Rail Pricing Power seen as Strong; Trucks Weak

[Anonymous]

Rail intermodal is made up of a variety of traffic. It is not one homogeneous market. Some of it is very truck-competitive, some is not.

The marine container traffic coming from Asia through West Coast ports destined to points east of the Rockies (steamship lines are the RRs’ customers in this case) is an example of the latter. The steamship lines can’t afford to truck all this stuff. The competition is mainly between ports, e.g., if the RR rates from the US West Coast ports to Memphis get high enough, the steamship lines may try to bring Memphis boxes in through the Port of Houston or through the ports on the West Cost of Mexico or through the East Coast ports.

Many of the steamship lines were granted low multi-year contract rates many years ago. In retrospect, the rates the two western RRs offered were way too low and for way too long a time frame. As these contracts expire, they are being replaced by contracts entailing much, much higher rates good for only one year. One line that renewed this year saw its rates go up 40%. The line asked the other Western road for a bid, and got the answer from the other road that it was too full to accommodate them.

There are lots of types of domestic intermodal businesses that are very truck-competitive, i.e., where the RRs have nothing like this kind of pricing leverage. After all, the domestic business includes an expensive dray on either end, it includes a couple of expensive lifts, and it typically entails a lot more more mileage than the truck alternative. So it’s a lot more competitive.

Best regards,

Rob L.

Hmmmm…

Isn’t the phrase “truck-competitive domestic intermodal” an oxymoron? After all, aren’t trucking companies the big customer for domestic intermodal?

And not to nit-pick here, but even the adjusted phrase “highway competitive domestic intermodal” is a seeming

[Anonymous]

I tell you this:

One day steamers will bypass the USA if the railrates get too high and eat the cost of Pacific RIM to Europe traffic.

Then the rails will be hard up.

[rob_l]

The amount of traffic from the Asian side of the Pacific Rim to Europe that moves across the USA is negligible. Almost all of it goes through the Suez or Panama Canals. It is much more expensive to move that stuff across North America, and considering the two extra marne terminals and the infrequency of vessel strings, it doesn’t save much time.

Virtually all the marine boxes you see pouring in through the West Coast ports contain goods that are consumed in North America.

FM wrote:

“I concur with the concept that import intermodal for rail is a highly competitive market (e.g. reletively weak pricing power for the railroads) due to port vs port salesmanship …”

Actually, at the moment, the RRs have more pricing leverage on inbound marine-box traffic than almost any of their other intermodal markets. You are of course correct that their pricing is constrained by competing alternative ports. But a single contract between RR and steamship line covers the rates for all US West Coast ports, and the expiring rates are very low, so it is pretty easy for the RRs to push the rates way up, and that is what the article that started this thread was referring to. Once all these legacy contracts are replaced by new ones (the last big one to go will be in 2011, most will be gone much sooner than that), the leverage will be a lot less.

FM also wrote:

“Isn’t the phrase “truck-competitive domestic intermodal” an oxymoron? After all, aren’t trucking companies the big customer for domestic intermodal? And not to nit-pick here, but even the adjusted phrase “highway competitive domestic intermodal” is a seeming misnomer, since domestic intermodal is mostly limited to long hauls between major terminals, while the advantage of single box highway travel is extreme flexibility.”

Yes, I meant “truck-competitive” in the sense of the trucking company choosing to make use of rail intermodal vs. trucking

[Anonymous]

The amount of traffic from the Asian side of the Pacific Rim to Europe that moves across the USA is negligible. Almost all of it goes through the Suez or Panama Canals. It is much more expensive to move that stuff across North America, and considering the two extra marne terminals and the infrequency of vessel strings, it doesn’t save much time.

Virtually all the marine boxes you see pouring in through the West Coast ports contain goods that are consumed in North America.

FM wrote:

“I concur with the concept that import intermodal for rail is a highly competitive market (e.g. reletively weak pricing power for the railroads) due to port vs port salesmanship …”

Actually, at the moment, the RRs have more pricing leverage on inbound marine-box traffic than almost any of their other intermodal markets. You are of course correct that their pricing is constrained by competing alternative ports. But a single contract between RR and steamship line covers the rates for all US West Coast ports, and the expiring rates are very low, so it is pretty easy for the RRs to push the rates way up, and that is what the article that started this thread was referring to. Once all these legacy contracts are replaced by new ones (the last big one to go will be in 2011, most will be gone much sooner than that), the leverage will be a lot less.

I just can’t see the transcons being able to jack up rates all that much, because the East Coast and Gulf Coast sea bypasses are always an option. Rail rate increases on import intermodal will just shorten the average rail haul while increasing the sea haul.

[quote]

FM also wrote:

"Isn’t the phrase “truck-competitive domestic intermodal” an oxymoron? After all, aren’t trucking companies the big customer for domestic intermodal? And not to nit-pick here, but even the adjusted phrase “highway competitive domestic intermodal” is

[oltmannd]

[quote user=“futuremodal”]

The amount of traffic from the Asian side of the Pacific Rim to Europe that moves across the USA is negligible. Almost all of it goes through the Suez or Panama Canals. It is much more expensive to move that stuff across North America, and considering the two extra marne terminals and the infrequency of vessel strings, it doesn’t save much time.

Virtually all the marine boxes you see pouring in through the West Coast ports contain goods that are consumed in North America.

