US domestic intermodal spot rates fall to nearly three-year low
As peak season nears, U.S. domestic intermodal spot rates last month fell to their lowest point since 2012, a result of intense competition from the over-the-road sector and weaker than usual demand, according to third-party logistics provider IDS.
Spot rates to move a 53-foot container from Los Angeles to Chicago were down 31.4 percent year-over-year the week ending Aug. 31, a $575 decline. At the same time, rates in the opposite direction were also down 15 percent, according to data on all-inclusive 53-foot door-to-door spot pricing quoted by railroads and provided by IDS.
“This is a phenomenon that does not happen in what is typically peak,” said Rick LaGore, IDS president and chief financial officer. “Both inbound and outbound do not decrease at this time of year on this lane.”
It all indicates a very loose market, he told JOC.com Tuesday.
“The freight just doesn’t seem to be out there like it was last year,” he said. “And it’s not just a phenomenon that’s happening in and out of L.A. right now. There appears to be loose capacity across the marketplace.”
Spot rates from Chicago to Houston were down 26.6 percent year-over-year the week ending Aug. 31 and down 3.3 percent from Chicago to Atlanta during the same period. Spot rates on the L.A.-Dallas lane were also down just more than 5 percent.
Shelli Austin, president of IDS Transportation, said 2015 has played out differently than any other year on record since IDS first started compiling spot rate data in September of 2012.
“Traditionally as we get into the peak season, especially in California, the rates are really high coming out of California,” Austin told JOC.com. “But the rates are extremely low out of California, there’s an abundance of capacity, they’re trying to reduce the amount of equipment and that’s wreaking havoc on the spot market.”
Capacity may be not be tight, but competition for those loads is fierce. In a rare moment for Class I railroads, executives on second-quarter earnings calls earlier this year acknowledged that intermodal had lost market share to its over-the-road competitors in the trucking sector. Six of the seven major Class I railroads in the U.S. and Canada reported decelerating intermodal growth in second-quarter volume.
The Cass Intermodal Index, which measures all-in costs, including rates and fuel surcharges, for spot and contract moves, began declining in January on a year-over-year basis. By April, intermodal rates were falling month-to-month. And although the rail industry has balked at the idea of pulling back on their pricing power, analysis of pricing indices indeed suggests rates are easing — by their hand, that of intermodal marketing companies or both.
For LaGore, there’s no question that rates are declining or who’s behind it.
“It’s the railroads. More railroads than IMCs,” he said. “Among railroads, there’s a realization that they are playing against truck.”
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