Despite a few bumps along the way, the domestic intermodal segment has enjoyed a respectable to solid 2011. And if the railroads' 2012 and 2013 battle plans are any indication, the industry expects more of the same from the domestic front.
Through October, domestic equipment loads—defined as an intermodal movement handled by rail—hit 600,000 loads, up from 560,000 through the same period in 2010, according to the Intermodal Association of North America (IANA), the trade group for the continent's intermodal industry. IANA didn't have load numbers for November and December at this writing.
Generally, intermodal load activity tapers off in the last two months of the year, as holiday-related inventory is already shipped and product ordering hits a seasonal lull. Barring a collapse in volumes through New Year's, however, full-year 2011 totals are expected to exceed 2010 levels, a continuing sign of domestic intermodal's growing appeal to cost and environmentally conscious shippers, and moves by truckers and intermodal marketing companies to book more loads with the railroads due to concerns about truck driver shortages and rig availability.
Ready for the rebound
The railroads plan to make hay while the sun shines. Eastern railroad Norfolk Southern Corp. will open domestic intermodal terminals next year in Birmingham, Ala.; Memphis, Tenn.; Mechanicville, N.Y., which is located north of Albany; and Greencastle, Pa., in the state's southwest corner. A fifth facility, in Harrisburg, Pa., is planned but has not been built.
The five terminals combined will add 525,000 annual "lifts" to Norfolk, Va.-based Norfolk Southern's domestic intermodal network. A lift is defined as a trailer or container being lifted onto or off of a railcar, and one intermodal movement can consist of multiple lifts, depending on how many transport modes handle a piece of equipment. The Memphis and Birmingham terminals can be expanded to accommodate far more lifts than are currently called for, according to Robin Chapman, a Norfolk Southern spokesman.
CSX Corp., Norfolk Southern's rival in the East, declined comment on its intermodal capacity plans.
BNSF Railway is building a domestic intermodal facility near Kansas City that will open in 2013. It will come three years after the 2010 launch of BNSF's latest domestic facility, located in Memphis. The Memphis terminal added 500,000 annual lifts to the BNSF network, about the same as the Kansas City facility will bring on stream, according to Krista K. York-Woolley, a BNSF spokeswoman.
York-Woolley said BNSF has available domestic capacity in its network and can add capacity at existing terminals during 2012 to meet demand spikes. The railroad has 30 intermodal terminals, of which only four are solely devoted to international shipments.
Western railroad Union Pacific Corp. (UP) broke ground earlier this year on its 33rd domestic intermodal facility, located in Santa Terese, N.M., near El Paso, Texas. The facility will be operational in 2014, according to Tom Lange, a spokesman for Omaha, Neb.-based UP.
Matt Gloeb, UP's assistant vice president of domestic intermodal, said it's unclear how many intermodal containers UP will add in 2012, given that it has boosted its container fleet by more than 40 percent since the first quarter of 2010. At this time, Gloeb said, the supply of containers in UP's network exceeds demand, though that may change if the U.S. economy improves in 2012 and more shippers convert their freight from over-the-road trucking to intermodal as truck capacity and driver availability tighten.
Gloeb said he expects robust domestic growth in the latter half of 2012.
It could be argued that the railroads are just reacting to the domestic intermodal wave rather than getting ahead of it. For example, Thomas L. Finkbiner, senior chairman of the University of Denver's Intermodal Transportation Institute, said Norfolk Southern is being "overwhelmed" by domestic intermodal freight at Harrisburg, where it has been forced several times this year to embargo traffic into the state capital because it couldn't handle the volumes.
"Basically, you could pave over most of Central Pennsylvania and still not get ahead of the capacity needed to handle the volume there," he said.
Rates on the rise?
Domestic intermodal service is currently priced at a 30- to 40-percent premium over international intermodal. Changes in that differential may dictate the pattern of 2012 domestic rate increases. David Howland, vice president of land transport services for third-party logistics giant APL Logistics, a big user of intermodal, said a resurgence of international intermodal business—which was largely flat in 2011—will give railroads an incentive to boost domestic rates as well. However, if international business remains relatively weak, the pace of domestic rate increases will moderate as railroads look to protect their market share any way they can. Overall, Howland expects increases along the lines of 3 to 5 percent in 2012.
John White, CEO of Chattanooga, Tenn.-based truckload carrier USXpress Enterprises Inc., believes domestic intermodal rate increases will fall only in the 2 to 4 percent range as an increase in equipment supply keeps pricing soft. Those increases would lag the price hikes that White predicts will occur in the truckload industry next year.
Gartner, Inc.