Friday, August 12, 2011

Oil prices lead to higher usage of intermodal rail services

Survey Sees Major Shift of Truck Freight to Intermodal

Shippers shifted freight from all-truck modes to intermodal at the fastest pace in years during the second quarter, according to a closely watched survey by the Wolfe Trahan research group.

Based on preliminary results of the survey conducted in July and early August, the shift from roads to rail occurred more than at any point in the last eight years, the analysts said, and shippers expect to shift more domestic cargo to intermodal in the months ahead. The full results of the survey are scheduled to be released before Labor Day.

During the April-June quarter, “shippers in our survey shifted a net 4.5 percent of their volume from truck to rail,” said analysts Edward Wolfe and Scott Group, for “the highest net shift to rail in the past eight years of our survey.”

Shippers also said they expect to move a net 3.6 percent more to rail from highway-only transport over the next 6-12 months, which is a pickup from recent surveys. In this year’s first quarter, shippers projected a 3.2 percent net shift in the coming year, up slightly from last year’s fourth quarter.

For most of last year, surveyed shippers told Wolfe Trahan they only expected to shift a net 1.3 percent to 1.9 percent of their business away from road delivery to intermodal.

While rail industry officials often credit the shift to improving rail service times and investments to convert more of their rail networks to doublestack clearances, researchers found a strong correlation between modal shifts and oil prices.

When average quarterly oil prices were below $70 a barrel for West Texas Intermediate crude during 2009, the survey found freight shifting back to trucks and the delivery convenience they provide.

But when WTI quarterly pricing moved above $70 per barrel in 2010 followed by a spike this year, shippers increasingly put more cargo aboard trains for the long-haul part of the trip.
With realistic long term oil prices remaining above $70 a barrel for the foreseeable future, freight rail is increasingly going to be the shipper of choice. Electrification, which offers energy prices roughly one third of the current cost of diesel, may become a means of competition between shipper; however, this is presuming that there is sufficient capacity on the rail lines to warrant such, which is generally not the case at present. Certainly however, the expectation of 500 hybrid locomotives sold by 2020 is one that should be easily matched. My own expectation is that such a number is probably on the more pessimistic side, should the claimed fuel savings hold up in practice.

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