Loosening Truck Market Bad News for Intermodal

Like railroads, trucking companies have felt the sting of lost traffic volume during the COVID-19 pandemic.

In March there was a spike of trucking activity as retailers rushed to stock their shelves amid increased consumer demand that led to the hoarding of some products.

That was followed by an April lull when trucking business fell. That in turn has been followed by a slight uptick this month as some businesses have reopened after more than a month of social distancing restrictions.

Yet intermodal shipping has yet to benefit from those developments and the e-newsletter FreightWaves said that during the March surge intermodal didn’t gain any additional business as truckers did.

A continuing loose truck market in which there is surplus capacity chasing after the less available business does not bode well for intermodal volume growth.

In various conference calls to announce quarterly financial results, Class 1 railroad executives have been pointing to the loose trucking market as a key reason why there has not been intermodal volume growth.

FreightWaves reported that during March the demand for truck transportation rose 30 percent over what it was in March 2019.

Much of that demand was driven by grocery companies, big box retail stores and consumer products companies seeking to replenish stocks depleted by binge buying.

In April, shippers requested trucks to ship goods with 10 percent less frequency than they did in April 2019.

Demand for truck services has been rising modestly since businesses have begun reopening.

However, the FreightWaves analysis noted that many of the businesses that have been reopening are service-based and move little freight.

Shippers continue to request 6 percent fewer truckloads than they did a year ago.

FreightWaves said the current situation in the trucking industry is that in many cases spots rates are well below contract rates.

That’s important because in more prosperous times spot rates that are above contract rate will lead truckers to decline to move a particular good at a contract rate because they can earn more moving another good at a higher spot rate.

When truckers reject moving a load at a contract rate this is known as tender rejection.

FreightWaves said the tender rejection rate of late has been 2.85 percent, which indicates that moving freight at contract rates may be the best business that many truckers can find.

Although this might be as bad as it gets and business is poised to rise with more commerce arising from the end of COVID-19 shutdowns, that rebound may not be as robust as some want to believe.

The FreightWaves analysis concluded that the rejection rate this spring has been of historic proportions and there is little evidence at the moment pointing toward a substantial rebound.

That is particularly bad news for intermodal shipping because it remains to be seen if intermodal is still a growth area within the transportation field.

“ . . . it appears that the March surge in transportation demand was for freight that was too service-sensitive, for freight that too often needed to be refrigerated, in lanes that too often were not truck-compatible and in a market with truck capacity that was too loose to make much of a dent in intermodal volume,” the FreightWaves analysis said.

The analysis said the market has shown a willingness by some truckers to accept loads in lanes that would typically be best suited for intermodal with truckload rates falling below intermodal rates.

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