Moore on Pricing: Intermodal milestones will affect shippers

The Americas are seeing old rules of thumb fall to the wayside in intermodal freight movements as new services and new levels of activity are reached. Shippers should take note as carriers are adjusting to a higher level of intermodal commerce. 

In ocean shipping, the vast majority (85 percent) of ocean container capacity is now controlled by 20 large ocean carriers, according to Elemica, a third party exchange. Trends indicate that the industry will continue to consolidate through improved collaboration and capacity sharing.

In Central America, two major projects are underway to allow for very large container vessels to sail through high capacity canals in both Panama and Nicaragua. According to Nicaraguan government sources, within 10 years to 15 years, growth in global maritime trade is expected to cause congestion and delays in transit through the Panama Canal without a complementary route through the isthmus.

Additionally, by 2030, the volume of trade that a new Nicaragua Canal could serve will have grown by 240 percent from today’s numbers.

The developer of the Nicaraguan Canal reports that there will be two lock groups of three steps each. One group located to the east of Lake Nicaragua and one to the west. The dimensions of each of the chambers of the locks are planned at 1,706-feet long, 246-feet wide, and 91-feet threshold depth.

As locks generally define the limit of the size of ships that can be handled, the Nicaragua Canal is being designed to allow passage for larger ships than those that pass through the Panama Canal. For comparison, the new third set of locks in the Panama expansion will only be 1,401-feet long, 180-feet wide, and 60-feet deep.

According to reports, the first phase of the Nicaragua Canal is expected to be finished this fall as equipment and infrastructure for construction is put in place for a five-year building phase. The Panama Canal expansion is expected to be completed in April of 2016 according to Canal Project Minister Roberto Roy. In the mean time, projects are underway from New England to the Gulf Coast of the U.S. in order to handle very large container ships.

In North America, the Association of American Railroads reports that intermodal rail container movements exceeded that of carload traffic for the first time in their history. And don’t forget, all of this is happening while West Coast ports are still recovering from labor strife this spring. 

Cass Information Systems reports that intermodal pricing has recovered from the sharp reductions of the recession. Shippers are feeling the pressure on both price and capacity fronts. The Intermodal Association of North America (IANA) reports that while not all of the major traffic corridors have grown in volume, some are up over 5 percent and the average of 2015 over 2014 is about 2 percent. 

This is happening while motor carriers are experiencing driver losses and increased cost pressures. It’s acknowledged that the first quarter of 2015 was flat in many industries, and IANA reports inventory to sales is still at modest levels. However, the association believes that improving weather will bring out shoppers in the second quarter. 

Shippers often have difficulty planning their operations three years or more out. Day-to-day fire fighting can consume all of a logistics manager’s attention. However, we’re going to need to make changes and do it now. If we’re solely reacting today we’re going to continue to simply react and not prepare. 

If that happens, carriers will move to capture the advantages gained by new routes and equipment. For smart shippers, now is the time to assess what’s coming in terms of transportation industry changes and take actions to communicate and collaborate for improved service and costs in the not too distant future.