Here are two examples: at $5.00 per gallon, intermodal’s cost equals truck shipping at 500 miles and the cost benefits increase proportionately with longer lengths of haul; at $2.00 per gallon, intermodal does not cost the same as trucking until 1,250 miles—and the cost benefit does not increase significantly.
Opportunity Awaits
Today, the intermodal industry is emerging from an almost three-year perfect microeconomic storm, which included several factors: (1) the lower price of diesel, which greatly reduced intermodal’s secular price advantage over trucking; (2) the lower price of natural gas, which reduced demand for fracking and freed up trucks and drivers; (3) the core of U.S. intermodal—California eastbound—was diminished due to high retailer inventory levels for consumer goods; and (4) the drought in California (now over) had also depressed the market for eastbound produce.
Traditional intermodal operators (brokers) pay most of their expenses in cash (i.e., rail and drayage), whereas a great deal of the expense associated with operating a truck includes average costs accrued over a specified interval but may not become cash outlays for a specific period (e.g., tractor maintenance may accumulate by mile driven, but may not actually come due in the short term).
While company trucks pay [cash] wages to drivers, they are notional to an owner-operator who takes what, if any, margin is left.
Game Changer: ELDs
Mandatory implementation of electronic logging devices (ELDs), which began in December, is transforming perishables transportation through strict hours of service enforcement.
With ELDs, per-day truck miles can decrease by almost 30 percent (according to Nashville, IN-based freight forecaster FTR Associates).
This will require a corresponding per-mile rate increase to maintain driver earnings. These economics, along with driver demographics, will likely result in a significant driver shortage and higher rates.
Although owner-operators routinely offer fifth-morning service on trans-continental produce shipments, single-driver truck transit will approach seventh-morning arrival on most shipments.
Since intermodal service should remain the same sixth-morning service, intermodal will go from truck-plus-one to truck-minus-one service for shipments.
Intermodal Conversion
While team drivers, of course, could provide legal fifth-morning or faster service, there are complications: not only is driver turnover exceptionally high, but there’s a sense that hours of service compliance may be problematic if one driver ‘uses’ the other’s miles.
