THERE'S MONEY ON THE TABLE, IF THE RAILROADS WOULD PICK IT UP.

Diesel fuel is getting dearer, and that's going to affect the delivery of everything.  "Weekly on-highway diesel prices (as reported by the U.S. Energy Information Administration, EIA) hit a national price of $5.61 per gallon [mid-May] and are more than 70% above prior-year levels. In terms of regions, the Eastern U.S. has been harder hit with prices rising approximately 84% (up more than 100% in New England), while the West Coast saw the lowest (but still high) increase at approximately 63%."

There are some frictions, but the potential for shippers to use the rails is there.

Diesel prices are passed on to the shippers (customers of the transportation companies) via fuel surcharges. These surcharges are normally linked to an index (typically the EIA’s weekly on-highway average). Truckers have a small lag (about a week), while railroads see an approximately 60-day lag in recovery based on how contracts are written. (We note that domestic intermodal is an approximately one-week lag.) In general, higher diesel prices widen the gap in total landed prices between trucking and rail moves. This is because railroads are roughly three times more fuel efficient than their trucking counterparts.

We looked at a May 16 afternoon move between Newark, N.J. and St. Louis, Mo., which is a roughly 960-mile route. A shipper would have been quoted to pay approximately $2,400 for full truckload and approximately $1,800 for intermodal (with a one-day delivery differential). That suggests that a shipper would pay 33% less in transportation costs hauling via intermodal (well above the normal pricing differential between the modes), at the expense of one extra transit day.

The railroads might be more fuel-efficient, but whether theyr'e able to pick up the new cargo in a timely manner is doubtful.

Even if a shipper can switch some of his freight to intermodal, not all freight can make the move due to delivery schedules and the ability of railroads to handle the business. The good news is the rail industry has been on a hiring bonanza with some railroads hiring more people in April than all of the first quarter. Unfortunately, it takes four to six months to get these workers trained and out in the field making a difference. We are hearing that there has been some mild sequential improvement in box turns, and we expect that to continue barring any large shocks to the system.

Note that some of my posts on the difficulties of retail railroading, particularly retail intermodal, predate both the corona shutdowns and the Jarrett regency's "transition" efforts.