CSX’s Investment In Pennsylvania Intermodal Terminal A Smart Move

CSX Corporation (NYSE:CSX) and its partners have completed the construction of an intermodal rail terminal in McKees Rocks, Allegheny County, Pennsylvania. ^[1] The construction of this latest intermodal terminal, which commences operations in 2017, is a part of the company’s wider efforts to boost the capacity and service levels of its intermodal offering, in order to boost its intermodal shipments. Intermodal shipments, or the transport of freight in containers and truck trailers using multiple modes of transportation (such as sea, rail, and truck), are an important growth area for railroads such as CSX.

Intermodal Shipments

CSX’s intermodal shipments have risen around 4% on a year-over-year basis so far in 2015. ^[2] This follows steady growth of 6% and 5% in the preceding two years. ^[3] The overall growth in levels of domestic and international intermodal shipments are a reflection of the improvements in domestic economic conditions and international trade, respectively. While improving economic conditions have played a part in boosting CSX’s intermodal shipments, the company has had continuous success with truck-to-rail conversions, that is, acquiring customers that were previously shipping containers via trucks.

Rail transport offers significant cost advantages vis-a-vis shipments via truck, with railroads on average four times more fuel efficient than truck shipments. ^[4] Investments in boosting intermodal networks by rail companies, such as CSX’s intermodal terminal in Allegheny County, will play a role in accelerating truck-to-rail conversions. Though expanded intermodal networks continue to provide a fillip to truck-to-rail conversions, the weakness in crude oil and consequently, diesel prices, has increased the relative attractiveness of truck shipments. ^[5]

Brent Crude Oil Prices, Source: Y Charts

Whereas low fuel prices have reduced the costs of truck transportation in the short term, the domestic trucking industry is expected to face a capacity crunch in the near future, which is likely to raise trucking freight rates, increasing the relative attractiveness of rail shipments. ^[6] With the trucking industry facing a shortage of drivers, federal regulation limiting the hours of service of truck drivers will reduce the availability of trucking services vis-a-vis rail even further. ^[7] In addition, regulation has become increasingly stringent, disqualifying certain drivers from driving trucks. ^[6]

While the extent of the trucking capacity crunch in the coming years remains to be seen, rail companies certainly see the opportunity presented by this possibility. In the backdrop of imminent capacity constraints for the trucking industry, investments such as CSX’s intermodal terminal in Allegheny County, which boosts rail intermodal capacity, certainly offers an attractive alternative to shippers, which should benefit rail companies in the near future.

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1. CSX and Partners Celebrate Groundbreaking, Construction of Pittsburgh Intermodal Rail Terminal, CSX News Release [↩]
2. CSX’s Weekly Carload Data, CSX Website [↩]
3. CSX’s 2014 10-K, SEC [↩]
4. Rail Intermodal Keeps America Moving, Association of American Railroads [↩]
5. Truckers Again Becoming More Competitive With Rail, Wall Street Journal [↩]
6. US domestic intermodal shippers moving loads back to trucks, JOC.com [↩] [↩]
7. Summary of Hours of Service Regulations, Federal Motor Carrier Safety Administration [↩]