FM wrote:

“I concur with the concept that import intermodal for rail is a highly competitive market (e.g. reletively weak pricing power for the railroads) due to port vs port salesmanship …”

Actually, at the moment, the RRs have more pricing leverage on inbound marine-box traffic than almost any of their other intermodal markets. You are of course correct that their pricing is constrained by competing alternative ports. But a single contract between RR and steamship line covers the rates for all US West Coast ports, and the expiring rates are very low, so it is pretty easy for the RRs to push the rates way up, and that is what the article that started this thread was referring to. Once all these legacy contracts are replaced by new ones (the last big one to go will be in 2011, most will be gone much sooner than that), the leverage will be a lot less.

I just can’t see the transcons being able to jack up rates all that much, because the East Coast and Gulf Coast sea bypasses are always an option. Rail rate increases on import intermodal will just shorten the average rail haul while increasing the sea haul.

[quote]

FM also wrote:

"Isn’t the phrase “truck-competitive domestic intermodal” an oxymoron? After all, aren’t trucking companies the big customer for domestic intermodal? And not to nit-pick here, but even the adjusted phrase "highway competit

[Anonymous]

[quote user=“oltmannd”]

[quote user=“futuremodal”]

The amount of traffic from the Asian side of the Pacific Rim to Europe that moves across the USA is negligible. Almost all of it goes through the Suez or Panama Canals. It is much more expensive to move that stuff across North America, and considering the two extra marne terminals and the infrequency of vessel strings, it doesn’t save much time.

Virtually all the marine boxes you see pouring in through the West Coast ports contain goods that are consumed in North America.

FM wrote:

“I concur with the concept that import intermodal for rail is a highly competitive market (e.g. reletively weak pricing power for the railroads) due to port vs port salesmanship …”

Actually, at the moment, the RRs have more pricing leverage on inbound marine-box traffic than almost any of their other intermodal markets. You are of course correct that their pricing is constrained by competing alternative ports. But a single contract between RR and steamship line covers the rates for all US West Coast ports, and the expiring rates are very low, so it is pretty easy for the RRs to push the rates way up, and that is what the article that started this thread was referring to. Once all these legacy contracts are replaced by new ones (the last big one to go will be in 2011, most will be gone much sooner than that), the leverage will be a lot less.

I just can’t see the transcons being able to jack up rates all that much, because the East Coast and Gulf Coast sea bypasses are always an option. Rail rate increases on import intermodal will just shorten the average rail haul while increasing the sea haul.

[quote]

FM also wrote:

"Isn’t the phrase “truck-competitive domestic intermodal” an oxymoron? After all, aren’t trucking companies the big customer for domestic intermodal? And not to nit-pick here, but even the adjusted p

[Anonymous]

It is interesting that you bring up the issue of a trucking outfit choosing between rail intermodal and OTR. The recent data on domestic intermodal shows a net decrease of 0.5%, with TOFC showing a decrease of 5% over last year:

http://www.logisticstoday.com/displayStory.asp?nID=8311

Geez. I gotta debunk you here, too!

“Domestic” intermodal does NOT, NOT, NOT include trucking outfits. They are considered “Truckload” intermodal. This is growing business for RRs. They are taking traffic off the highway, for sure, but the shipper and consignee never know their shipment moved by rail.

Well, I’ll have to rebunk you there. The LT article mentions three intermodal distinct catagories, no more, no less: (1)TOFC, (2)domestic containerized intermodal (COFC), and (3)international containerized intermodal. It DOES NOT, NOT, NOT further divide domestic TOFC and COFC into “RR owned” and “Truckload”. Thus, there are only three intermodal categories being talked about, no more, no less. It seems then that truckload is included in domestic intermodal. So either Logistics Today doesn’t know what they are talking about, or you don’t know what you’re talking about.

But if you’d like to provide a link that counters the LT article, by all means post it.

[oltmannd]

It is interesting that you bring up the issue of a trucking outfit choosing between rail intermodal and OTR. The recent data on domestic intermodal shows a net decrease of 0.5%, with TOFC showing a decrease of 5% over last year:

http://www.logisticstoday.com/displayStory.asp?nID=8311

Geez. I gotta debunk you here, too!

“Domestic” intermodal does NOT, NOT, NOT include trucking outfits. They are considered “Truckload” intermodal. This is growing business for RRs. They are taking traffic off the highway, for sure, but the shipper and consignee never know their shipment moved by rail.

Well, I’ll have to rebunk you there. The LT article mentions three intermodal distinct catagories, no more, no less: (1)TOFC, (2)domestic containerized intermodal (COFC), and (3)international containerized intermodal. It DOES NOT, NOT, NOT further divide domestic TOFC and COFC into “RR owned” and “Truckload”. Thus, there are only three intermodal categories being talked about, no more, no less. It seems then that truckload is included in domestic intermodal. So either Logistics Today doesn’t know what they are talking about, or you don’t know what you’re talking about.

But if you’d like to provide a link that counters the LT article, by all means post it.

Logistics Today article makes no claim at all that their categorizations were all encompassing. For good reason. They’re not. They leave a wrong impression - I suspect because their journalist doesn’t know the business. It’s more interesting in what the guy doesn’t say, than what he does say.

You want proof? Ask anybody in a RR intermodal ops or mktg. dept. C