More Increases Expected for Rail Rates Intermodal rail rates have increased dramatically during the past two years and will continue to do so as railroads exert pricing power that other modes “can only dream about,” a transportation consultant said. Rates from the West Coast have surged by about 30 percent as long-term contracts with ocean carriers expire and BNSF Railway and Union Pacific Railroad take advantage of their duopoly position in the West with “take-it-or-leave-it” rates, said Ted Prince, who has held executive positions with Kansas City Southern Railway and “K” Line America. As long as railroads charge less than long-haul motor carriers to high-volume destinations such as Chicago and Dallas, they will be able to push through additional rate hikes, Prince told the recent Footwear Traffic Distribution and Customs conference in Portland, Ore. There is still a healthy spread between intermodal rail and long-haul trucking rates from the West Coast. Rail service from Los Angeles-Long Beach to Chicago costs about $1,200 per container, compared with about $1,700 by truck. Even though this is a high-volume route, shipping lines have learned that unlike in their industry, higher volume in intermodal rail does not equate to lower rates, Prince said. The combination of higher rail rates and increased all-water services from Asia to the U.S. East Coast has killed the market for mini-landbridge rail services from West Coast ports to the eastern seaboard. The Ohio Valley region is the new battleground between West and East Coast ports. As ocean carriers deploy larger vessels into the all-water route from Asia to the East Coast via the Suez Canal, ports there will have to dredge their harbors deeper and build larger container terminals. If they do not, the deep-water ports of Halifax, Nova Scotia, and Norfolk, Va., will become the East Coast gateways to the Ohio Valley and Midwest. Ports such as New York-New Jersey, Charleston, S.C., and Savannah, Ga., will become “extended local market” ports, Prince said. On the West Coast, transloading the contents of 40-foot marine containers into domestic 53-foot containers will continue to increase in popularity. Importers who transload on the West Coast can make the routing decision about four days out, compared with 45 days if the decision is made in Asia. Importers who transload can reduce their inventory carrying costs by 40 percent, which makes the increased transportation costs involved in transloading “peanuts” by comparison, Prince said. Large investors including Warren Buffet apparently like the new pricing power of railroads as they are buying up substantial amounts of shares in BNSF and UP. The interest of outside investors could be problematic for the railroads, though, if “activist” investors get more heavily involved in the industry, Prince said.
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