Intermodal rates slowed during 2011

We have made a major adjustment to our intermodal rates data that shows that intermodal rates have grown at a slower pace than originally thought. FTR has new historical data on the rail cost portion of intermodal rates that significantly increases the intermodal cost advantage over truck since 2003. We see no change to this advantage over the next two years.

Our analysis considers long-term intermodal rates to be the sum of the cost of providing both the rail line-haul and truck drayage components plus a margin. We analyze the cost trends for both intermodal rail line-haul and truck rates. Actual intermodal rate trends may differ in the short-run due to margin compression or expansion on the part of the intermodal carriers that purchase service from the rails.

Outlook
While we have tempered the long-term growth, intermodal rates are still growing at a strong clip. We estimate that the first quarter grew at nearly the same level as we saw at the end of 2011, just above 5%. Truck drayage costs have eased recently but increases in rail linehaul have been nearly enough to offset that.

Intermodal margins have taken a hit recently after showing a strong rebound during the middle of 2011. Rate increases continue to slow as expected. We are nearing the projected low point for this cycle. Rate increases are expected to accelerate as we move into the second half of the year. We have tempered our expectations for the projected increase in base rates.

The next 2 years should see an extended period of relatively strong rate increases, across many modal options. After dropping 8.1% in 2009 rates rebounded 3.9% in 2010. Rate growth accelerated during 2011, hitting 6.6% for the year, but slowed during the latter portion of the year. We expect rate growth to slow in 2012 but still remain robust, up 5.6% for the year, before accelerating slightly in 2013 and 2014, up 6.5% in both years.

Analysis
Rate increases continue to slow and we are likely near the projected low point for this cycle. Rate increases are expected to accelerate modestly as we move into the second half of the year. We have tempered our expectations for the projected increase in base rates. The recent soft patch in year-over-year truck rates is partially to blame, as is the expectation that margins will become more compressed later this year.

Reduced growth expectations for Domestic intermodal greatly lessen the probability of any shortage in containers and, therefore, the potential for a late-year rate spike.

Rail/Truck Costs
Rail linehaul costs for intermodal transportation should ease during the year as should the fuel surcharge component. Truck rates have slowed significantly in recent months and drayage costs should reflect that. Truck rates should show stronger growth by the end of 2011, but the year-over-year rates will likely trail rail until the middle of 2013.

NOTE:
Our intermodal rates forecast includes both the rail linehaul and drayage components and is based on our truckload and rail carload datasets. The historical data now includes more precise intermodal rail linehaul costs. Our estimates give you a useful 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.