Intermodal markets: Networks imbalanced

On J.B. Hunt’s earnings call Tuesday, Vice President of Finance Brad Delco (formerly of Stephens) explained that an increase in the number of empty repositionings, higher purchased transportation costs, and expenditures related to rebalancing Hunt’s intermodal network resulted in 1% lower operating income for the intermodal business even as revenue increased by 6%.

Delco’s remark was a fascinating comment that put media reports of empty containers piling up at West Coast ports into the framework of an income statement. He also said demand for backhaul moves (i.e., Midwest or East Coast to West Coast) was higher relative to headhaul moves, which lowered overall revenue per load.

The first takeaway is that the fluidity of an intermodal network is a derivative of a railroad network and that railroad service metrics don’t have a 1-to-1 correspondence to intermodal service. The trains may be getting built quickly and sent to their destinations on time, but lopsided customer demand could be playing havoc with the physical location of your containers.

Deutsche Bank transports analyst Amit Mehrotra wondered if the imbalance between the West Coast and the rest of the country might be structural, not cyclical.

It’s a profound question to consider: how post-trade war and post-coronavirus supply chains will alter the map for North American intermodal networks.