For some time following a particularly harsh winter a year and a half ago, rail service representatives have asserted that the industry would regain business lost to motor carriers. However, this hasn't happened yet, leaving room for truckers to continue gaining ground on their intermodal counterparts.
The consensus among many outside of the freight rail industry is that in North America, it may soon lose significant shares of its business to motor carriers. While railroad executives have been quick to deny this notion, the numbers haven't backed up their bullish assertions. Despite their beliefs that the rail industry would return to mid-2013 profitability, it has not. Instead, the cost of fuel has tumbled, giving motor carriers yet another advantage in the tug-of-war for control of North American ground shipping.
Motor carriers overtaking intermodal and rail freight business
Motor carriers' gains continue despite the fact that intermodal rail services have heavily invested in improvements. Freight railroad investments helped fuel the industry's substantial growth in recent decades, according to the Washington Post. More than $500 million per week in private funds is spent on the continued development of America's vast network of railroads. Tracks have been strengthened, new facilities built and capacities expanded to improve the services that intermodal shippers can offer.
However, motor carriers are still stealing business away from intermodal shippers who are watching their capacities shrink and profit growth slowing. And finally, some railroad executives are acknowledging that more has to be done to take back a share of North American ground cargo shipments, the Journal of Commerce (JOC) reported. Now that railroads are ready to admit they're losing business to other forms of transportation, are they ready to confront the problem, the news outlet asked.
Signs of a decline have been apparent for sometime. Intermodal rates were still high toward the end of 2014, but things began to change as the calendar turned to a new year, as highlighted by the Cass Intermodal Price Index. This is used to gauge all-in intermodal costs. Through the beginning of 2015, month-to-month rates were down year-over-year. And by April, rates began dropping month-over-month. June was the sixth month in a row in 2015 that rates dropped year-over-year, as the intermodal price index fell about 7.5 percent through the halfway point of the year. Meanwhile, U.S. contract truckload rates ticked up about 1.6 percent through the same stretch.
The trend isn't expected to end anytime soon.
"We expect intermodal rates will continue to decline in 2015 as the dramatic drop in diesel prices and even more dramatic drop in oil takes its toll on U.S. domestic demand," Donald Broughton, chief market strategist at Avondale Partners, the equity research firm that produces the index for Cass Information Systems, explained to the JOC.
CSX earnings report better than expected
Estimates from CSX Corp. indicate that growth has slowed, despite a better-than-expected second quarter for the Jacksonville, Fla.-based rail company. Bloomberg reported that the firm expects its third-quarter earnings per share to be "relatively flat." Its 2015 outlook is for "mid-to-high single digit" per-share earnings growth, after cutting the projection from at least 10 percent in April.
The recent slump in cargo certainly led CSX's second quarter earnings report to be a surprise. Analysts had expected disappointing news, but instead received some praise after a fairly successful response to declining cargo rates.
"It looks like a pretty clean beat. They're doing a good job executing with what they have," David Vernon, an analyst with Sanford C. Bernstein & Co., told Bloomberg "It's good for the group that they got off on solid footing."
Intermodal services will have to continue to impress to regain the share of business that rail freight firms have lost to motor carriers, though.