2018 Intermodal Crunch: Peak Season Advice for Shippers
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Intermodal demand grew by 7.2 percent in the first quarter of 2018 due to tightened capacity in truckload shipping. This pattern emerges every year with the approach of peak season, but few expected such a widespread squeeze in intermodal capacity so early in the year. The long-term outlook for intermodal remains to be seen, but shippers without capacity for the current peak season are feeling the crunch (IANA).
What’s Happening in Intermodal Now
According to the Intermodal Association of North America, demand for intermodal shipping this year grew at its fastest pace since 2014 (IANA). More importantly, intermodal capacity began filling up far earlier than expected, moving the start of peak season back into June or July instead of the usual late August or early September timing. "In 18 years, I've never seen as much demand for dray power as I've seen here in the past three to four weeks," Jason Hilsenbeck, president of the the Drayage Directory said early this year. "Chicago is absolutely tapped out" (JOC). The shift is evident in several areas:
- Numerous large capacity intermodal providers have already reported tight or full capacity, even in back-to-back “street turns”.
- Secondary markets, such as Dallas and Atlanta, are also filling up fast.
- Dray demand has doubled over last year with an index high of nearly 300 in June.
- Many providers are assessing surcharges for freight above pre-contracted amounts (JOC).
What’s Behind the Growth in Intermodal
Intermodal has long been a go-to back-up for truckload shipping during peak demand seasons. But now that intermodal capacity is also constrained, some shippers are being caught off guard. Experts say the constrained intermodal capacity of 2018 emerged from:
- A Strong Economy. Economic prosperity has created increasingly greater demand for truckload shipping, leading to painfully tight capacity. The typical Market Demand Index (MDI) in the spot market for this time of year is 20 or less. That means there are roughly 20 loads posted for every available truck. June’s MDI was in the low 40s (JOC).
- The Driver Shortage. While trucks may be available, there aren’t enough drivers—partly due to the ELD mandate. Rather than switching to electronic logs, some drivers retired or simply left the trucking industry after the mandate went into effect last winter. Hours-of-service requirements also make longer hauls more time consuming because e-logs make it difficult for drivers to avoid rest breaks without racking up fines.
- Tariff Troubles. Many shippers procured shipping contracts early in the year after the Trump administration announced the possibility of tariffs on steel and aluminum. Some had already experienced difficulties with trade partners while others simply anticipated more tariffs in the ongoing trade war with China. Given the uncertainty, those forced to choose early planned on tight capacity in trucking and looked for alternatives (JOC).
How Shippers Take Control in Peak Seasons
Tight shipping capacity is always difficult to manage and the fact that intermodal is also constrained has shippers looking for ways to mitigate the impacts. Flexibility is always key:
- Book shipments as early as possible.
- Offer wider, more flexible delivery windows.
- Spread out capacity needs over the entire week or month.
- Work toward becoming a shipper of choice.
- Have modal flexibility. If capacity is reached on intermodal, make sure you have strong relationships with over-the-road carriers and brokers, as they may be your only solution to getting your products from point A to point B.
Partnering with an experienced 3PL can also make navigating peak seasons easier. In addition to longstanding relationships with top carriers, Capstone leverages state-of-the-art technology, well-trained logistics teams, and 24x7x365 availability to help you manage demand-related problems of all kinds. Contact us to learn more.