FTR data points to decent intermodal market outlook but potential policy changes loom

Intermodal market conditions were described as “in reasonably positive territory,” according to the most recent edition of the Intermodal Competitive Index (ICI) released this week by freight transportation consultancy FTR.

The objective of the ICI is to provide its viewers with an assessment of the competitive posture of domestic intermodal transport versus over-the-road truck transport, adding that it is a compendium of different factors, including relative rates vs. truck, industry capacity vs. demand, fuel prices and intermodal service levels.

As for how the ICI is gauged in terms of metrics, FTR said figures above 0 indicate favorable conditions for intermodal to compete with truck, and figures above ten show extremely favorable conditions that would result in substantial truck to intermodal conversion. Conversely, negative numbers indicate less aggressive modal share gains for intermodal - and potentially reduced share.

For December, the most recent month for which data is available, the ICI was 6.98, which was ahead of November’s 5.0 and October’s 5.26, with FTR noting that intermodal finished 2016 with decent momentum. And it added that the ICI is expected to see gains in the coming months as a result of what it called a robust rate environment, while cautioning there are also some tailwinds in the form of potential trade policy changes issued by the White House.

“About half of all North American intermodal volume depends, to a certain extent, on our international trade,” said Larry Gross, Partner at FTR and principal author of Intermodal Update, in a statement. “This includes cross-border movements and import/export movements, both in international containers and as transloaded cargo in domestic containers and trailers. As of today, we have not programmed in any potential effects from changes in U.S. trade policy, but such alterations could have a profound negative impact on intermodal prospects. Most damaging would be if we got into a tit-for-tat trade conflict with one or more of our worldwide trading partners, a prospect we still consider unlikely as of now.”

In a recent interview, Gross explained that intermodal has not seen a true decrease since the recession, with total activity basically split between intermodal and domestic container and trailer movements, with the caveat that they are two separate and distinct markets for various reasons, including:

• more use of transloading out of places like Southern California that would bump up domestic at the expense of international;
• a change in port mix from West to East, which makes it less intermodal friendly;
• a big increase in the number of ocean services going in and out of the Gulf ports; and
• rail-to-truck stuff conversions

“All of this together creates quite a disconnect, and I don’t think that it is going to come back, but it is going to start moving in lock step again if I had to guess for 2017,” he said. “You are not going to see that continued divergence that is going to sort of move back into alignment but at a lower level than it was, so that would say that maybe this year intermodal activity would once again match import activity but the basis would lower.”

Gross said it is unlikely things will go back to what the “old normal” was, instead noting that the domestic and international paths will stop diverging, with the lines starting to be parallel again.