightly above the rate of 5% in 2011.

“We’re looking at growth that is above both the rail and truck base,” he said. “That’s what’s driving that market-share gain over the next couple of years.”

In year-over-year percent change, the international segment turned positive toward the end of last year and is running just under 5% now.

“February to March is normally the largest month-to-month increase of the year,” he said. “Even though raw volumes increased, seasonal adjustments tempered that good news, resulting in a small decline in domestic, seasonally adjusted. One thing that’s helping intermodal now—similar to the carload side—is a strong increase in train speed, running well over 32 mph, which is a 4-5% increase versus where we were last year.”

Starks said intermodal’s market share is up 3% since early in 2009. The growth slowed in 2010 as trucking markets were really starting to take off and were able to pull back some of the market share they lost to intermodal back in 2009. But over the last 18 months, it been showing significant growth. It’s risen 1% over the last year and 8.3% in the first quarter.”

He said there was a significant shift in intermodal length of haul in the first quarter, with super-long haul (2001-2500 miles) adding quite a bit at the expense of the 1000-mile market.

“It will be interesting to see if this is a blip or if there is change occurring,” he said. “Some of this could be coming from the trans-Canadian movement, but you’d expect that to occur a little bit more over time. So we’ll see if there is something that was creating a one-time thing.”
Starks said that 53-foot container traffic has grown over 10% in the past year.

“That could be constrained going forward,” he said. “If there is trouble with container availability, it will be difficult to grow at a 10-20% clip for the foreseeable future because they’re not able to get a whole lot more container capacity into the system in such a short amount of time.”
He said 53-foot trailers, the only sector growing in 2011, have now come to “a standstill.”

“This is one of the segments that could be first affected by fuel-price volatility because they can much more easily transfer trailers directly on the intermodal market than trying to get into a 53-foot container market,” he said.

Noel Perry, FTR’s senior consultant, said this will be a good decade for manufacturing and construction, and they will likely add employees, not shed them.

“Illegal immigration has dropped dramatically since the last recession, and most people don’t think it will start up again until we’ve had a sustained recovery for a while,” Perry said. “So the number of people entering the workforce has dropped by more than 50% this decade. That means each year will be a little harder for those of us in this business. Over the course of 10 years, that’s a very big deal. That means labor rates are going to be considerably higher at the end of the decade than they are now.

“The short-term issue with drivers has to do with the ability to recruit. Fleets, to save money, laid off recruiters in ‘09 because they didn’t need them. Now we’re back to normal turnover, running three times what it was running in ‘09. To that we have some growth. In order to hire this million or more people, we need people out there recruiting. So far, we’ve not brought them back. This is why the industry has a shortage of drivers. They don’t add to the recruiting budget until things get really tight. And they aren’t really tight yet.”

He said that with all the new regulations brought in by the Federal Motor Carrier Safety Administration (FMCSA), there will be a hiring drag of up to 400,000 drivers, unless the courts slow it down.

“We already know that the driver-hiring apparatus is not big enough to keep up with the economy,” he said. “Now we’re going to add more stress on it and fall farther behind. This shortage will last longer than in 2004 because the amount of regulation coming at us is bigger. This is why we expect labor prices and overall prices to be relatively tight until we get the next recession.”

He said most fleets (at least publicly) and a number of security analysts believe that we should expect modest increases in truckload costs in the next few years, like those between 2007 and 2011, and between 1953 and 2003.

But Perry said that the price went up by 11.2% last year, “so there’s already precedent for substantial price increases during this upturn. Our forecast calls for a before-fuel 6% increase, and that’s actually quite conservative given history. But a lot of other people are talking about 2-3%. I find that hard to believe, given the fact that last year the before-fuel number was 5.6%, and of course we added fuel.

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