Global Logistics and Supply Chain Strategies - August 2008 - (Page 56) Soaring Fuel Prices Are Driving Shippers to Embrace The Intermodal Option But all transportation modes are facing problems of rising energy costs and a network that can’t support the projected growth in traffic, according to a top executive of J.B. Hunt. The skyrocketing price of fuel is transforming supply chains. One beneficiary of the trend is the intermodal service provider. And no trucking company has made more of a commitment to that sector than J.B. Hunt Transport Services Inc. Paul Bergant, chief marketing officer and president of intermodal, discusses how his company is coping with the various challenges that the industry faces, the quality of rail services today, and what issues lie ahead. Bergant: Yes. That has been going on over the last two to three years. As truckload rates increased, intermodal service became more and more competitive. Since the recent tremendous growth in fuel cost, we have seen that shift surge and accelerate. Hunt has experienced overall growth in the mid-teens as an intermodal division, but in the eastern lanes it has been substantially better than that. Q: How are you coping with higher fuel prices? Q: How reliable is underlying rail service today? Bergant: J.B. Hunt Transport Services, our par- Bergant: Lack of consistency has always been ent company, has been dealing with the tremendous run-up in fuel prices over the last several months as well, if not better, than most. Our traditional truckload division is having a difficult time, like most of its peers in the truckload industry. High fuel prices and the inability to recover anywhere close to a hundred percent of that cost, even with surcharges, has really taken its toll on profitability. The difference between Hunt and many of its traditional competitors is diversification. In intermodal, which is our largest division in terms of revenue, we’ve seen tremendous opportunity in terms of growth. Many of our customers are trying to deal with the high cost of fuel in their own right. Intermodal, which typically has a fuel surcharge of about half that of truck, has become a viable alternative. That business has continued to grow at double-digit numbers. Our dedicated contract services division, which is our second-largest division, is more like an annuity, where it’s working off of longer-term contracts, and has provisions in place to protect against the ups and downs of the market for both our company and our customers. It has been able to maintain the same level of profitability. So, when you roll all that up into Transport Services, as a corporation we’ve been doing OK. Q: Are you seeing a marked shift from truckload to intermodal as a result of higher fuel prices? an issue with intermodal service. However, the railroads have continued to invest capital into their networks to the point that service is at an all-time high for the industry. That’s especially true for the two railroads with which we do 95 percent of our business. Our use of the BNSF and Norfolk Southern continues to grow, in part based on their improving service levels. This improvement has allowed our customers to continue their quest for modal shifts to save money and secure capacity as needed. Q: U.S. exporters reportedly are having trouble getting access to ocean containers at inland locations. Are they turning to domestic trailers, to get their goods to the coast? Bergant: Over the last four to six months, we have seen what we call reverse transloading – picking up international business in the interior of the country, taking it to the coast, then having it transloaded into marine containers. The market for exporters’ merchandise is so strong that the incremental cost is far overshadowed by their ability to sell those products overseas. Q: Another way shippers are trying to control costs is by moving from less-than-truckload into truckload. Are you benefiting from that trend? Bergant: Yes. What you’re seeing is a funda- 56 AUGUST 2008
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