Despite a fall in truck fuel surcharges, shippers' preferences for intermodal service isn't likely to change.
Oil prices have tumbled recently, which has led to significant fuel savings for truckers, the Journal of Commerce explained. Despite this, intermodal trains are expected to remain the preferred shipping method for some time. A shift from an intermodal to a truck service probably wouldn't yield great savings for shippers, and right now, trucking capacity is tight in most markets. Right now, intermodal service is just too good to pass up. The winter weather so far has yet to be as severe as it was last year, and intermodal speeds – an important measure of reliability – are improving.
Intermodal rail service also still has one significant edge over trucking. Despite falling fuel costs, shipping by train still edges out trucking prices, Noel Perry, managing director and senior consultant for FTR Associates, wrote in a report, according to the publication. For international intermodal shipping, which makes up the bulk intermodal volume, the cost-advantage over trucking has fell only slightly, from 50 cents a mile to 41 cents a mile.
Intermodal volumes are on the rise
Recent reports on intermodal volumes seem to support the belief that shippers are content with service by rail. Intermodal rail traffic in the U.S. rose 2.1 percent year-over-year in the week that ended on Jan. 10, according to report from the Association of American Railroads. During that week, rail services moved 276,573 intermodal trailers and containers. Through the same week, Canadian railroads moved 56.125 intermodal units, a 16.1 percent increase. Mexican railroads accounted for 9,780 units, a 0.5 percent rise. In all, during the week that ended Jan. 10, intermodal volume in North America rose 4.3 percent to 306,852 trailers and containers.
The numbers for December told a similar story. U.S. rail intermodal traffic jumped 3.7 percent in December 2014 year-over-year, according to the AAR. At least in terms of the U.S., December's numbers seem to show that intermodal use will continue to rise through 2015.
The outlook for intermodal is strong overall, according to Nasdaq. Because of this, railroads are expected to expand on their intermodal services in order to accommodate rising volumes. Additionally, rail companies are likely to explore untapped markets with highway-to-rail conversions. The Mexican market looks particularly interesting. Rail reforms initiated by president Enrique Peña Nieto, and designed to boost foreign investments in the country, have drawn the attention of some rail firms. Union Pacific, for example, services all six gateways between the U.S. and Mexico and will probably seek to use the recent reforms to expand its influence in the country.
Additionally, recent investments in the rail industry foreshadow growth, Nasdaq explained. BNSF Railway Company last year spent $900 million on terminal, line and intermodal expansion. CSX Corp. recently invested in nine of its own projects.
In fact, CSX Transportation recently expressed to investors on a fourth quarter earnings call that shippers would not be shifting back to highways anytime soon do to lower fuel costs, according to the Journal of Commerce. Though fuel surcharges are falling, truck rates are expected to increase. Truckload rates are projected to go up 4 percent to 6 percent, while intermodal rates are estimates to rise between 3 percent and 4 percent.
"And while some shippers might convert a few loads back to truck, our sense is that intermodal is more sticky than some investors recognize," Thomas Albrecht, a transportation analyst at BB&T, told the publication. "Most shippers we know recognize the storm that's coming in 2016 and 2017, even if 2015 is 'easier' to manage."