What next for intermodal? - TTX Co - Forecasting 1996 - Company Profile - Industry Overview

Railway Age, Feb, 1996 by Gus Welty

After a year when "whatever could go wrong went wrong," TTX is cautiously forecasting 3.5% growth in '96. One big question: How long can truckers keep cutting rates?

Forecasting is risky business. Forecasting intermodal business levels has turned out to be especially risky business. Consider TTX. Over the years, it has done an excellent job of forecasting traffic levels and, therefore, equipment demand levels. But, going from 1993 into 1994, nobody forecast the double-digit jump in intermodal that took place, something like 14% announced, maybe more like 13% when double counting is eliminated.

So, going into 1995, TTX thought it was being conservative in forecasting an increase of something like 7%. There were some who criticized TTX for being too conservative. So what happens? Intermodal falls, with volume dropping by about 1.5%, the first decrease since 1980.

What about 1996? Taking a deep breath, TTX is looking for net growth of about 3.5%, with container business growing at a faster rate and trailer business declining again in its share of the market.

In mid-January, Railway Age talked with TTX President and CEO Ray Burton and senior vice presidents Hank Logan, fleet management, and Bob Hulick, equipment.

The opening premise: Looking back is sometimes not pleasant but it's occasionally valuable, so what happened to intermodal in 1995? The next question: What's likely to happen in '96, and why?

Going into '96, TTX has an initial capital budget of just $155 million, as compared with budgets of about $500 million in '94 and a probable plus or minus $500 million last year; in '95, TTX didn't place certain planned orders but neither did it cancel orders that it had already placed. That commitment to placed orders should have gratified carbuilders and component suppliers and, not so incidentally, should give TTX a top spot in line the next time there's an order crunch. In any event, the first orders placed by TTX for '96 delivery do not include a single platform/well of intermodal equipment.

TTX forecasters are relatively optimistic about a recovery in trade with Pacific Rim countries, with major growth possible in trade with China. On the domestic side, there are questions without end, questions having to with the federal government's budget/deficit battles and with varying forecasts regarding Gross Domestic Product growth.

As TTX people point out, some analysts insist that an economic slowdown will not be allowed to happen in a Presidential election year; but at the same time, the war in Washington does nothing to build consumer confidence, and intermodal relies heavily on movement of consumer products.

As for what happened last year in intermodal, it seems to have been a case of "whatever could go wrong went wrong."

Start with a sluggish economy, not just in the U.S. but worldwide. Add in the close-to collapse of the economy in Mexico.

Then, close in on what was happening to domestic transportation, railroads and motor carriers.

Perhaps as a factor of double-digit intermodal increases in '94, rail intermodal service suffered in '95. Reliability and dependability, two things that intermodal customers demand, weren't there in all cases, in all corridors (and the swings in intermodal ontime performance were wild, from upwards of 98% in the case of one major railroad to about 70% in the case of another).

Over a period of time, a couple of carriers decided to engage in intermodal demarketing, principally Burlington Northern and Conrail. Despite what staff analysts may say and computer models may indicate, these things can't be done neatly, surgically. A railroad may get rid of the traffic it wants to dump, but it quite likely will also lose traffic it didn't want to dump if the perception develops that the railroad has lost interest in intermodal.

Perhaps the biggest factor in the 1995 situation, however, has to do with the ways in which motor carriers were moving, in facing their own set of problems.

Truckers went for the jugular in downpricing their services, and they drew a lot of railroad blood. How and why? Consider some of these elements in trucker thinking/action:

-- In 1994-95, motor carriers and some leasing companies invested heavily in trailer equipment.

-- In both years, trackers went overboard in acquiring new Class 8 tractors, the big rigs. Orders set records that were far above past averages.

-- When the Mexican economy plunged, as many as 30,000 trailers that might have been in cross-border trade were freed up for domestic use.

-- With the U.S. economy relatively soft, factory overtime dried up. An unknown but apparently substantial number of persons opted to go back to driving a truck: The money was good, and many motor carriers were paying attention to quality of life issues, arranging schedules so that drivers would have more home time and providing new tractors that had far more amenities for long-haul travel than ever before. One participant in last year's Railway Age Intermodal Roundtable described these rigs as "almost like small apartments."