Intermodal transportation offers a solution to the chronic truck driver shortage, as well as frequent shortages of capacity for over-the-road hauls. Why, then, isn’t intermodal commanding a bigger share of the domestic freight market?
That question was explored at the recent Intermodal Expo of the Intermodal Association of North America (IANA) in Long Beach, California.
Railroads have long offered themselves as an alternative to long-haul trucking — an option that becomes increasingly attractive as motor carriers struggle to find enough drivers willing to live on the road, and be away from their homes for days or weeks at a time. International shippers have responded by incorporating rail into their routings for freight destined for interior points. In fact, inland points intermodal (IPI) moves, driven by a surge in imports from Asia, have recently been up by around 15% from their low in the immediate post-pandemic period, said Larry Gross, president and founder of Gross Transportation Consulting. (According to research from S&P Global Market Intelligence, August marked the 12th straight month of improvement in U.S. seaborne imports of containerized freight, with a year-over-year rise of 10.8%.)
A corresponding spike in domestic intermodal hasn’t been seen in that same period, with domestic containers only rising by about 5%, Gross said. Overall, he added, intermodal’s share of the long-haul market is around 10%.
“Domestic intermodal market share [is] stuck in neutral, and has been for the last six quarters,” he said. “We lost quite a bit of share during the pandemic and have not been able to get it all back.”
Conditions in the long-haul trucking market, for all of its troubles, evidently haven’t been bad enough to spark a wholesale move to intermodal. “It’s not that abnormal,” Gross said. “A little bit soft, but quite typical. It’s the market we have to live with rather than the market we desire.”
Ken Vieth, president and senior analyst with ACT Research, said at the IANA conference that the trucking sector continues to suffer from persistent overcapacity, following “an aggressive market-share grab.” With over-the-road space readily available, and a consequent downward pressure on rates, domestic shippers have little incentive to seek out slower rail options.
“Price is the story today,” Vieth said. “It’s the nutshell issue on the highway. And we’re continuing to see capacity coming on line.”
Good news, he added, comes in the form of early signs of relief from the freight recession that plagued truckers from the third quarter of 2022 though the second quarter of 2023. The past four quarters have seen growth of 4.2% in on-highway freight volume, he said.
Nevertheless, carriers are still buying trucks at a pace that’s not justified by the health of the market. According to Vieth, however, the lion’s share of those purchases in the past couple of years haven’t happened in the for-hire sector; the culprit is private fleets. Big retailers, food service and beverage companies have been adding capacity at a steady rate. The reason, Vieth said, is a push by private fleets for greater resilience in the face of constant supply chain disruptions. For that, “they’re willing to pay a dollar more per mile.”
He speculated that the capacity glut in for-hire trucking is “finally coming to an end.” And if domestic shippers should suddenly find themselves scrambling for truck space, they might well turn to intermodal.
Shelli Austin, president of InTek Freight & Logistics Inc., said the health of the third-party logistics market is an important factor in the recovery of the domestic transportation market overall. A freight recession and rising interest rates have posed challenges to 3PL, and the market “is not picking up as quickly as we had hoped,” she said. However, if interest rates drop further, and home building and renovations pick up, the 3PL sector could serve as “a leading force driving the freight market.”
One promising trend for domestic container haulers, Austin said, is a recent dramatic increase in the transloading of import freight at ports from international into domestic boxes. Ocean carriers favor the practice because it allows them to turn their containers around faster, then get them back to Asia to pick up more import loads.
Also serving as a promising source of future growth in intermodal are shipments from Mexico, which is undergoing a manufacturing renaissance as U.S. businesses shift production from China in favor of a nearshoring strategy. Currently, Austin said, less than 5% of freight moves between Mexico and the U.S. is moving intermodally.
The intermodal market within Mexico, by contrast, “is what’s exploding right now,” Gross said. “It’s a young market that has room to run.”
Austin believes the intermodal industry needs to do more to gain the confidence of shippers. “There’s still quite a bit of freight that can be converted,” she said. “You still have hesitation on the part of the customer.”
Railroad performance is at a high level, Austin said. “We need to show the customer how it works, get them to see and feel it. We need to stop talking about it and start doing something.”
