Straight Track #134

U.S. Rail News, in Vol. 25 No. 21, published October 9, 2002, reported on the growing role that intermodal freight has in the railroad industry. We hope you find the article informative.

J. Dillon Hoey
hoey@felahfd.com

Intermodal Set To Become 
Railroads’ Biggest Source of Revenue Growth

Intermodal freight is on course to overtake coal as the railroad industry’s biggest revenue source sometime next year, according to a new report sponsored by the Association of American Railroads (AAR). 

The report projects annual growth rates of 5 percent for at least the next several years. The Federal Railroad Administration already has predicted rail traffic would double in the next 20 years. The biggest growth sector is likely to be intermodal, the AAR report says. 

Intermodal refers to the movement of consumer goods and other products in a truck trailer or container carried on a rail car. The AAR report’s predictions on intermodal growth are based on research from intermodal industry expert Thomas Brown and Wall Street financial analyst Anthony Hatch. 

If last month’s rail volumes are any indication, the AAR report correctly predicts intermodal revenue growth. 

Two Big Weeks In A Row 

During the week ending Sept. 14, intermodal volume totaled 201,459 trailers, which was up 10.2 percent from a year earlier, making it the second highest intermodal volume recorded in one week. 

Only one week later, intermodal volume beat its all-time record. During the week ending Sept. 21, intermodal volume totaled 206,454 trailers and containers, which beat the Aug. 31 record by 1.9 percent. It was 9.6 percent higher than a year earlier. 

“U.S. intermodal traffic has grown from 3.1 million trailers and containers in 1980 to nearly 9.0 million in 2001, and now accounts for approximately 20 percent of revenue for major railroads, placing it second only to coal among all commodities carried by rail,” the AAR report says. The authors also said intermodal is changing the role of railroads from being almost exclusively carriers of bulk commodities to include more consumer goods and household products. 

“There are several reasons why intermodal transport has become such a vital part of the U.S. freight transportation mix,” the report says. “These include its cost effectiveness, its environmental and social benefits, its quality of services, and its ability to combine the most compelling aspects of long-haul and short-haul truck.” 

In 1999 and 2000, the freight rail industry invested more than $14 billion – or one-fifth of its revenue – in intermodal. The spending included upgrades to information systems, new terminals and purchases of new locomotives and intermodal cars. 

Improved service and greater capacity from the investments then generated more customers for intermodal shipments, the report said. The upgrades also made railroads more competitive with the trucking industry. Large intermodal customers include retail giant Wal-Mart and United Parcel Service, the world’s largest shipping company. 

In 1984, only one doublestack train per week originated on the West Coast and served only one U.S. inland market. Now, more than 241 doublestack trains per week originate on the West Coast and serve all the major long haul U.S. markets. About 600 shipping companies are preparing infrastructure for a switch to rail intermodal. 

Last year, rail intermodal carried the equivalent in freight of nine million long haul trucks while reducing highway traffic associated with the trucks. 

“Rail intermodal already takes millions of trucks off the highway each year and its potential to play a much larger role in the future is enormous, both in traditional and transcontinental markets and in the new short-distance and middle-distance lanes,” said Brown, who co-authored the AAR report. Brown recommended legislative incentives to increase rail intermodal, including: 

• Eliminating the 4.3-cent per gallon fuel tax currently paid by railroads. The tax revenue is used for transportation infrastructure, which primarily means highways and airports. 

• Providing tax incentives and tax-exempt financing to companies making investments in intermodal freight infrastructure. Examples include new terminals, rail cars and digital technology connecting shippers and intermodal companies in real time. 

• Creating public-private joint ventures to finance railroad infrastructure projects, particularly when the purpose of the projects is to provide public benefits. 

The expected growth rate of intermodal exceeds the 3.3 percent projected growth for the U.S. gross domestic product. Contact: Tom White, AAR, at (202) 639-2556.

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