Gross provides a roadmap for future intermodal success at RailTrends

While freight demand and volumes still leave room for growth, the overall state of the intermodal market remains somewhat mixed, albeit with some potentially promising signs ahead. That was the word from Larry Gross, president of Gross Transportation Consulting, at the recent RailTrends conference in New York hosted by Progressive Railroading and independent railroad analyst Tony Hatch.

With intermodal volumes down and, as Gross said, underperforming, Gross posed the question of: what will it take for intermodal to get its “mojo” back?

The short answer to that question, he explained, comes back to market share.

“[Intermodal] has taken a real hit with market share,” said Gross. “We are down 1.1% versus 2017 [based on GTC, Transport Futures, ETSO Report data] and down 0.7% compared to 2019. And we’ve only just started to get edge back off in the last couple of quarters by about 0.1%.”

The intermodalist labeled this as a huge drop, with the data indicating that if the sector had just been able to hold share, which it used to do, intermodal would be currently carrying 18% more domestic volume than it currently is, which he said is worth about 1.4 million annual loads and roughly $3.5 billion in total door-to-door revenue.

One of the things that the intermodal sector cannot count on, according to Gross, as it relates to future growth, is import TEU (Twenty-Foot Equivalent Units) growing at a faster rate than GDP, as it has for a number of years.

“A reason for that is because the age of globalization of offshoring is nearing an end,” he noted. “That is not to say that jobs are coming back necessarily, but it is not going to be growing faster than domestic intermodal. The second thing is the driver shortage is not a magic bullet, because it doesn't exist. There is no driver shortage. There is a driver shortage if you can't find a truck when you need a truck…that only happens once in a blue moon when there's a huge dislocation in the market. And it doesn't last very long. That happened during the ELD crisis and it happened during the pandemic. The industry adjusts, and there are enough drivers, so we can't count on this to drive traffic to intermodal. We have to stop waiting for the market to get where we want it to be, because the market is pretty cool right now.”

Addressing service, Gross made the case that while reliable, consistent service won’t necessarily gain intermodal business, but unreliable, inconsistent business will definitely lose business.

“What I mean by that is there is a lot of discussion right now that we are going to get service [levels] back and the volumes will come back,” he said. “Reliable, consistent service is the requirement but it is not enough. What it does is get you a seat at the table and then you have to go sell your product and then you have to sell your service. It is definitely a requirement, but it is not enough.

As for the impact of Precision Scheduled Railroading (PSR) on intermodal service, he said that from a U.S domestic intermodal perspective, it is more complicated, with the freight being more short-haul-oriented, with transit times measured in hours and days, rather than weeks and months.

“Reliability at the customer’s dock needs to be 95% or better or we don’t even get a look at the freight,” he noted. “Also, intermodal does not control pricing; trucking controls pricing. 2019 was when PSR was implemented from an intermodal perspective. The PSR strategy is completely legitimate. If the goal is to grow margins and increase profitability, then it is mission accomplished. But in terms of a pivot to growth, this is not going to do it, and you can see it in the numbers.”

As what he called a rule of thumb, Gross said that for intermodal to compete with truck, at least two-thirds of the miles have to be on rail. The reason that is important, he said, is that intermodal is spending a tremendous amount of time as an industry optimizing that two-thirds rail piece, with the one-third truck piece is also hugely important.

“And to the extent now that we are sort of increasing the amount of truck miles that we need, because we have fewer terminals, that really impedes our door-to-door intermodal economics,” he said. “As length of haul goes down, that means that the highway miles also go down. What that means is you need more terminals, because the key determinant for intermodal competitiveness is how close is the freight to the rail. When we have only a few terminals and a lot of highway miles, that really restricts what intermodal can do. It is not a complicated equation. Speed is great if you can match trucking, but it is not the most critical item. The most critical item is its viability or consistency. It is achieving 95% or better to the minute delivery at the customer’s dock, not the terminal.”

That is where cost savings also heavily factors in, added Gross, as shippers are not likely to use intermodal unless it is cheap.

“My number is 15% [cheaper than trucking]; that is the typical number that I think is enough to get a shipper’s attention,” he said. “If we can’t get put those numbers up, it is not going to happen. The good news is I think there is a lot of freight out there that we can convert. Not only can we get back to the share, we have already demonstrated that we can achieve a lot more beyond that. There is a tremendous opportunity out here if we as an industry are willing to go out and grab and compete for it and claw it back with new services and good pricing.

The caveat, though, he said is that the traditional PSR approach is not going to get it done. Instead, what he said is needed is for intermodal to be more flexible.