Intermodal Market is in a Decent Spot Early into 2017

Moderately favorable was how freight transportation forecasting firm FTR described the current state of the intermodal sector vis a vis to truck, according to the Intermodal Competitive Index (ICI), which the firm recently released.

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 November, the most recent month for which data is available, the ICI came in at 5.0, which was in line with October’s 5.26.

While this is in a decent range, FTR said that there is a possibility the index could “deteriorate” due to normal seasonal factors but could subsequently rise, with the electronic logging device (ELD) federal mandate, which is expected to tighten up truck capacity, kicks in beginning in December.

“While the new administration’s more restrained philosophy with regard to regulation may have some eventual downstream effects on the trucking environment, we believe that the ELD regulation, which has already been formalized into law, will not be recalled,” said Larry Gross, Partner at FTR and principal author of its Intermodal Update, in a statement.

“It has already survived two court challenges in the Federal Appeals court and the only legal recourse for its opponents now lies with an injunction from the Supreme Court which we view as unlikely.  While the extent and precise timing of the capacity effects of the ELD mandate are open to debate, there seems to be little doubt that its capacity effects will result in some tightening of truck availability which should work to the benefit of intermodal.”

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.

Related: Motor Carrier Regulations Still Caught in a Trap

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