Considering Contract Intermodal Transportation through 2020
Back in January, Jason Beinke, VP of Industry Verticals at Agforce, predicted that intermodal transport would be a good option for many of our clients’ shipping needs in 2020. “We’ll see intermodal getting healthier,” he said. “I think we’ll be able to utilize it a bit more in order to deliver customers’ goods more efficiently.”
And then COVID-19 hit, first internationally and then in the U.S. It disrupted supply chains and wreaked havoc on shipping rates, timelines and efficiency. Though we seem to be past the sudden disruptive shock of the pandemic, it will continue to send waves of uncertainty through the rest of 2020, especially in the logistics market.
Amid this uncertainty, IHS Markit published its quarterly analysis of US intermodal rates, trends and futures, titled US Intermodal Savings Index: An Analysis of the Domestic Intermodal and Truckload Markets.
It, too, acknowledges the market volatility caused by COVID-19, but pointed toward one conclusion in particular: intermodal is a great option right now if you’re looking for consistent pricing on consistent business.
Not only do you get the ”flexibility of over-the-road trucking with the affordability of long-haul rail shipping, all without an investment in tracks,” as Loup Logistics puts it, but you also get the promise of more consistency than we predict in trucking for the rest of the year.
Here’s what the report says happened in Q1: “Once COVID-19 arrived in the US, JOC’s Spot ISI dramatically reversed course. The April reading was 102.9, the weakest month since February 2019 and a stark reversal from 116.5 in March 2020.”
That means that in March, spot intermodal rates were 16.5% cheaper than spot trucking rates, but by April they were just 2.9% cheaper.
Contract intermodal, however, which we are recommending to clients whenever possible, “slipped only one point sequentially to 118.2 in April.” While this is still less of a savings than the historic average (18.2% savings compared to an average 24.5%), it’s still significant compared to truckload.
Contract truckload rates did drop while intermodal rose, but the savings are still notable. While trucking rates went from $1.91 per mile to $1.76 per mile, contract rates rose just one cent, from $1.45 to $1.46.
“Contract markets are typically less volatile during sudden disruptions such as COVID-19,” the report says.
And while it might be tempting to “save money” by choosing spot rates in the short term, for fear of what the future will bring, holding steady and choosing consistency is a better move.
Jim Filter, senior vice president of intermodal for Schneider National agrees, urging shippers to resist turning into transactional customers. “You have three intermodal carriers that represent 70 percent of the market, and [shippers] don’t want to burn a relationship. It’s going to be more harmful long term than any short-term gain,” he said.
Of course, what’s right for you is nuanced, and Agforce understands that. Give us a call at 877.367.2324 or email firstname.lastname@example.org and we’ll put together a personalized recommendation based on your needs and our expertise.