Intermodal shipping is a method of moving cargo that involves more than one kind of transportation, whether truck, rail, ship or plane. It uses special containers so goods can be transferred from ship to rail to truck without having to be repacked. The most common combination used is truck and rail. In a typical example, cargo is picked up at the point of origin by truck, transported to a loading site onto a train and shipped the majority of the distance by rail, and then unloaded and transported by truck to the final destination. A major benefit of this arrangement is lower fuel costs, as trains are around three times more efficient than long-haul trucks. Drawbacks include less flexibility, as firms are limited to places where there are train routes, and slower shipping times. Rail intermodal moves totaled 14,078,952 in 2007.
The transportation industry depends on a healthy economy to keep goods moving around the country. When consumer demand falls, fewer goods are shipped and intermodal shipping companies lose revenue. Another factor that will affect transportation firms is fuel costs. In the short term, rising gas prices will increase demand for intermodal services, as they are more efficient than trucking alone.
Many intermodal shipping don't own their own trucks and trains. These companies, known ase non-asset based transportation firms or intermodal marketing companies (IMCs), contract with third-party carriers to ship goods. The firm buys container-hauling space in bulk from carriers, and then sells the space to clients at rates cheaper than what they could negotiate independently. This arrangement is also favorable to carriers because IMCs can offer large, consolidated shipping volumes. The major railroads, who dominate the intermodal market, rely on IMCs for their intermodal business.
By contracting with third-party carriers instead of buying their own transportation fleet, many intermodal firms are able to adjust shipping capacity by controlling the number of third-party contracts that they enter. This shields them in part from fluctuations in consumer demand. However, a slowing economy and low consumer demand will cause a total volume drop in shipments that can hurt earnings. For instance, several of the companies mentioned above ship automotive parts and building materials, two sectors that have been hard hit by the 2007 economic downturn.
Companies in the intermodal industry are relatively shielded from changes in fuel prices because railroads are about three times more fuel-efficient than long-haul trucks. In addition, most firms in the transportation industry determine shipping rates by charging a base rate plus or minus a change in diesel prices. However, this fuel surcharge is not always fully and immediately transferable to the customer. And if diesel prices continue to increase, it may be harder for transportation companies to continue this practice. Since 2004, diesel prices have more than tripled from $1.50 per gallon to $4.72 per gallon in May 2008 .
The transportation industry is subject to a number of state and federal rules on issues such as insurance requirements, environmental standards, safety requirements, etc. Although the intermodal segment has essentially been deregulated, the U.S. Department of Transportation (DOT) regulates trucking operations. In 2004, the DOT reduced the amount of time that drivers can spend behind the wheel. In addition, the Environmental Protection Agency has posted guidelines for a progressive decrease in diesel truck emissions through 2010. Both of these regulations increase the operating costs of the third-party trucking companies intermodal firms contract with. Furthermore, in 2006 the DOT issued new regulations that will make intermodal equipment providers subject to the Federal Motor Carrier Safety Regulations for the first time. Compliance with these new guidelines will entail higher operating and maintenance costs for intermodal firms.
More businesses today are expanding to foreign markets, increasing the volume of international shipments. This will increase demand for intermodal services, especially air and ocean freight carriers. Intermodal firms like [[UTi Worldwide (UTIW) and Expeditors International of Washington (EXPD) who earn most of their revenue outside of the U.S. will stand to benefit from this higher demand.
Intermodal firms depend on workers in the rail and trucking industries to run their businesses. The driver market is the tightest it has been in 20 years, with turnover rate exceeding 100% in some large trucking companies. According to the American Trucking Association, the trucking industry faced a national shortage of 20,000 drivers in 2007, a number that will swell to 111,000 by 2014. The transportation sector is also no stranger to labor unrest. For instance, in the fall of 2002, all West Cost ports were shut down for two weeks as a result of disputes with longshoremen who offloaded freight. And in 2004, independent trucking providers operating in California refused to transport shipments to and from rail facilities, leading to terminal congestion and a Union Pacific embargo on shipments to Northern California destinations.
The following chart shows 2006 domestic rail intermodal market share by gross revenue. Total gross revenue in that year was ~$6B for the industry as a whole . As the graph shows, the major railroads dominate the domestic rail intermodal market. However, many of the railroads actually rely on non-asset based transportation firms (IMCs) for their intermodal business because these third-party firms can offer large, consolidated shipping volumes.