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August 6 2018

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38 The Journal of Commerce | August 6 2018 Land lines Lawrence J. Gross CARGO OWNERS ACCUSTOMED to the availability of surge freight capacity — at a price — may find 2018 to be the year when it all changed. In the past, resourceful supply chain managers always had alterna- tives in their hip pockets to meet the unexpected. Tight truck capacity? Use more intermodal. Intermodal service hiccups? Just dip a bit deeper into the qualified trucker carrier list to get the loads moved. But what happens when those trusty alterna- tives don't work? And what are the chances of a real crunch? While anecdotes can be very useful, there's no substitute for data. So, let's take a look at a number of data points to see how bad things could get. Unfortunately, the news is not very good. Truckload spot rates Data point No. 1 is truckload spot market rates, which are a useful, if volatile, measure of pressure in the marketplace. The Trans4Cast data from and FTR show the extent of the problem. The Trans4Cast Market Demand Index (MDI) is a simple ratio of loads posted versus trucks posted. Based on the past five years, a typical MDI level right now should be under 20. Going into June, the MDI was running in the low 40s. In June, it leapt up into the 60s and most recently was 98 percent higher than the prior year. Dry van spot rates were up over 24 percent versus the prior year. Conclusion: Things are already stretched exceptionally tight and, barring a slowdown, there's no reason to expect anything di–erent in the coming months. Dray demand Data point No. 2 is the demand for dray capacity. The situation in the dray markets has implications for both short-haul trucking and inter- modal. Our new Drayage Demand Index (DDI), a product of a partner- ship between Gross Transportation Consulting and, is signaling unprecedented tight con- ditions and extreme volatility. Most recently, the index stood at about 200 — twice the normal level of 100. That sounds (and is) very tight, but it is a big improvement from a couple of weeks earlier when the DDI stood at an astronomical level of almost 300. From a seasonal intermodal perspec- tive, June is normally a good but not exceptional month, running about 1.4 percent stronger than average. What's going to happen in October, which during a normal peak season turns in volumes that are 8.8 percent higher than the average month?™ Domestic container productivity Data point No. 3 is domestic container productivity. The industry was caught by surprise by the upswing in volume as the electron- ic logging device implementation approached and so entered the period with too small a fleet. But the situation was greatly exacerbated by disruptions in the flow of the rail-owned domestic container fleet, which impeded interchange of these boxes between railroads and reduced the fleet's productivity. The situa- tion has improved this year but not returned to normal. Comparing May to last September, the last normal month before the rail-owned con- tainer problem commenced, revenue moves occurring in private domestic containers were up 9.7 percent while those occurring in rail-owned do- mestic containers were up only 2.4 percent over the same time frame. With demand outstripping supply, this indicates either that more new boxes flowed into the private fleet versus the rail, or that rail box pro- ductivity has come down, or (most likely) a combination of the two. Intermodal service Data point No. 4 is intermod- al service. Average train speeds continue to deteriorate. Since the beginning of the year, system average intermodal train speeds have dropped 1.4 mph from 30 mph to 28.6 mph. That is a reduction of almost 5 percent. If the average domestic container spends one- third of its time on the rail, slower train speeds alone will result in a reduction in fleet capacity reduction of 1.6 percent. Put another way, the industry needed 4,500 more Move early – if not too late 28.0 28.5 29.0 29.5 30.0 30.5 31.0 31.5 32.0 32.5 33.0 33.5 34.0 1 5 9 13 17 21 25 29 33 37 41 45 49 Average Last 5 Years 2016 2017 2018 US intermodal train speeds sink Source: Gross Transportation Consulting © 2018 IHS Markit Week Four-week moving average intermodal train speed in miles per hour

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