Hunt’s new intermodal move

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The conversion of highway freight to the more efficient, cost effective, safer and more environmentally friendly services that we jointly provide, will not only benefit shippers and the general public, but our shareholders alike.” –Kirk Thompson, CEO of J.B. Hunt Transport Services, on the carrier’s new intermodal contract with railroad Norfolk Southern

It’s going to be interesting to track the progress of J.B. Hunt Transport Services’ new intermodal contract forged with Norfolk Southern Corp. last week. The deal is designed to accelerate the conversion of traditional truck traffic to truck-rail intermodal transportation – expanding a service designed to be competitive with truckload moves, offering both transcontinental and local intermodal service in the eastern half of the U.S.

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“Our new services with J.B. Hunt will provide shared incentives to grow volume and revenues by converting substantial volumes of freight from highway to rail,” said Norfolk Southern CEO Wick Moorman. “We look forward to working with the J.B. Hunt team to offer high-speed premium services to domestic intermodal customers over our entire network, including our new Crescent Corridor route, from New England, northern New Jersey and Pennsylvania south to Memphis and New Orleans.”

It may seem anathema to fellow truckers to willing fork over tonnage to their arch competitors in the transportation field, but J.B. Hunt has never played it that way. The carrier’s late founder, Johnnie Bryan Hunt himself, willingly dove head first into the intermodal waters over two decades ago. He could clearly see the profit potential that others didn’t in working with the railroads to provide joint freight service — buying rail capacity at wholesale prices, then selling it bundled with his truck capacity at retail prices, keeping his costs low as his trucks didn’t have to run a lot of miles or burn a lot of fuel.

I’ve written about how Hunt’s first stab at intermodalism wasn’t a rousing success — and he’d pretty much retired by the time intermodalism finally came into its own for his fleet, along with dedicated contract carriage services. But it’s a path that is shining brighter every day from the carrier’s perspective, at least.

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In the company’s third quarter earnings report this year, Kirk Thompson, J.B. Hunt’s CEO, said the carrier's ntermodal division continued to gain market share, with overall load volume growing at 9% during the third quarter this year versus the same period of last year – as well as outpacing the 5% growth in the first quarter and 8% growth in the second quarter in 2009.

Yet the carrier said eastern volume growth slowed during the third quarter as customers had ample truck capacity at substantially lower prices than a year ago, combined with fuel prices that were also 40% lower than a year ago.

“Still, our eastern volumes increased by 12% during the current quarter, while our transcontinental volume continued to rebound with 7% growth over the same quarter a year ago,” said Thompson. “However, revenue declined despite the increase in volume as a result of three factors: an extremely competitive bid season, a 1% decline in the average length-of-haul from the comparable period and fuel surcharge revenue that was down more than $70 million from a year ago.

It’s that “bid activity” during what Thompson called “this unique time in the freight economy” that is the major challenge – and is probably one reason why Hunt forged this new intermodal contract with Norfolk Southern, so the carrier could better balance short term market realities against long term strategic objectives.

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“We believe, as our rail partners continue to make multi-year investments to improve service and network efficiency and as shippers remain under economic and environmental pressure to find sustainable alternatives to traditional trucking, the long term outlook for our intermodal business is very attractive,” said Thompson. “As a result, it is important for us to continue to make strategic investments even in the midst of these harsh market conditions.”

This is philosophy also reflected in the debate over the nation’s freight policy focus. “Given the multiplicity of today’s transportation challenges including the deterioration of infrastructure, insufficient capacity, environmental concerns, and high fuel prices, our nation requires an intermodal transportation policy,” noted Steve Van Beek, president and CEO of the Eno Foundation.

“While passenger transportation has traditionally dominated our transportation thinking, it must now be joined by a focus on freight, leading to the development of an integrated national intermodal transportation policy,” he said. “Such a policy will recognize the needs of passengers and shippers, the economy, and the other interests affected by transportation.”

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