Intermodal rates are staying strong
October 5, 2011
Intermodal rates have stopped rising at the moment, but increases seen over the past 12 months are sufficient to ensure continued healthy year-over-year increases. We expect that rates will resume rising in the latter part of next year.
Fuel surcharges are also beginning to narrow as oil prices have dropped. Tight capacity has improved margins among intermodal providers. This adds another layer of cost increases to accompany those in the underlying rail and truck services.
The slower economic growth has not affected the ability to capture rate increases. The high fuel costs during much of the first half of 2011 could have been a small catalyst to utilize more intermodal, thereby raising the rate potential. Carriers (both truck and rail) still retain strong pricing power and that will filter through to the intermodal sector. It remains to be seen if the declines in fuel prices will erode some of this.
We expect the current softer demand to eventually begin to dampen rail linehaul rate increases going forward. Although capacity remains sufficient, we are entering the cyclical peak time in cost inflation. Rail continues to lead the transport-wide move to aggressive pricing.
Strong Q2 growth in pricing has slowed in Q3 along with freight demand. Although the nominal pace of regulatory change is slowing, the net effects on the industry are close to earlier forecasts based on more aggressive FMCSA action. This is because the CSA impact and the likely impact of HOS changes are stronger than forecast. Price increases will be strongest in the long-haul, random, route segments due to a migration of capacity from those operations. This also means that price increases will be less for the short-haul drayage and dedicated routes.
Outlook remains strong
As usual, intermodal rates will generally mirror TL rates. This is because of competitive pressure, and because truck costs make up 40% of intermodal costs.
The chances for stronger upside to the rates has diminished as of late, due to the slower implementation of HOS rules and the weak economic environment. Shorter haul intermodal rates will rise in 2011 and 2012 as fast as the increase in truck rates will allow. Long-haul rates will also increase, pushed up by increases in underlying rail costs.
The next 2 years should see an extended period of very strong rate increases, across many modal options. After dropping 6.5% in 2009 rates rebounded 7.2% in 2010. We expect rates to end the year up nearly 9% for 2011, with somewhat slower gains of 5.2% in 2012 and 6.1% in 2013.
Our intermodal rates data is based on our truckload and rail carload datasets. It is not based on actual intermodal rates but is rather a basis for understanding the pricing pressures of the two main components: rail linehaul and truckload drayage. The figures are seasonally adjusted and indexed to 2003Q1.
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