Will intermodal’s cost advantage be enough to grow beyond 2021?

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The cost differential between dry van truckload and intermodal contract rates expanded to multiyear highs over the winter as trucking costs expanded much more rapidly than the intermodal counterpart. Todd Maiden reported Wells Fargo believes 2021 will be a banner year for container shipping on the rails, citing strong year-over-year comps and sustained import growth. But we have already heard Union Pacific announce “peak-season” surcharges in the upcoming months as West Coast volumes have been challenging to handle. It is only a matter of time before the cost of shipping on the two modes converges and there are much bigger challenges looming in the form of reimagined supply chains.

This past week FreightWaves rail and intermodal expert Mike Baudendistel wrote about the newly released Intermodal Contract Savings Index, which compares all-in dry van to intermodal contract rates, and broke down the reasons intermodal has a decisive cost advantage when the freight market tightens. The cost differential expanded to 22.7% in December. Trucking pricing tends to be much more volatile thanks to much more dynamic networks and customer base.

Intermodal shipping is dominated by the largest shippers in the U.S. and operates on a more static network, which gains higher cost efficiency than trucking over longer-mileage runs. Trucking has a decisive advantage on shorter, irregular runs moving in or out of less populated regions.