"Lower for longer" diesel prices not seen curbing enthusiasm for rail
Avondale analyst says lower diesel prices have led rail users to shift short-haul loads to trucks. Yet others say that's just one factor, if it's a factor at all.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
Each month, Cass Information Systems Inc., a freight audit and payment company, and Avondale Partners, an investment firm,
produce
an index showing how much Cass customers, who generate $25 billion a year in freight bills, pay for domestic intermodal
service. After a solid multiyear rebound from the Great Recession, the index, which encompasses linehaul costs, fuel surcharges,
and accessorial fees, has sloped down relentlessly for the last 18 months. During that time,
the federal government's weekly read on diesel fuel prices—which had been dropping since the start of 2015—began another plunge that by February had taken
nationwide prices down to levels not seen in 11 years. Diesel prices had rebounded to $2.42 a gallon as of early July but were
still more than 30 percent below where they were 18 months prior.
Does the data show a link between the prolonged decline in diesel prices and the drop in demand for intermodal traffic
moving by rail? Donald Broughton,
an Avondale managing director and chief investment strategist who has covered transport for
decades, says it does. For months, Broughton has argued that falling diesel prices have led rail users to shift some of their
intermodal business back to the highway, especially in shorter-haul markets in the country's densely populated Eastern half,
which have long been the province of motor carriers and whose business the railroads have been chasing for years.
(Rail executives estimate that 10 million to 12 million domestic loads, most of them in the East, are ripe for conversion to
rail service.)
In April, Broughton told a gathering of the Transportation Intermediaries Association (TIA) that "cheap diesel [is] driving
intermodal loads off rail [and] back onto the highway, especially in shorter lengths of haul." Broughton's views had not changed
as of late June, when he wrote in his analysis accompanying the most recent Cass-Avondale data that "intermodal rates are
expected to continue declining for the remainder of 2016 as the dramatic drop in diesel prices ... takes its toll on U.S. domestic
demand." Prospects for any growth in the domestic container trade—the bulwark of U.S. intermodal business—for the rest of
the year are "dependent upon demand in longer lengths of haul growing fast enough to offset the loss of volume in shorter
lengths of haul, particularly in the East," he added. Broughton, who did not respond to an early July request for comment,
had forecast in April a continued drop in oil and fuel prices through the rest of 2016.
A VOICE IN THE WILDERNESS
Broughton's is the minority view. In interviews and public statements, other intermodal experts said declining diesel prices
are just one factor, and not the most important one, influencing modal choice and conversion. Many rail users of intermodal
services have long-established relationships with their providers and tend to ignore an issue like fuel price fluctuations
that is beyond their control, said John G. Larkin, lead transportation analyst for Stifel, an investment firm. "Most big
shippers have a strategic commitment to intermodal and are more service-sensitive than fuel-price-sensitive," Larkin said.
"Only a few of the most price-sensitive shippers switch back and forth as fuel prices fluctuate."
For well-entrenched users of intermodal services, it may not pay to shift traffic to truck even if lower fuel prices make
over-the-road service a more cost-effective option than before. "It costs the shipper to change carriers, but it can cost a lot
more to change modes," said Charles W. Clowdis Jr., managing director, transportation for consultancy IHS Economics & Country Risk.
Rail and intermodal executives acknowledge that conversion has occurred on shorter-haul corridors. However, they maintain it is
due to the oversupply of commercial truck drivers and tractors, which keeps more capacity on the road.
The abundance of supply has helped drive down truck rates to levels where they are converging with, and even dropping below, intermodal prices. (Ironically,
one of the consequences of lower diesel prices is that it incents many marginal carriers—ones that might have exited the market
if pump prices were $1 a gallon higher—to stay on the road.) The flip to a tight driver market could rev up rail demand as well as
drive up rates for both rail and truck services regardless of the prevailing fuel prices, they contended.
"We could have fuel at this level, and if [truck] capacity was tight, prices would be higher," said Jim Filter, senior vice
president and general manager, intermodal for Schneider National Inc., the Green Bay, Wis.-based truckload and logistics giant,
whose roots are in trucking but over the years has become a large intermodal user.
SECULAR ADVANTAGES
Those who follow the railroads said the industry has little to fear from the "lower for longer" phase of oil and fuel prices.
The typical railroad gets 438 ton-miles to the gallon, making it about four times more fuel-efficient than a motor carrier,
according to the Association of American Railroads (AAR), the industry trade group. Using rail will cut an intermodal user's
fuel consumption by 40 to 50 percent compared with truck, said Daniel Cullen, director of applied knowledge at Breakthrough Fuel,
a Green Bay-based firm that works with about 40 shippers—most representing Fortune 500 companies—to process fuel reimbursements and analyze usage. In addition, shipments moving by rail are not subject to the federal and state excise tax burdens placed on motor carriers, though the rails do pay state sales taxes. The excise tax exemption can
equate to savings of 40 to 50 cents per gallon, Cullen said.
"Diesel prices can be at any level, and it still doesn't change the fundamental story," said Cullen, who hasn't seen a material
modal shift due to the drop in diesel costs.
Larkin of Stifel said an intermodal fuel surcharge is about 60 percent of the comparable truckload surcharge (consistent
with the consumption differential), though the gap can narrow depending on the length of the truck dray that links the shipper
to the rail ramp on one end and the ramp to the consignee on the other. "The intermodal cost advantage is significant enough
even with a zero fuel surcharge that most shippers will stick with intermodal as long as service approaches truckload-like levels
with respect to transit time and transit time variability," he said.
Therein lies the potential rub. A shipper that wants to compress its time to market, and do it relatively seamlessly, may find
more value, at current truck rate and surcharge levels, to opt for a motor carrier over a railroad. To gain and keep market share,
railroads must improve their transit times and deliver reliable service that's as close to being "truck-seamless" as possible.
Superior fuel efficiency will matter little if the rails' service falls short.
Sarthak Verma, vice president of intermodal pricing for Lowell, Ark.-based J.B. Hunt Transport Services Inc., another
traditional trucker who over the years has become an intermodal bulwark, said intermodal's value is no longer in achieving
direct cost input efficiencies, but in providing capacity assurance in an era of truck supply volatility and in delivering
a level of service on par with trucks. On the latter score, Verma told the SMC3 semiannual conference in June, progress is being made.
"Truck service plus a day is not far off," he said.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”