Intermodal Contract Rates Up 12% Year Over Year, Fuel Drives Two-Thirds

Why did intermodal contract rates jump 12% this fall?

Intermodal contract rates on transcontinental lanes rose 12% year over year in the fourth quarter, with Eastern lanes up 9%. Diesel price volatility drove two-thirds of the transcontinental increase and three-quarters of the Eastern increase. Strip out fuel surcharges and transcontinental rates are up 5%, Eastern rates 2%.

The numbers come from invoice data that includes fuel surcharges. Invoices lag actual freight movement by a few weeks, so diesel price swings show up in the indices later. A 50% diesel price jump in March and April pushed the transcontinental contract index up 6% from April to May. A 36% diesel increase from July to September drove a 10% index increase from August to October.

J.B. Hunt, which runs a large intermodal book, secured only low-single-digit rate increases in the bid season that closed in September. That matches the data, which should be capturing the front end of those new contracts. High fuel surcharges are likely why the increases weren't larger: the total rate was already elevated, and surcharges were doing most of the work.

What fuel surcharges mean for small fleets competing with rail

A larger fuel surcharge share means more price volatility. If the contract is set when fuel prices are high, the total rate has more room to fall over the life of the contract. If fuel is a smaller share of the rate, costs stay more consistent through the year, but shippers get less benefit when fuel prices drop. Fuel surcharges are not meant to be a profit center for carriers. They are a way to share the risk and price volatility of fuel.

Many larger shippers have negotiated their own fuel surcharge tables that are less aggressive than published schedules. A common published intermodal fuel surcharge schedule would imply an even larger fuel effect, more than the entire increase in either index. This nuance matters because service providers look at the total rate during negotiations.

Intermodal still carries a 30% discount to truckload

The Intermodal Contract Savings Index, which measures the average rate difference between comparable truckload and intermodal lanes, still shows a 30% savings for intermodal. That's down only slightly from a peak of 33% in June. Even after the sharp increases, intermodal rates have room to rise and still remain cost competitive with trucking.

Intermodal volumes have largely recovered from recent disruptions, and growth is running around 7% annualized. The BNSF Southern Transcon closure and the CSX technical outage are reminders that rail infrastructure can be disrupted just like trucking, but shippers do not seem to mind so far.

What the rate gap means for a 10-truck fleet

A 30% intermodal discount on a $2.50-per-mile truckload lane means rail is moving the same freight for $1.75 per mile. On a 2,500-mile transcontinental run, that's a $1,875 savings per load. For a small fleet running 10 trucks, losing even two transcontinental loads per week to intermodal costs $3,750 in weekly revenue, or $195,000 annualized.

The rate gap explains why contract truckload rates hit $2.72 per mile, up 18% year over year, while intermodal is still winning long-haul freight. Shippers are resetting truckload agreements at higher rates, but the intermodal alternative keeps a lid on how high those rates can go. Most of the intermodal increases should be fully reflected in the data in the coming weeks, which will give a clearer picture of where intermodal lands relative to trucking.

Intermodal appears positioned to remain a strong cost-saving alternative for the foreseeable future. For small fleets, that means the long-haul lanes that used to pay premium rates are under permanent pressure. The work that's left is shorter haul, higher touch, or moves rail can't handle.